Our story so far: Sustained by a cellar full of advance bookings, the travel industry coasted through a summer of rising fuel prices. Even in the face of alarming headlines in late summer, it managed to coax a bit more revenue out of a retrenching population of travelers.

But a new chapter seems to have opened in October, when “weakening demand” became “falling demand.”

The signs are everywhere: Overall consumer spending took a tumble in October, as big retailers such as Nordstrom, Saks and JCPenney reported double-digit declines.

The Conference Board’s consumer-confidence index fell in October to an all-time low of 38, a steep decline from 61.1 the month before. That was not surprising, given the number of headlines that included the words “crash,” “crisis” and “1929.”

In short, the air is unmistakably leaving the balloon, and we are falling.

Travel agency sales reported through ARC tell one part of the story. The October data reveal the first monthly double-digit decline in sales volume in several years and the most dramatic drop in October sales since October 2001, following 9/11.

Total agency sales, including taxes, fell 11.6%, to just under $6.3 billion, but rising taxes masked the revenue drop for suppliers. Excluding taxes, the fare remittance was $5.3 billion, a decline of nearly 13.6%.

Both domestic and international sales took the hit, with declines of about 13%. The total number of transactions fell 15%.

Through the first nine months of the year, the cumulative sales total has been slightly ahead of the corresponding year-to-date total for 2007, but it has been steadily losing ground. 

Picture an engine running out of steam: At the end of the first quarter, the year’s remittances (excluding taxes) were up 5.2% over the same period in 2007. In June, at the halfway point, the total was up 3.6%. As of the end of September, the increase had dropped to 2%. Now, after 10 months, the year-to-date total is a mere 0.4% ahead of 2007. If the trend continues, 2008 will end badly.

Because agency air sales tend to include a higher proportion of advance bookings than the carriers’ direct sales, the decline suggests a fall-off in winter business and holiday travel, which is already reflected in the airline and hospitality sectors.

The Air Transport Association, for example, is forecasting a 10% decline in the number of passengers traveling on U.S. airlines during the Thanksgiving holiday season (Friday, Nov. 21 to Tuesday, Dec. 2), and it noted that this would be “the first such decline in seven years.”

On the hotel side, rates are falling in pursuit of falling demand. A typical assessment was the picture painted by Andrew Cosslett, CEO of InterContinental Hotels Group, during the company’s third-quarter earnings call with analysts.

“In October, we have seen a sharp deterioration in market conditions,” Cosslett said. “… Forward bookings are down, 30-day bookings are markedly down, and we see a lower market for some time.”

Data from Smith Travel Research suggest that occupancy and rates went into a nose dive in October that grew even steeper in the first week of November.

The sentiment that October marked a tipping point was shared by a number of retailers contacted by Travel Weekly.

Priscilla Alexander, president of Protravel International in New York, said her agency’s sales held up until mid-October. Since then, business has been off about 10% compared with the same period last year.

Jennifer Wilson Buttigieg, co-president of Valerie Wilson Travel in New York, said that while the agency had hoped to at least stay even this fiscal year, its numbers for October and November are off 20% to 28% from last year, across all types of business.

Location matters, though. The home office is near Wall Street, the land of white-collar layoffs. Wilson Buttigieg said the agency’s Midwestern locations were less affected.

Tim Smith, president of the San Diego Travel Group, said he saw trouble coming as early as March and put “a lot of aggressive plans in place” to boost sales. He said he believed the efforts mitigated the effects of a crashing economy.

But while October was better than Smith had projected, November is worse. He now predicts a double-digit drop this month.
 
Jeri Clausing and Nadine Godwin contributed to this report.