ArnieLONDON -- Christopher Rodrigues has a unique perspective on the credit crunch and its effect on travel. His current job is chairman of VisitBritain. His previous job was CEO of Visa International, the credit/debit card company.

But interestingly, what might have had the strongest influence on his views about where travel is headed in 2009 was a recent experience he had as a consumer, when he booked a room at a Kimpton, well in advance of a trip to Boston.

"I guess I'm a bit of a masochist, because I checked the price again before I left and saw that the rate had gone down $200 a night," he told me. "I could have saved $1,000. Call me a traditionalist, but $1,000 still matters."

Rodrigues was thus convinced that discounting, deals and a short booking window would come to define 2009. But within the microclimate of the World Travel Market here last week, where Rodrigues and I spoke on its opening day, the industry appeared to be divided into two camps. Discounting defined one line of thinking, and the expectation of rising prices characterized the other.

In her opening speech, a subdued Fiona Jeffery, chairman of World Travel Market, asserted that "fewer holiday packages will be sold, and those that are will be for an increased price."

Her view was shared by Manny Fontenla-Novoa, group CEO of Thomas Cook, who on the same day spoke with a group of executives at a private lunch aboard a yacht moored on the Thames. While "it's going to be a challenge to get people to commit 9,000 pounds [$14,580] for next summer," he said, he nonetheless plans to increase prices by 6% and cut capacity by 8%.

He said he foresaw the possibility of capacity to his market being cut up to 20% in the next two years, in part due to bankruptcies of competitors. "That's a hell of a lot of cut. But if we do it, and only 10% of the people [stop traveling], we'll be all right."

Asked if competition from discounters might upset his plans, he conceded, "It could well be that price-cutting becomes rampant."

Discounting the discounts

Sitting in a booth in the North America section of the trade show, Uri Argov sighed when I related Fontenla-Novoa's perspective. "This is the old school way of doing things," he said. Argov is CEO of Travel Holdings, a wholesaler that claims $1 billion in sales by its subsidiaries Tourico and Lastminutetravel.com.

Argov, one of the few hotel resellers who pays up front for some inventory, acknowledged that though discounting is central to his model, his sales were 35% below expectations for the period from November 2008 through January 2009. He had seen a big decline in family travel, but even so, he's where he had expected to be in bookings for February and beyond. And he has identified a few opportunities he hopes will lead to a quick turnaround for him.

The slashing of travel budgets in corporations, he said, presents "a great opportunity. Who wouldn't prefer a five-star hotel for the price of a three-star, or a three-star at the price of a two?"

After 9/11, online travel agencies and discounters benefited enormously as dumping grounds for distressed inventory. Though hotels flocked to OTAs, they regarded them as profiteers and later instituted rules designed to prevent their rates from taking such a beating again. Notably, they enforced a rule that no one could sell their products for less than their own websites. So how could Argov offer meaningful discounts?

He smiled. "Lastminutetravel.com is going to start a private travel club in January, with dues of $49.99," he said. "Because the club's website won't be available to the general public, we can offer hotels, by brand name, at rates below what is on a brand's own site without breaking our agreement."

Indeed, OTAs are taking a number of tacks to circumvent pricing display restrictions and thus enable another round of discounting on distressed inventory.

Lastminute.com, a separate company owned by Travelocity, has launched Top Secret Hotels, an opaque area of its site where, like Hotwire's model, hotels are described and sold without revealing brands.

John Bevan, who until recently was managing director of Lastminute.com in the U.K. and Ireland, said that while "the market is more structured and hotels are better at selling direct ... [OTAs] now have databases populated with millions of customers. Hotels are much more careful about brand, but ... they know that if [OTAs] demote a brand, that can shift market share."

While most people said they were seeing few cancellations of bookings for travel in the balance of 2008 (Geoffrey Kent, chairman of Abercrombie & Kent, said, "2008 is holding up well, and ahead of last year"), there was considerable anxiety about a noticeable shortening of the booking window, which began closing dramatically about three weeks ago.

Steve Heydt, president of Elite Island Resorts, with nine properties in the beleaguered Caribbean, said his company was "well-positioned to weather the storm" by reducing costs, offering value-add promotions and steering discussions away from nightly room rates and toward the value of a packaged offer.

Cost-cutting, he said, was done through volunteer staff leaves and executive pay cuts. "Nothing has been cut that will impact the guest," he said. He also sharpened his focus on honeymoons, recently inking an agreement with the Knot because "even in down times, people get married."

Butch Stewart, chairman of Sandals and Beaches Resorts, was both candid about the challenges and upbeat about opportunities.

"We're in a downturn for an extended period," he said. "It may be 15 months, it may be 30 months. Depending where you are in the industry, you can be down as much as 60%. We're down (in forward bookings) vs. last year at this time. ... We're pacing 8% behind, on average. January is more like 12%. There's not a hell of a lot I can do about January, but I'm doing what I can. Election years are always difficult, but this year, there was no bounce back" after the election.

Swimming in capacity

In this situation, Stewart said, "You have two options. You can give away the product and improve occupancy, but then you can't pay the bills. Or you can try to hold margins, have lower occupancy and pay the bills."

The challenge is exacerbated, he said, by excess Caribbean capacity. "It seemed that anyone who had some cash liked the idea of building a hotel," he said. "To be honest, we're lucky we have 5,000 keys, and not 10,000 or 15,000. Right now, the industry cannot sustain the capacity that's out there. There are a lot of problems in the cruise sector, as well. Whether it floats, flies or is permanent, you are going to see a lot of consolidation."

I asked if he would be looking at acquiring distressed companies. "Why not?" he answered. "But it's not the right time now. You do that when you have a sense of how deep the hole is."

Long-term, Stewart was upbeat about the future. "At the end of the day, we'll have an industry that will be a lot better than it was going into this," he said. "We'll be forced to do our job much better."

Stewart was not the only one to mention the election.

"The election has done a lot to relieve anxiety around the economic collapse," Elite Resorts' Heydt observed.

VisitBritain's Rodrigues said, "We've had three once-in-200-years moments in recent months. The credit crisis has given the developed Western world a very bad headache. The Chinese economy is slowing down, and you've elected Obama, a guy who I think can move us to where we need to be. These are big times."

No one with whom I spoke expressed doubts about stimulating demand in these "big times." The assumption appears to be that the industry will find, as former Princess Cruises President Phillip Kleweno famously said at a Travel Weekly roundtable on the first anniversary of 9/11, "the intersection of greed and fear."

But there may be important differences between the current miasma and the post-9/11 environment.

While people were fearful seven years ago, they had the means to travel if they wanted to. Today, even those with money have concerns about spending it. Those concerns show up in the detailed questions they ask before handing over money.

"We've had one or two people ask our tour operators exactly which bank their money will be held in before handing over a deposit." said Myra Sekgororoane, CEO of the Botswana Tourism Board.

The consumer debt load

And one has to wonder: Given America's debt load -- average credit card debt of $9,000 per household, with about 40% of cardholders paying only interest every month -- how does one responsibly stimulate spending among a consumer base that is already overextended?

Rodrigues said that when he was CEO of Visa, consumers in the U.S. and U.K. charged, on average, more than 100% of their annual salary (that includes revolving credit that was paid off monthly). In central Europe, that amount is closer to 25%.

"We're in unknown territory," Rodrigues said. "Credit is tight, and disposable income is squeezed. For the 10% who may be unemployed, travel is, of course, a luxury they cannot afford. But I believe that for most people, travel is a right, not a perk."

Rodrigues said he had read that some credit card companies were lowering the minimum payment due each month.

"It keeps people from falling in arrears, which helps the banks keeps arrears off the books," he said. "And it spools up the interest."

While such practices might appear to offer relief to debt-burdened consumers and tempt them to book a vacation, the real question facing macro-economists and travel promoters alike is how to stimulate spending yet avoid replacing easy credit with an equally insidious form of enablement for those who can't control their personal spending.

Indeed, for the economy and our industry's own long-term self-interest, perhaps it's not the intersection of greed and fear that we should be seeking this time around. The winners in the industry might be those who find ways to match their products with the people who can actually afford to pay for them.

Email Arnie Weissmann at [email protected]

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