The travel industry's multiyear growth curve appears to be flattening, with new performance data and forecasts reflecting the accumulating damages from economic stress and high fuel costs.
A batch of new indicators suggests that the industry now faces the prospect of little or no growth this year. Leisure travel may yet squeak through 2008 with a hairline increase before declining slightly next year, but a key consumer survey recently indicated that gasoline prices had already prompted some consumers to cancel vacations.
Some travel segments, most glaringly aviation, clearly are contracting already.
In a jointly issued forecast, Global Insight and D.K. Shifflet & Associates predicted that domestic person-trips would rise by a scant 0.3% this year. The forecast pegged travel spending growth at 3.6% this year, but that trailed an expected increase in travel prices of 3.9%.
Though consumers continue to suffer economic assault from several directions, the Global Insight-D.K. Shifflet forecast does offer a glimmer of hope for the leisure segment, which is expected to continue growing modestly this year even as business travel declines slightly because of corporate cost controls and increased reliance on technology-based alternatives.
The forecast, titled "U.S. Travel Insights," predicted that leisure travel would grow by 0.8% in the current quarter before picking up further with a 1.1% third-quarter increase. Leisure, the report said, will be "bolstered in the latter half of the year by Americans spending at least part of their tax rebate on travel."
International travel to the U.S., meanwhile, will continue benefiting from exchange rates and other factors that have combined to create "a perfect storm of international visitation." Following strong increases last year and this year, the forecast calls for foreign visits to reach 62.1 million next year, 4.8% higher than in 2008.
Though the forecast sees little change in the number of domestic trips taken this year and next, analysis accompanying the outlook suggested that spending patterns and consumer choices associated with those trips were beginning to shift: "Changing trip behavior, such as substituting domestic for international trips, trading down in hotel quality, foregoing in-trip shopping or entertainment spending, shorter stays and visiting destinations closer to home have all helped to maintain the traveler's ability to go while coping with rising travel costs and economic woes."
Kenneth McGill, managing director of Global Insight's Travel & Tourism Service Group, said recent input from destinations indicated that advance bookings were holding, thus offering some level of confidence in the forecast's validity for the near term. But citing oil prices in particular, he acknowledged that "if there's any risk, it's to the downside."
Economic woes into 2009
The Global Insight-D.K. Shifflet outlook does see further weakening into 2009, as problems caused by the credit and housing crises diffuse further into the overall economy.
"Total person-trips will decline by 0.4%, to 1.996 million," the report predicted. "Leisure travel will see its first decline since 2003."
Reflecting slack demand as well as changing trip behavior, domestic visitor spending is expected to rise by only 0.9% in 2009, which is less than expected travel price increases of 1.6%.
Some evidence of a travel slowdown also emerged in a report last week from the U.S. Department of Commerce's Bureau of Economic Analysis. Although BEA statistics showed that spending on tourism was higher in the first quarter of 2008 compared with the same quarter the previous year, the same report indicated that tourism spending declined at an annual rate of 3.7% in inflation-adjusted terms when compared with the fourth quarter of 2007.
Although the BEA report is adjusted for seasonal variations and thus suggests that a decline in tourism spending began in the first quarter, such a conclusion should be tempered given that the BEA methods are designed to assess annual growth rates against the quarter immediately prior, whereas standard industry practice compares quarterly performance with the same period the previous year. Interpretation of the BEA's combined tourism spending data is further clouded by the inclusion of expenditures on ancillary services, including food, recreation and entertainment.
But an economic factor that requires little interpretation is the impact of fuel prices on the outlook for travel. Even as air carriers' capacity cuts and fare hikes threaten to alter vacation plans that depend on air travel, new data indicate that some consumers already have begun curtailing drive-to vacations.
The consumer-research firm NPD Group released a report this month indicating that 12% of the 43,000 respondents to a recent survey had "canceled vacation plans" as a result of high gas prices.
"Considering the price of gasoline over the past year," the survey asked when it was conducted in April, "which of the following have you actually done in response to high gasoline prices?"
Respondents were offered 11 possible responses (with multiple responses allowed). "Canceled vacation plans" was tied with "carpooled" to lead the responses at 12% each. "Taken public transportation" and "vacationed closer to home" garnered the second-most responses at 8% each.
David Portalatin, director of industry analysis for NPD Group's automotive division, suggested that although persistently high gas prices had begun causing permanent shifts in consumer behavior (such as moving closer to jobs or switching to more fuel-efficient vehicles), other changes (such as canceling vacations) would prove transient.
"If there is any sign of relief at the pump, then some of these changes that are more temporary in nature will shift back in the other direction," he said.