Year in Review2016

By Johanna Jainchill

There's no getting around the fact that 2016 didn't begin well for the travel industry.

The Paris attacks were still fresh when Istanbul and Brussels became ISIS' next European targets. Just as the traveling public began to forget about Ebola, a little-known virus named Zika began its march through the Americas. It was also an election year, in which the industry saw one of its own nominated for the presidency even as he spread protectionist rhetoric antithetical to the free movement of tourists.

There were, of course, many bright spots along the way, such as the first commercial flights and cruise ships in five decades bringing tourists from the U.S. to Cuba and exciting ship introductions, including the first newbuild from Regent Seven Seas Cruises since 2003.

But overall, this wasn't the easiest year to be a traveler, a travel company or a travel seller. Here, in no particular order, are the topics we think made the year most memorable, for better and for worse.

Zika

In January, worrisome news was coming out of Brazil. The birth defect known as microcephaly was being reported in babies born to women infected with the Zika virus, transmitted mainly by mosquitoes, which prompted the Centers for Disease Control and Prevention to recommend that pregnant women postpone travel to areas with Zika transmission until additional studies confirmed that the virus was the cause of the defect.

As we all know now, not only did the link turn out to be real but the virus was moving north. Zika has been locally transmitted in 30 countries across the Americas and the Caribbean, a list that includes the U.S. with infections originating in Miami last summer and more recently in south Texas.

Zika's impact on tourism has been severe in some cases, especially for Brazil, whose Olympic spotlight was dimmed by the virus; the country found itself deploying considerable resources to fight both mosquitoes and negative public perception after a group of health experts called for the Games to be canceled or postponed so as not to exacerbate the epidemic. As it turned out, not one Zika infection was reported in Brazil during the Olympics, according to the World Health Organization.

Both Puerto Rico, the most Zika-infected Caribbean island with more than 14,000 cases, and Florida suffered cancellations because of the virus, which has specifically deterred the babymoon and family markets.

Terrorism

Terrorist violence continued to make headlines in 2016, with the Paris attacks in November 2015 turning out to be only the first in a series of strikes that rocked tourism hot spots this year, including Istanbul, Brussels, Orlando and Nice, France. The attacks on airports in Istanbul and Brussels turned the idea of airport security on its head.

While much had been made of how resilient travelers have become in the 15 years since 9/11, the recent selection of targets seemed to have taken a toll. Long-haul travel to Europe decreased this summer by 0.9% after five years of 6.5% annual growth, according to ForwardKeys, an airline data analysis firm. France's second-quarter RevPAR dropped 13% from 2015, with occupancy down about 4 percentage points, to 68%, according to STR. Turkey fared even worse, as second-quarter RevPAR plunged 37% from a year earlier, while occupancy was down 16 percentage points, to 51%.

Here's hoping for a quiet 2017.

Donald Trump

The election of a hotelier to the highest office in the U.S. was not considered to be the travel industry victory that might have been expected.

Throughout Trump's campaign, travel executives railed against his rhetoric. Tour operators boycotted his properties after he made disparaging comments about Mexican immigrants, and at major travel events, such as June's annual New York University Hospitality Conference and, before that, at the World Travel and Tourism Conference Global Summit, travel executives took aim at his protectionist and anti-immigration policies. In September, Travel Weekly found that 61% of travel agents were recommending Trump-branded hotels and resorts less frequently since he began his presidential bid and that more than half of their clients were not interested in staying at Trump-branded properties.

It didn't help that shortly after being elected, Trump doubled down on his threat to terminate the 2014 deal normalizing relations between the U.S. and Cuba, a potential end to one of the most exciting travel stories in decades, just as U.S. airlines launched their first commercial flights to Havana since the onset of this country's trade embargo of Cuba in the early 1960s.

How a Trump presidency will actually impact the travel industry remains to be seen. Some executives are optimistic.

"Mr. Trump demonstrated throughout his campaign that travel and infrastructure issues have his attention," U.S. Travel Association CEO Roger Dow said.

Check back in a year to see how that worked out.

Hotels vs. OTAs

The year may be remembered as 12 months when the hotels' battle against OTAs became a surge.

In 2015, the percentage of bookings for U.S. hotels with room rates of more than $100 a night made via indirect bookings reached 27%, up from 19% in 2011, topping a 40% surge in five years, according to the American Hotel & Lodging Association. Against that background, many hotels greatly increased their book-direct offers in 2016 in the form of discounts and value-adds such as WiFi to loyalty members who book through hotel websites and call centers.

Hotels have long bemoaned the cost of an OTA reservation, which can equal as much as 25% of room revenue. Unfortunately, their book-direct programs also alienated travel agents, who typically cost hoteliers only a 10% booking commission and tend to sell higher-end products.

Even though most of the direct-booking incentive programs indicate that loyalty members who book through travel agents also qualify for their promotions, that information is often found in the fine print.

The hotels might be fighting a losing battle. Phocuswright estimated this year that the OTAs' share of U.S. hotel revenue will rise to 19% in 2017 from 14% in 2010, while hotel websites' share of bookings will only increase 2 percentage points, to 19%, during the same time period.

Airbnb

Nor were the OTAs the hotels' only increasingly dangerous adversary in 2016.

Airbnb's 3 million listed homes hosted 70 million guests during the year, realizing growth that continues to outpace the overall accommodations industry and fueling opposition from both hoteliers and city and state governments.

Airbnb's global bookings were predicted to surge 70% this year, to $12.3 billion, reaching more than half the booked-room nights of Marriott International (pre-Starwood acquisition), Hilton Worldwide and Expedia Inc., according to analysts Cowen & Co. By 2025, the analysts predicted, Airbnb's share of U.S. hotel and short-term rentals will spike to 13%, up from 2.3% this year.

Airbnb this month dropped a lawsuit against New York City and state over laws forbidding rentals of less than 30 days when the owner or tenant is not present. In June, Airbnb sued its hometown, San Francisco, over a bill requiring all its hosts to register with the city. Just last month, Airbnb was fined about $635,000 by Barcelona (which levied a similar fine on Expedia's HomeAway unit) for facilitating unlicensed rentals.

On the other hand, the company also made headway against what has been the hotel industry's strongest argument against the home-sharing service: that it doesn't play on a level field because its hosts don't pay taxes or comply with regulations. This year, Airbnb reached deals to collect occupancy taxes in more than 200 cities, including Los Angeles, Phoenix, Philadelphia and Washington.

Airbnb's rapid expansion has brought its own kind of growing pains, and this year it had to address growing incidents of discrimination by hosts. The company enacted a policy prohibiting the denial of stay requests based on race, ethnicity, national origin, gender, sexual orientation or disability, and it is working on a feature that automatically blocks any calendar dates offered by a host who has rejected a stay request for those dates.

None of this seems to be slowing the company, as the adoption of home-based lodging continues to soar. According to Phocuswright, almost one in three U.S. travelers stayed at a home-based unit last year, up from about one in 10 in 2011.

Cuba

What a difference a year makes.

This year started with all the promise that three years of diplomacy between the U.S. and Cuba would finally bring: Airlines, cruise ships and hotels were readying plans for their first Cuba ventures, while president Obama in March became the first sitting U.S. president to visit Cuba in 88 years.

Just before his visit, the Obama administration eased travel restrictions to Cuba for individuals by allowing them to make "individual people-to-people educational" trips to the island without having to travel with an authorized group.

Between May and August, for the first time since the onset of the embargo in the early 1960s, a cruise ship, Fathom's Adonia, set sail from the U.S. to Cuba; a U.S. hotel company, Four Points by Sheraton, flagged a Havana hotel; and a commercial flight, on JetBlue, flew to Cuba from the U.S.

But for those who applauded the thawing of relations between the Cold War adversaries, 2016 is not ending on as hopeful a note: Following the death of Fidel Castro on Nov. 25, president-elect Trump threatened to roll back the rapprochement.

"If Cuba is unwilling to make a better deal for the Cuban people, the Cuban-American people and the U.S. as a whole, I will terminate deal," Trump tweeted. Despite that statement, several U.S.-based cruise lines received approval in early December to make calls to the island country.

Fathom

Fathom, Carnival Corp.'s for-profit, social-impact cruise brand, made this list two years in a row, but for different reasons.

In 2015, its launch as the first new cruise brand for Carnival since the 1990s and the first with a do-good mission, underscored how Carnival had changed under CEO Arnold Donald.

This year, Fathom made headlines for being the first cruise line to take passengers on regularly scheduled trips between the U.S. and Cuba in more than 50 years, but its latest headlines trumpeted the line's demise.

The day before Thanksgiving, Carnival said that Fathom would shut down in mid-2017, with its one ship, the 704-passenger Adonia, returning to P&O Cruises, the Carnival brand whence it had come.

Carnival pulled the plug on Fathom faster than many had expected, but there had been signs the startup was struggling. Fathom's Dominican Republic cruises, offering excursions befitting the line's social-impact mission, were a tough sell, at times going for as low as $199 for weeklong sailings, while the Cuba trips started at $1,800.

Carnival will be analyzing why Fathom didn't work out, but its president, Tara Russell, said the line suffered from a lack of public understanding. She said it was not just a new brand but a new concept, one that the marketplace couldn't quite make sense of.

The good news for Russell and those who believe in the Fathom concept is that it will live on at Carnival Corp. Russell has been charged with expanding Fathom's voluntourism experiences to passengers on Carnival's nine other brands, an effort that began in November with cruises calling at the company's Amber Cove port in the D.R.

River cruising

Adventures by Disney launched its first river cruise, using AmaWaterways’ AmaViola, on family-friendly trips down the Danube.

For years the explosion in the popularity of river cruising has been one of the industry's bright spots, with dozens of ships launched and itineraries expanding worldwide. What didn't change as quickly was who was sailing on those ships. Until this year.

Over the summer, Adventures by Disney launched its first river cruises, seven-day Danube sailings on the AmaViola, an AmaWaterways ship designed to cater to families.

Courting families wasn't entirely new to river cruising -- Tauck and Uniworld Boutique River Cruise Collection had done it for years -- but any time Disney moves into a sector, it takes the family focus to a new level, and this was the first time a ship had been designed with the needs of families in mind.

The season was successful, and Adventures by Disney will expand to the Rhine next year, but Disney also learned something about river cruising: For next year, it raised the minimum passenger age from 4 to 6.

Another milestone addition was Crystal Cruises' first river ship in July, the Crystal Mozart. As the first ocean cruise line to dive into the river cruise market, the ship introduced many of the onboard amenities that ocean cruisers were used to but weren't typically found on river ships, possibly due to the ship's width, double that of most river vessels. The Mozart has four dining venues, unprecedented on a river ship; a spa with an indoor pool, whirlpool and saunas; a retractable movie screen; and two custom tender boats among its amenities.

It's yet to be seen if these new launches will pressure other river cruise lines to match their offerings.

Virgin Alaska

In April, Alaska Airlines agreed to acquire Virgin America for $2.6 billion, intending to create "the premier West Coast airline."

It seemed clear that Alaska viewed the deal, valued at some $4 billion when adding in Virgin's debt and aircraft operating leases, as a chance to leverage the airlines' combined California routes to become a force in West Coast aviation as well to get valuable slots at New York and Washington airports.

The combined airlines would have 1,200 daily departures, with hubs in Seattle, San Francisco, Los Angeles, Anchorage and Portland, Ore.

Alaska has also contended that the merger would enable it to better compete against United, Delta, American and Southwest, which control 84% of the domestic market.

Surprising some, Alaska said the combined airline would likely use its name instead of that of the popular Virgin America, even as it sought to leverage Virgin's loyal customer following. Alaska's CEO held out the possibility of continuing to fly Virgin and Alaska as separate brands.

The story didn't end there. The Department of Justice delayed its decision on whether to approve the proposed acquisition, a deal Alaska had predicted would close by Jan. 1. It finally gave its approval on Dec. 6.

On Nov. 18, the DOT blocked a request from American and Qantas for antitrust immunity, and it only approved Delta and Aeromexico's request to jointly operate flights between the U.S. and Mexico on condition that they turned over slots to low-cost carriers at capacity-constrained Benito Juarez Airport in Mexico City and New York JFK. Both decisions made it appear that the Obama administration might be taking a tough stand on air-service consolidation in its waning days.

TSA/PreCheck

It seems a distant memory, but last May, the idea of going anywhere by airplane over the summer was a daunting proposition.

Daily news reports showed people waiting as long as three hours on TSA security lines at airports from Seattle to Atlanta, and airlines asserted that thousands of customers were missing flights because of it.

The airlines pointed fingers at the TSA, while the TSA and many politicians blamed the airlines' charges for checked bags for making more people pack everything into carry-ons. One thing everyone could agree on was that enrollment in trusted traveler programs like TSA PreCheck and Global Entry, which enable travelers to sail through security more quickly, was way too low.

Congress came up with some Band-Aid funding, and the TSA made adjustments, including adding bomb-sniffing canine patrols, that allowed for a smooth summer of travel with none of the nightmare bottlenecks everyone had predicted. According to the TSA, an upside for all of the negative publicity was a surge in trusted-traveler program enrollments.

But according to the U.S. Travel Association, there is still a lot of work to be done to ensure future efficiencies, including its renewed call for Congress to stop diverting funds from TSA fees on airline tickets to other government expenditures (Last year, more than $1.25 billion in TSA fees were diverted from the agency.) and to find ways to increase PreCheck enrollment, including by lowering the price to join.

"Research shows that when the TSA fails to keep up with travel demand, people travel less," said U.S. Travel's Dow.

Brexit

Like the Trump election on this side of the pond, June's Brexit -- Britain's vote to leave the EU -- shocked the world and catapulted the travel industry into unprecedented territory.

On one hand, U.S. destinations and suppliers braced for the worst as the pound plunged, falling to a 31-year low in October and rendering this country's No. 1 source market as a much weaker customer.

But immediately following the vote, the industry saw at least short-term opportunity: U.K. tour and hotel inquiries surged as travelers realized how much further the dollar would stretch in the once very expensive area.

July was the highest month ever for inbound tourism to the U.K., with 3.8 million visitors descending on the country and visits from North America up 5%.

ForwardKeys found that flight reservations to the U.K. that month were up 4.3% from the previous year; they had been down 2.8% the month before the vote.

Long term, the outlook was much less rosy, as the industry pondered what Brexit would mean for the stability of the EU, the possible loss of open skies agreements and how any sustained weakness of the pound would impact consumer confidence and worldwide markets.

The battering U.S. travel company stocks took in the immediate wake of the vote suggested that institutional investors were concerned about the same.