For the travel
industry, 2005 opened new chapters in familiar dramas and closed
some chapters in others. It was a year of familiar themes --
consolidation, bankruptcy, profit and loss. For some it will be
remembered for another scare over the price of fuel. But most of
all, the year just past will be remembered as a year of
storms.
A mighty
wind
No assessment of
the major events of the past year can fail to begin with the
Atlantic hurricanes that devastated the Gulf Coast, the Caribbean
and Mexico, and that story begins with Katrina, whose long-term
impact on New Orleans and the Gulf Coast may prove to be
incalculable.
Even without
Katrina it would have been an awful season, as a record number of
tropical storms used up the English alphabet and forced storm
watchers to borrow from the Greek alphabet before the season
finally ended four weeks ago.
But it was storm
No. 11, Katrina, that left the biggest mark, hurling winds and
waves at the fragile Gulf Coast of Alabama and Mississippi,
wrecking homes, businesses, hotels and casinos before making
landfall in Louisiana on Aug. 29, changing forever our image of New
Orleans.
The storm is
estimated to have been directly responsible for 1,200 deaths and
$80 billion in property damage, making it the most destructive
hurricane in U.S. history.
Cities have
memories, and these events leave indelible marks. In San Francisco,
100 years after the earthquake of 1906, residents still speak of
before and after. It is the same with the Johnstown flood, with
Chicago and the great fire of 1871, Galveston and the hurricane of
1900, Manhattan and 9/11. Katrina, now billed as the worst natural
disaster in the nations history, left such a mark on New Orleans
and the national consciousness.
Four months have
passed, and residents and businesses are returning. Plans for an
abbreviated Mardi Gras are under way. But this is only the
beginning. Thousands of displaced residents remain scattered across
the country in hotels and other temporary lodgings, unable to
return to their homes.
Tourism, an
industry that is more important to New Orleans than to most cities
its size, will rebound, but behind the brave expressions of
confidence lies the realization that it will never be the
same.
Airline
bankruptcies
In any industry
with a Big Three, it would be disconcerting to have two of the
three in bankruptcy -- unless youre talking about the airline
industry.
As the year
began, United, US Airways, Aloha and Hawaiian were flying under the
protection of Chapter 11. To this list the fates added Delta,
Northwest, ATA and Independence Air.
It is a measure
of our acquired immunity, or indifference, to the airlines
financial disease that we didnt seem very shocked or alarmed that
eight U.S. airlines, accounting for 40% of the industrys
throw-weight, were insolvent at the same time.
On the bright
side, fuel prices are moderating, and the demand for travel is as
strong as ever. US Airways emerged from its second bankruptcy by
merging with America West, raising hopes that the combined carrier
could withstand the coming shakeout against legacy network
operators and low-cost upstarts.
In Hawaii,
meanwhile, Hawaiian Air emerged from bankruptcy in June, and Aloha,
at this writing, was poised to follow.
But that still
leaves three major legacy carriers, United, Delta and Northwest,
struggling with the task of shedding debt and other
obligations.
As the year draws
to a close, Delta seems particularly vulnerable, with mounting
losses, a crushing debt load, massive unfunded pension obligations
and growing restlessness among its workers.
Splitsville
Two of the big
stories of 2003 and 2004 literally unraveled in 2005 as
InterActiveCorp (IAC) and Cendant each decided to spin off their
big-name travel distributors, which they had acquired at
considerable cost.
In both cases,
the conglomerates said they were choosing fission over fusion, in
large part to enhance their value in the eyes of an unappreciative
Wall Street.
IAC, an
e-commerce conglomerate assembled by former media mogul Barry
Diller, was a relative newcomer to travel, but by 2003 it had
become the parent company of Expedia, Hotels.com, Hotwire and
Ticketmaster. Given its other holdings, covering Web-based
timeshare exchange, dating, event planning, finance and other
services -- plus the Home Shopping Network -- IAC seemed poised to
make its presence felt everywhere a mouse could click.
But the alchemy
didnt produce enough gold to satisfy the bean counters, so IAC
decided to go for the pure play and spin off the travel sites as a
separate company, Expedia, Inc. In travel, its a powerhouse, to be
sure, but the hazy promise of synergy with home shopping and
LendingTree are no longer cluttering the screen.
More radical was
the self-surgery proposed by Cendant, which decided in October to
split the company into four publicly traded firms, each one a pure
play.
A hospitality
venture will consist of Cendants core lodging franchise business,
which includes Ramada, Wyndham and seven other brands. Avis and
Budget will be spun off as a car rental company, while Century 21
and Coldwell Banker will form the core of the new real estate
group. Included in the travel distribution spin-off will be Orbitz,
Galileo, Cheap Tickets, Lodging.com and other dots.
As with IAC, a
frustrated Cendant management said it decided to split the company
because the investment community had not fully recognized its value
as a conglomerate.
But the move
raised questions about how well Cendant had been minding its travel
distribution store, as the CEO of the unit, Sam Katz, left last
month under a cloud following another downward adjustment in the
companys profit forecast. Watch that space.
Cruel
fuel
The hurricanes of
2005 shut down a sizeable bit of the nations drilling, refining and
pipeline operations, making a bad situation worse for gas-guzzlers
of all kinds. Even now, the Department of Energy estimates that a
quarter of the Gulf Coasts off-shore drilling operations remain
shut down because of hurricane damage, reducing overall domestic
production by 8%. About 5% of overall refinery capacity is also
idle because of hurricane damage.
But world market
conditions were already playing havoc with the price of crude oil
before the hurricane season began. For the airlines, the numbers
were cruel and unusual.
The year began
with crude oil at about $42 a barrel and jet fuel at about $1.16 a
gallon. Both were up by 50% or more by mid-August, after oil topped
the $60-per-barrel threshold. Within days of Katrinas landfall on
Aug. 29, oil spiked at better than $69 per barrel before beginning
a gradual decline.
It would be bad
enough for the airlines if jet fuel prices rose in tandem with the
price of crude, but they didnt. In the 60 days following Aug. 1,
the benchmark price of crude oil rose 8.6%, but jet fuel prices
soared 47%.
The result for
U.S. airlines was a fuel bill of $30.6 billion, about $9.2 billion
more than the year before. Percentage buffs round it to a 43%
increase.
The airlines are
far and away the industrys poster kids for energy, but other
sectors are feeling the pinch. Gasoline prices also rose with the
price of crude, eating into family vacation budgets. And dark
statements about rising energy costs began finding their way into
the otherwise rosy financial reports coming from cruise lines and
hotels.
The bigger worry
could be whether the combined effect of interest rates and energy
costs will push the economy past the tipping point and send
consumer confidence -- and stock prices, profits, employment and a
lot more -- into a downward spiral.
GNE
versus GDS
If youre familiar
and comfortable with the term GNE (for GDS New Entrant), then you
could be a certified TTG (Travel Technology Geek).
For the rest of
you, GNEs began to come into their own in 2005, just as the newly
minted acronym began to gain currency. In fact, the GNEs themselves
picked up hard currency in the spring when a half-dozen big
airlines prepaid for 8 million bookings with G2 SwitchWorks, the
upstart GDS operator headed by former Orbitz guru Alex
Zoghlin.
Not long after
that, the Star Alliance signaled that it was serious about finding
alternate GDS providers and sent around a request for proposals.
That move bore fruit in December when Stars 16 member airlines
signed deals with G2 and ITA Software to make them the alliances
preferred alternative GDS vendors.
The GNE craze is
being driven largely by the promise of lower costs and slicker
technology -- music to airline ears -- but the upstarts made
progress on the agency front as well. Carlson Wagonlit came out of
the closet in August, confessing that its a G2 user, and New
Englands prominent Garber Travel, a Sabre subscriber, began moving
a portion of its United business to ITA Softwares distribution
system, saying it could be in a position to divert all its United
ticketing to ITA this year.
The GNEs were
also out in force at the ASTA convention in Montreal, where both
ITA and G2 promised to roll out new distribution platforms for
leisure agents in 2006 with enhanced capabilities for delivering
nonair inventory such as hotels, car rentals and
cruises.
Heres another
space to watch: The GDS wars are about to become functionality
wars.
Tax
flaps
It didnt start in
2005, and it hasnt ended yet, but the controversy over hotel taxes
on Internet bookings reached a new plateau when several cities,
states and other jurisdictions drew their battle lines. Big towns
like Los Angeles and Chicago sued the major Internet retailers for
allegedly failing to cough up enough in room taxes on their
merchant hotel sales.
Theres a lot at
stake. Between them, big players Expedia, Travelocity and Orbitz
have set aside millions of dollars as reserves in case they lose in
court.
The dispute
centers on the gap between retail room rates and the merchant or
net rates that hotels make available to Web retailers.
Take the case of
a $100 room that is supposed to generate a 5% tax, or $5. If the
hotel makes the room available to a Web retailer for $60 net, and
the Web retailer marks it up to $80, how much tax is the guest
supposed to pay -- $3, $4 or something in between?
Local taxing
authorities are increasingly demanding $4. Web retailers grouse
that would mean collecting tax on their markup and service charge,
which they claim to be separate from the room rate.
This has the
makings of a federal case or a lawyer relief program. Seven suits
are pending in different jurisdictions, and more are
expected.
But because of
wide variations in the wording of local laws and hotel-distributor
contracts, no one ruling is going to settle the issue for all
parties.
Depending on how
the issue is resolved, the outcome could seriously affect the way
Internet marketers deal with hotels. Many large Web sites do not
break out the amount of service fees and taxes on their invoices to
avoid enabling the customer -- or competitors -- to work backward
and figure out what kinds of deals theyre getting. The days of such
opacity could be numbered.
Groups
regroup
The evolution of
the travel industry in the digital age has forced many businesses,
large and small, to evolve, downsize, work smarter, work faster,
grow in new directions, or all of the above.
The industrys
alphabet soup of lobby groups, co-ops and associations has not been
immune from these pressures, and in 2005 two stalwart acronyms, TIA
and ASTA, made significant progress in keeping up with changing
times.
The Travel
Industry Association, under the new leadership of former Marriott
executive Roger Dow, is looking to expand the membership base,
strengthen the See America brand in travel promotion here and
abroad and generally do more things.
As for the TIAs
traditional core strengths of research and lobbying, Dow is relying
on strategic partnerships with other travel organizations and
research entities for leverage to take the TIA to the next level
and get the world to notice The Power of Travel, a phrase that
pretty much sums up what TIA is all about these days.
ASTA, meanwhile,
is building on the success of recent revisions to the structure of
its board of directors. The society introduced a new membership
structure under which core members pay annual dues of $250 for
basic services, while premium members cough up $2,500 for access to
custom services such as consulting and marketing
assistance.
The year also
marked a milestone for ASTAs traditional World Travel Congress and
trade show. Henceforth, the show will be marketed as TheTradeShow
and managed by Messe Berlin, operator of ITB, Germanys annual
travel show. Henceforth, it will be a combined consumer and trade
event alternating between Orlando and Las Vegas.
And mirroring the
TIAs reliance on the leveraging effect of partnerships, ASTA and
Messe Berlin are lining up a growing list of strategic partners
such as the Association of Canadian Travel Agencies, CLIA, the
National Tour Association, the Travel Institute and other travel
organizations to schedule their conferences and meetings to
coincide with TheTradeShow.
The idea is to
create an even bigger draw for participants and exhibitors alike
and eliminate some of the redundancy that bedevils some suppliers
every autumn.
Were not going to
use the word synergy, but if this works, some folks may be doing
more with less.
Suicide
bombers
The travel
industrys recovery from the terrorist attacks of 9/11 has been
stalled and sidetracked from time to time by war, SARS, terrorist
attacks overseas and other events.
These realities
constantly threaten to give travelers another case of the jitters
and keep them away from particular destinations, or keep them at
home altogether.
In this respect,
2005 served up its share of scary headlines, most notably the
London transit bombings on July 7, in which 56 people were killed
and hundreds more were injured by a coordinated series of
explosions in the London Underground and on a double-decker city
bus.
It was believed
to be Al-Qaedas first suicide bombing attack in western Europe, an
ominous sign. It was followed four months later by suicide bombings
in three western hotels in Amman, Jordan. Also the work of
Al-Qaeda, the Amman attacks killed 60 people and injured
155.
Though few of the
victims were Americans, the attacks underscored the ugly truth that
a determined suicide bomber can easily penetrate the transportation
and hospitality systems frequented by travelers, even in places
thought to be safe.
In times past,
such talk could be expected to send waves of U.S. travelers
scurrying to their couches, in keeping with the international
stereotype of the Jittery American. But not this time.
It is true that
London tourism suffered in the wake of the 2005 bombings, but on
the whole, the reaction to the incidents was far more muted than
many observers had expected. The wave of cancellations never came.
Perhaps, after the experiences of the past few years, American
travelers are becoming more pragmatic about shedding their
cocoons.
Branding
bulge
The American
lodging business just keeps getting better. Overall, 2005 was a
great year in spite of a hurricane season that closed about 285
hotels in Alabama, Mississippi and Louisiana, including the key
convention venue of New Orleans.
PriceWaterhouseCoopers reported that revenue per available
room in 2005 grew at an 8.1% clip, the best growth rate in two
decades. Combined with rising occupancies and a slight slowdown in
development, the result is expected to be record profits in 2006
and 2007.
What truly set
records in 2005, however, was the proliferation of brands. By one
estimate, the hotel industry now has 200 brands, up from 81 in
1990.
And these arent
just names. These are brands with attitude. They fairly shout how
unique they are.
In the past year,
two top European fashion houses, Armani and Missoni, teamed up with
hotel companies to develop lodging establishments under their haute
fashion brands, following a pattern first cut by Bulgari and
Ritz-Carlton. Designer Phillipe Starck, known for the edgy and hip
designs adopted by Ian Schragers Morgans hotel group, did the
same.
Every chain with
multiple brands was busy last year with differentiation and
identity. Among the many upstarts is former Ritz-Carlton CEO Horst
Schulze, who announced two new high-end brands.
Westin has taken
the whole lifestyle theme to a new level with a series of lifestyle
rooms, including a $2,000-per-night renewal suite, designed to be a
detoxifying experience with elements of chromotherapy and
wellness-enhancing snack foods.
Consumers are
paying a premium for the pampering, and its showing up in the
industrys rising daily rate, which is up 5% this year and headed
for an increase of similar or greater magnitude in 2006.
But putting the
hot back in hotels could prove to be a downer for some other
industry segments. As lodging claims an increasing slice of
travelers expenditures, there could be less to go around for
airlines, car rental companies and other service
providers.
Instead of flying
business class and staying in an economy hotel, todays travelers
are far more likely to opt for a cheap seat in the air so they can
blow the rest of the budget on a hotel with a plasma TV and a
pillow menu.
On the other
hand, maybe jealousy is what the airline industry needs to snap out
of its doldrums.
Cruising
on trial
Its not often
that the travel industry gives rise to a dispute that requires a
Supreme Court ruling, but such a case came to fruition in the
matter of Spector, et al. v. Norwegian Cruise Line.
The case came
down to a matter of reading the mind of a Congress past: Was the
1990 Americans with Disabilities Act supposed to apply to cruise
ships or not?
It was a dicey
question. Warning of chaos, and citing centuries of precedent and a
slew of treaties, some purists of maritime law had claimed that
ocean-going ships flying foreign flags simply could not be expected
to abide by every law in every port they visit.
True enough, but
in a ruling that offered something to both sides, a divided court
found that most ships can abide by most of this law without costly
retrofits and without turning the maritime world on its
ear.
Still to be
decided are specific rules and requirements and architectural
standards for the future, a goal that is pursued jointly, if not
briskly, by the Transportation Department and the Compliance Board.
For disabled travelers and disability advocates, the future was
brightened a bit in 2005.
To contact
News & Opinion editor Bill Poling, send e-mail to [email protected].
In
memoriam, 2005
It is human
nature to remember some years for loved ones lost. For travel
people, 2005 will be remembered sadly for the passing of friends,
colleagues and industry leaders such as those mentioned
here.
For Travel
Weekly, 2005 will be recalled as the year we mourned the death of
Alan Fredericks, our longtime editor, mentor and columnist who died
of cancer on July 31 at the age of 70.
The year 2005
also marked the passing of a number of prominent travel industry
leaders, among them:
Harold Hal Berns,
ASTA official
J. Dan Brock,
National Airlines & Pan Am marketing official
Willard Bill
Brown, AAA executive
Norman Cotton,
prominent New England travel agent, Hickory co-founder
Arleen Martin
Carlson, co-founder, Carlson Cos.
Voit Gilmore,
first director of the U.S. Travel Service and a former ASTA
president
Dave Herren,
Hawaii tourism leader
John King, former
chairman of British Airways
Richard OMelia,
Civil Aeronautics Board vice chairman
Daniel Sullivan,
Sr., owner of Collette Tours
Preston Robert
Tisch, co-founder of Loews Hotels
Chuck West,
Alaska tourism pioneer.