Editor's note: The following article is the first of a two-part series on the future of the travel industry. Both parts were condensed from an 8,000-word report issued last month by Forecasting International, which for the last two decades has tracked major trends that are reshaping human history. The list evolves as old trends run their course or new trends are recognized.
For this year's report, Forecasting International selected 10 of the most important trends affecting five crucial hospitality and travel industry segments: airlines, cruises, hotels, restaurants and travel.
This week's installment examines the impact of five trends: global economies, population shifts, tourism growth, consumerism and energy costs.
When Lord Cornwallis surrendered to Gen. George Washington at Yorktown, his bandleader reportedly chose for the occasion a piece titled "The World Turned Upside Down." It could be the theme song for our era.
Judging by the daily news reports, it sometimes seems that almost everything has suddenly been turned on its head. The soaring real estate prices of a year ago are collapsing. Oil prices are in triple digits. The U.S. economy appears to be in recession.
Yet the most striking fact about trends in hospitality and travel is how little has changed. True, computers are making services possible today that could not have been offered even a decade ago; guests want their adventures to be ecoconscious and poverty-friendly; and travelers soon will be arriving en masse from China and India.
But the fundamentals remain. Hospitality and travel are about providing impeccable service in the most pleasant, comfortable surroundings possible at a given price point. All else is just a means to that end.
For some 20 years, my company, Forecasting International, has tracked a list of major trends that are reshaping our world. This year, we selected 10 of the most important trends for the future of the travel industry.
It is worth noting that we have omitted terrorism. Clearly, Islamic extremists will continue to target the hospitality industry, particularly Western-owned hotel and restaurant chains in Muslim countries. But while the world still contains many would-be terrorists, there are only a few hundred of the trained and organized variety responsible for the 9/11 attacks, and most are hiding in Pakistan, unable to do much harm.
We believe that the following trends are likely to have the greatest impact on the future of travel:
Counterbalancing economies
The economy of the developed world is growing steadily, with only brief interruptions.
Economists used to say that when the U.S. catches a cold, the rest of the world gets pneumonia. But in the spring of 2008, it is the U.S. that has pneumonia. Looking abroad, we can see runny noses. Growth in gross domestic product is declining in Germany and France, the U.K. (slightly) and the Eurozone as a whole, with Italy probably in recession. Inflation in Europe was 3.2% in January, the highest since the euro was launched in 1999, and it is rising in China, Australia, Eastern Europe, Russia and the Middle East.
Yet all this might not be as dire as it once would have been. China's GDP grew by 11.4% in 2007, with a 9.9% growth forecast for 2008. India's economy grew 8.5% in 2007, with a 9% growth expected in 2008.
For foreigners with cash, the current downturn offers opportunities. Assets now going at fire-sale prices include such desirable real estate as vacation homes, beachfront mansions and commercial properties. This infusion of capital will help to limit the depth and duration of any recession, as will the continued prosperity of China and Japan, where low-dollar American exports are finding ready markets. We therefore expect that any recession in the U.S. will be shallow and that the economy will rebound quickly. On the present evidence, GDP and employment growth should be healthy again no later than the first half of 2009. Late 2008 is even more likely.
The impact on travel will be mixed. American businesses will be cutting back ruthlessly in 2008 and early 2009, allowing only the most necessary trips, while vacationers will stay close to home until they are convinced the recession is over and their jobs are secure. We expect to see air travel drop in 2008 and recover slowly through 2009.
Americans who do travel internationally will pick destinations where the weak dollar goes further: Mexico, Brazil, Argentina, Portugal and Eastern Europe. Once "discovered," these destinations should remain attractive even after prosperity returns.
High-end products in the cruise and hospitality sectors should do quite well, since wealthy consumers keep spending even in the worst of times. Family-oriented and economy products are less well-positioned. However, that could be offset by vacationers choosing cruises or domestic travel instead of Europe. Orlando, for example, can expect a good year, as can regional theme parks and campgrounds.
The flip side is that the euro buys much more in the United States than it does at home. Europeans can hop on a plane for the U.S., shop, enjoy a few nights out and return home carrying loot they could not have afforded at local prices. These bargain hunters will bring needed profits to the American travel industry, helping to ensure that any U.S. recession will be shallow and brief.
Population shifts
The industrialized countries are growing older and more diverse. Each generation lives longer and remains healthier than the last. Worldwide, those age 65 and older numbered 440 million and represented 6% of the population in 2002. That population will nearly double by 2020, growing to more than 9% of the total, and more than triple by 2050, reaching nearly 17%. In the developed world, people age 60 and older -- the fastest-growing age group -- made up one-fifth of the population in 2000. They will make up one-third in the next half century.
At the same time, populations are being changed by large-scale migration. There are 30 million international migrant workers in Europe, 20 million in Africa and 18 million in North America, plus dependents. In 2005, about 4 million people immigrated permanently to member countries of the Organization for Economic Cooperation and Development, a group of 30 free-market countries, 10.4% more than the year before. Immigration is quickly changing the ethnic composition of the U.S. population. In 2000, Latinos made up 12.6% of the U.S. population; by 2050, they will account for 24.5%, according to the Census Bureau. Asians, currently 3.8% of the population, will reach 8% by 2050.
The market for international travel should grow significantly in the U.S. and Europe, thanks to expanding immigrant populations visiting their former homelands. Routes between the U.S. and Latin America will grow fastest, followed closely by those between Europe and Africa and the Middle East.
Cruise lines, hotels and restaurants will have to invest in senior-friendly accommodations like grab bars in rest rooms, amplified phones, large-type menus and signage, wheelchair access and panic buttons for summoning help. For restaurants, growing foreign populations will be looking for well-prepared foods from their homelands, especially Latin America and the Middle East.
Seniors are the wealthiest segment of the population. As their numbers grow, the travel industry can only expand with them, in the process becoming more stable and less seasonal. Most seniors can travel when the impulse strikes. Often, they do so when prices are down and crowds are thin, making cycles less painful.
A world on the move
Tourism, vacationing and travel continue to grow.
International tourism grew by more than 6% in the first half of 2007, thanks in part to global prosperity. By 2020, international tourist arrivals are expected to reach 1.6 billion annually, up from 842 million in 2006. By 2020, according to the World Trade Organization, 100 million Chinese and 50 million Indians will fan out across the globe, replacing Americans, Japanese and Germans as the world's most numerous travelers.
All segments of the industry will continue to expand well into the future. Expect the most immediate growth in the Middle East, where travelers will visit neighboring countries and, to a lesser extent, Europe. In the longer run, the fastest growth and by far the greatest, will flow to Europe and the United States, in the form of newly prosperous, middle-class vacationers from China and India.
Consumers flex their muscles
Consumer advocacy groups and watchdog agencies are proliferating, promoting improved labeling, warning notices, nutrition data, etc. The Internet offers a growing universe of information about pricing, services, delivery times and customer satisfaction. Japan, China and other markets are undergoing the same revolution that replaced America's neighborhood stores with cost-cutting warehouse stores, discounters like Wal-Mart and "category killers" like Staples and Home Depot. As a result, consumer movements are springing up in countries where they never existed. Consumer laws and regulations will follow.
This trend will have several consequences for the travel industry. Airlines, for one, will have to do a better job of getting their planes into the air on time. Meals can remain optional, but they had better be good. The consumerism of the past will prove to have been no more than a prologue to the greater demands to come.
Consumerism could have a negative impact on traditional travel agents. Consumers want value and convenience, which means picking through all the tours and cruises that seem appealing, selecting the one that gives the best possible value for the price and buying it then and there.
A hotel's most important asset will be a reputation for maintaining comfortable accommodations, pleasant surroundings and top-notch service, which requires constant effort. In an age when reputation can fall to a single disappointed customer complaining in an Internet forum or chat room, quality and service are more important than ever before.
Aberrant energy prices
When not upset by unusual political or economic instability, oil prices average around $65 a barrel.
New energy demand from China and India has raised the floor that until 2004 supported oil in the $25-per-barrel range. Even so, prices over $120 per barrel today are an aberration that will not last. The key culprit is a global shortage of refinery capacity, with another $10 to $15 per barrel of "risk premium" due to instability triggered by the Iraq war and the potential for instability in Nigeria.
New refineries in Saudi Arabia and other countries scheduled to come on line by 2010 will ease the tight supply/demand balance for oil, as will new pipelines in Russia. By then, too, the Iraq war should be winding down, and Nigeria should be less chaotic. At that point, we can expect to see oil stable at $65 per barrel.
To help weather the current crisis, air carriers and cruise lines have added fuel surcharges to fares, but survival will also require placing a greater premium on efficiency and cost cutting.
We expect to see more cooperation among competing airlines, even sharing planes when demand cannot fill separate flights. This could be good news for Airbus, whose ultra-efficient A380 made its first commercial flight in mid-March. Despite such measures, fuel expenses have already claimed a few airlines, and more could succumb before oil stabilizes. For the rest, the worst should be over in another two or three years.
Next week: technology, social responsibility, generational changes, regulatory issues and consolidation.
Marvin J. Cetron is the president of Forecasting International and a widely respected consultant on global, regional and local security issues.