Research Review

HIGHLIGHTS FROM THIS ISSUE

EXAMINING CURRENT INDUSTRY TRENDS

On the cusp of summer, optimism among travel industry analysts and executives seems to be outweighing pessimism, at least moderately. Economic indicators remain fickle (up one month and down the next) but are very gradually headed into more positive territory.  These developments, as well as some better performance data from the industry itself and more positive consumer travel attitudes and intentions, suggest a more optimistic outlook for this summer than we have seen in some time.

Economic Trends
According to the Bureau of Economic Analysis’ “first estimate,” first quarter GDP rose at an annual rate of 2.2 percent, weaker than consensus and slower that the three percent annual growth rate registered in fourth quarter 2011.  The best news is that consumer spending rose robustly and much stronger than expected, at an annualized rate of 2.9 percent, adding two percentage points to GDP growth. 

Most of those gains were in January and February.  Consumer spending gains slowed in March, suggesting that spending may not prove as robust this quarter.  Consumer spending in the U.S. increased 0.3 percent in March after a revised 0.9 percent gain in February, according to the U.S. Department of Commerce. 

Incomes advanced 0.4 percent in March, the most in three months.  Real personal income, or personal income adjusted for inflation and also government payments, such as social security, was up 0.1 percent for March.

According to the Federal Reserve’s latest Beige Book, reports from the twelve Federal Reserve districts indicated that the economy continued to expand at a modest to moderate pace from mid-February through late March.  Manufacturing continued its expansion in most districts, with gains noted in automotive and high-technology industries.  Manufacturers in many districts expressed optimism about near-term growth prospects, but they are somewhat concerned about rising petroleum prices.  Retail spending continued to improve and tourism increased in most districts.  Hiring was steady or showed a modest increase across many districts.  Overall price inflation was modest.

The U.S. Department of Commerce reports that new home sales dropped 7.1 percent in March, following a 7.3 percent increase in sales in February.  But sales were up 7.5 percent above March 2011.  Sales of new homes, however, stand at just about half the roughly 700,000-a-year pace that analysts consider evidence of a healthy market.

Signed contracts to buy previously owned properties jumped 4.1 percent in March; the highest level since April 2010, according to the National Association of Realtors, more evidence of a stabilizing housing market that may boost confidence.  Further, home prices in 20 U.S. cities fell 3.5 percent in February, the smallest 12-month drop since February 2011, according to the S&P/Case-Shiller index.

On the employment front, the labor market is showing signs of cooling.  Employers increased payrolls by 635,000 from January through March, the biggest quarterly gain since the first three months of 2006.  But more Americans than forecasted filed for unemployment benefits for the week ending April 21.  Companies added the fewest number of U.S. workers in seven months in April, according to a report by ADP Employer Services based on data representing businesses with more than 21 million workers on payrolls.

And, the Bureau of Labor Statistics recently  released its April data showing that only 115,000 jobs were added to the economy last month, nudging down the unemployment rate slightly to 8.1 percent.  At least 200,000 jobs would have had to be added last month just to keep up with the growth in the labor market.

Focus On: Gas Prices
One of the most troubling wildcards this year has been rapidly accelerating gasoline prices.  But in recent weeks, gas prices have begun to come down, according to the U.S. Department of Energy.  The average price for a gallon of regular gasoline fell to $3.763 as of May 8, according to AAA.  After falling to a low of $3.21 in December, gas prices rose to a peak of $3.941 a gallon on April 2, and have now fallen for four straight weeks.  A year earlier, U.S. drivers spent $3.966 per gallon.

Looking ahead, U.S. gasoline demand this summer is expected to be the lowest in 11 years and about 6.4 percent less than 2007’s record summer gasoline demand, according to the U.S. Energy Information Administration (EIA).  During the April-through-September summer driving season this year, regular gasoline retail prices are forecast to average about $3.79 per gallon.   EIA expects regular gasoline retail prices to average $3.71 per gallon in 2012 and $3.67 per gallon in 2013, compared with $3.53 per gallon in 2011.  While retail gasoline prices are likely to be higher this summer, the cost to fill up the family vehicle for a vacation trip will rise only modestly.  For example, in a vehicle that gets 20 miles per gallon, a vacation covering 500 miles roundtrip uses 25 gallons of motor fuel and costs an extra $6 in fuel, according to EIA. 

Status of Consumer Confidence and Sentiment
Given all these developments, the ongoing lethargy in consumer confidence is not surprising.  Some reports indicate Americans are becoming more confident as their outlook on the economy improves.  The Thomson Reuters/University of Michigan’s Consumer Sentiment Index increased to 76.4 in April from 76.2 last month, its highest level in a year.  The current conditions index fell, while the expectation index for six months from now increased, which more closely projects the direction of consumer spending.

Gallup's Economic Confidence Index averaged minus 20 in April, identical to confidence in March and slightly improved over minus 22 in February and minus 27 in January.  Although this is the first month since last September that monthly confidence did not improve to any extent, it remains steady at the highest level Gallup has recorded since initiating daily tracking at the start of 2008.

Other recent confidence indicators were less positive.  The Bloomberg Consumer Comfort Index, however, fell to a two-month low after reaching a four-year high on April 15.  The comfort index fell to minus 35.8 from minus 31.4 a week earlier.

And the Conference Board Consumer Confidence Index^®, which had declined slightly in March, was virtually unchanged in April.  The Index now stands at 69.2 (1985=100), down slightly from 69.5 in March.  While the Present Situation Index improved to 51.4 from 49.9 last month, consumers were, once again, slightly less optimistic about the short-term outlook.  The Expectations Index declined to 81.1 from 82.5.

To view the monthly data for these and other current indicators, click here.

Optimistic Outlook for Leisure Travel
Travelers, however, are showing strengthening optimism.  April 2012’s overall Traveler Sentiment Index^TM, produced through the quarterly TravelHorizons^TM survey conducted by MMGY Global and the U.S. Travel Association, stood at 93.5, representing not only a nearly ten point increase from April 2011’s index of 83.9, but also marking its highest level since April 2007 (96.2).  All six components, comprising the overall TSI, realized sizable gains over the past year with two key factors, “affordability of travel” and “personal finances available for travel” exhibiting the largest gains.  While the April 2012 TSI represents no change from February’s TSI of 93.6, the fact that February’s increase was sustained in April, coupled with a near-record high, bodes well for domestic travel during the next six months. 

The survey also found that 64 percent of U.S. adults plan to take at least one leisure trip between now and October, up three percentage points from April 2011 and eight percentage points from April 2010.  April’s leisure travel intentions are on par with both April 2009 and pre-recession April 2007.  Based on 241 million U.S. adults 18 years of age and over, an estimated 154 million U.S. adults expect to take at least one leisure trip between now and October, the highest April level of potential domestic travelers on record taking into account growth in the number of U.S. adults.  The outlook for travel during the upcoming summer and early fall travel period is perhaps the most optimistic in years.

Also positive is a new analysis of online searches by Kayak.com showing that U.S. travelers are planning more domestic trips this summer than in the past.  In contrast, searches for international destinations plummeted.  The growth in domestic travel may address a surprising national condition: most American adults have not visited some of the nation's best-known landmarks.  For example, 72 percent of U.S. adults have never visited the Alamo; 65 percent have yet to visit the Grand Canyon; 62 percent have never been to the Golden Gate Bridge; and 57 percent have never visited the White House, according to a survey of more than 2,000 adults commissioned by the website Hotwire and conducted by Harris Interactive.

There is reportedly also pent-up demand in the cruise market.  "When you look back to how robust things were in November and December, we were all gearing up for a great 2012," according to Rick Sasso, president of MSC Cruises USA.  "There was a hiccup after January 13 [when the Costa Concordia was wrecked in Italy], but the market returned quickly,” he said.  Cruise Lines International Association (CLIA) recently announced the launch of a new report, From Travel Agent to ‘Travel Advisor’: Defining, Elevating and Promoting the Role of Travel Agents for the Next Generation calling for a travel-industry dialogue aimed at elevating the role of the travel agent industry, a critical sales force for the entire travel and tourism industry.

Business Travel Growth Slows
Despite ongoing uncertainty, the Global Business Travel Association (GBTA) believes that business travel will reach its pre-recession levels by 2012.  Business travel spend is forecasted to increase 4.6 percent this year on a slight (0.8 percent) decline in person-trips.  By comparison, spending last year increased 7.2 percent to $251 billion, including $111.7 billion on transient business travel, $107.7 billion on group business travel and $31.6 billion on international outbound travel — while total person-trip volume grew 1.8 percent to 445 million.

Although growth is expected to be strongest for transient business travel, which grew 6.7 percent in 2011 and is predicted to grow another 3.7 percent in 2012, the outlook also is positive for group travel.  Group travel is expected to keep pace with transient growth as long as no significant economic shocks take place.  Spending on group business trips in 2011 was up 7.2 percent over 2010.  GBTA projects group travel spending will slow to 3.3 percent in 2012 as uncertainty in Europe and higher energy prices continue to impact the overall economy.

GBTA notes that road warriors are accomplishing more per trip, making more stops, staying away more nights per trip, and spending more on the road.  This is part of a long-term trend with GBTA reporting that between 2000 and 2011, the volume of annual business trips declined nearly 23 percent, while spending rose 3.3 percent.  These trends have also been repeatedly reported by the U.S. Travel Association.  Spending on international outbound trips by U.S. business travelers has outpaced the overall business travel market.  It rose 8.5 percent in 2011 over the previous year, but for 2012, GBTA foresees that growth rate slowing down to just three percent.  

Despite a continuing recovery in transient travel, group business remains relatively anemic in terms of occupancy, ADR and RevPAR, according to Smith Travel Research (STR).  For luxury, upper-upscale and upper-tier independent properties, year-over-year transient occupancy increased 4.5 percent in March, while group occupancy rose just 2.1 percent.  Transient average daily rate grew four percent, while group ADR increased 2.3 percent.  Based on key factors such as the reductions in both the number of meetings and attendees, as well as tight budgets and reduced extravagance, meetings continue to represent a buyer’s market.  But leading hotel industry analysts at STR and PKF Hospitality Research, LLC expect the tide to turn starting later this year.  Some hotel chains are also reporting good results such as Marriott that experienced an 11 percent increase in its meeting business so far this year.

Meetings Under Scrunity Again
This nascent recovery in the meetings sector, however, is now being threatened once again by the latest high-profile scandal involving government meetings.  The after-effects of the U.S. General Services Administration’s (GSA) mismanaged Western Region Conference continue to ripple through the meetings industry.  The GSA has canceled 35 meetings this year worth nearly $1 million.

Recently, GBTA postponed its National Travel Forum, a meeting for government travel planners, because GSA employees now are restricted from attending.  The American Society of Association Executives is collecting signatures in a grassroots effort to educate lawmakers in the House and Senate as they work on bills aimed at putting spending limits and other restrictions on government conferences.

U.S. Travel has been speaking out against those arguing to investigate a specific destination.  “Any member of Congress who thinks this issue is about a particular destination is missing the forest for the trees,” said Roger Dow, president and CEO of U.S. Travel Association.  “Responsible and cost-effective government travel is a must, no matter where it occurs.  Excessive government spending is wrong, no matter where it occurs.  Congress should consider nothing else beyond these two principles when dealing with this issue—or they risk ostracizing one group of hardworking Americans in favor of another,” he said.  U.S. Travel is working closely with lawmakers who are considering legislation and additional regulations on federal travel to ensure an appropriate and measured response, Dow said.

The U.S. Congress has voted to cut and freeze travel spending by government agencies for five years and other oversight measures.  The measure would cap travel spending by government agencies at 80 percent of their 2010 level through 2016 and other bills and amendments also place new restrictions on this government travel.

Some travel experts predict the effect this time around will be limited. Rossi Ralenkotter, president of the Las Vegas Convention and Visitors Authority and chairman of the U.S. Travel Association, argues that the business travel industry grew more united after the AIG scandal and probably will continue to stress the importance of face-to-face meetings.  “We are better positioned now,” he said.  Mark Liberman, head of the Los Angeles Convention and Visitors Bureau, agreed that the effect of the controversy should be limited.  “The business community has learned from past experiences and this is an isolated incident,” he said.

International Travel Updates
The biggest news in the international travel arena this past month was the launch of the new Brand USA campaign, unveiled at U.S. Travel’s International Pow Wow.  Brand USA, the public-private entity created two years ago and charged with increasing our share of international visitors, is mounting a $12.3 million media blitz via TV, the Web, billboards, print advertising and social media which began May 1 in the U.K., Canada and Japan.  A second wave will include Brazil and South Korea, with several other markets to follow.  Research conducted for the campaign found that depending on the market, 18 to 40 percent of those surveyed were strongly predisposed not only to visit the U.S. but to recommend it to their fellow citizens.  Brand USA discovered that what these people love about the U.S. is its diversity, and they're inspired by America's endless possibilities.  Subsequent to the research, a slogan was developed: "Discover this land, like never before."  Rosanne Cash, daughter of Johnny Cash and an accomplished artist in her own right, wrote a song that would fit the theme and the campaign's goals.

“Our goal is nothing short of rekindling the world’s love affair with the USA – the place, the spirit and the dream,” said Jim Evans, CEO of Brand USA.  “We want to spread America’s message of welcome around the world and invite travelers to experience the limitless possibilities the United States has to offer,” he said.

According to the U.S. Department of Commerce’s Office of Travel and Tourism Industries (OTTI), 4.2 million international visitors traveled to the U.S. in February, a nine percent increase over February 2011.  The top inbound markets continued to be Canada and Mexico.  Visits from Canada increased eight percent while arrivals from Mexico grew seven percent.  All nine top inbound overseas regional markets posted increases in visits in February 2012.  For the first two months of 2012, visitation (8.7 million) was up eight percent compared to the same period in 2011.

OTTI expects four to five percent annual growth in inbound tourism to the U.S. over the next five years and that 65.4 million international travelers will visit the United States in 2012 alone.   Tourists from all world regions are forecast to grow over the five year period, ranging from a low for the Caribbean (+9%) to a high for Asia (+49%), South America (+47%) and Africa (+47%).   All but three of the top-40 visitor origin countries are forecast to grow from 2011 through 2016.  Countries with the largest total growth percentages are: China (+198 percent); Brazil (+70 percent); Argentina (+46 percent); Australia (+45 percent); Korea (+35 percent); and Venezuela (+35 percent).

The Commerce Department has also launched a new web-based tool to provide the travel and tourism industry, as well as foreign visitors, with information and statistics from the Departments of Commerce, Homeland Security and State.  In addition to providing basic information like travel tips, the resource contains a set of 15 regularly-updated graphs on visa wait times, international arrivals processing times, and airline capacity in key markets.  This online travel resource follows President Obama’s January 2012 executive order calling for the government to make it easier for tourists to find basic information about visiting America.

Air Travel Performance Better than Expected
According to the International Air Transport Association, global air traffic rose 7.6 percent in March compared to the same month last year.  Comparisons with March last year are affected by events that depressed passenger demand in 2011, including the Arab Spring, which disrupted travel in the Middle East and North Africa beginning in February 2011 and the earthquake and tsunami in Japan in March 2011 that impacted air travel across the Asia-Pacific region.  IATA estimates that the year-on-year rise in air travel in March was about two percentage points higher than it would otherwise have been in the absence of these events.  International air travel rose 9.6 percent in March compared to the year-ago period, while domestic air travel grew at less than half the rate (+4.5%).  Airline industry confidence has improved slightly over the past three months, according to IATA’s quarterly business confidence index. 

The first quarter turned out to be rosier than expected for many U.S. airlines, with fare increases offsetting higher jet fuel costs.  Airline executives report that demand has been strong and they expressed confidence for this summer.

According to Airlines for America (A4A), domestic passenger enplanements rose 0.7 percent in March over year-earlier levels and are up 2.1 percent for the year-to date.  International passenger enplanements rose 4.2 percent in March and increased 2.2 percent year-to-date.

Airfares are likely to continue to rise through the summer and during the months that follow.  Summer fares for trips in the U.S. are up three percent on average over last year and 18 percent compared with 2010, according to Travelocity.  The increase is steeper for international trips, with the average ticket costing 20 percent more than it did two years ago.  The good news here is that this will tend to keep more Americans traveling at home.

Airlines have pushed through three fare increases so far in 2012, following nine hikes in 2011 and three in 2010, according to FareCompare.com.  FareCompare’s CEO Rick Seaney predicts that airlines will attempt three or four further fare increases before the summer travel season begins, with some of them sticking.

In addition, fees will also continue to proliferate.  It is hard to predict what new fees will materialize, but Ryanair provides a good example of what is possible. At the same time, airlines continue to fight for the reduction in passenger taxes.  According to A4A, taxes on air travel jumped from five in 1972 to 17 this year.  Those taxes can raise the cost of a round-trip airline ticket by 20 percent.  But more taxes may be coming.  The Obama Administration’s deficit reduction plan calls for raising the passenger security fee of up to $10 per flight to $14.

Hotel Industry Expects Strong Summer
While the U.S. lodging industry began its recovery in 2010, it was not until last year that the improved prosperity was shared by nearly all hotels in the country.  In 2011, 80.5 percent of the properties that participating in the PKF Hospitality Research, LLC Trends in the Hotel Industry annual survey reported an increase in total revenue, while nearly three-quarters (72.3 percent) of the participants achieved growth in profits.  On average, participating hotels saw a 12.7 percent increase in profits in 2011 , according to R. Mark Woodworth, president of PKF-HR.  Resort hotels led the way, followed by full-service hotels.  Suite hotels lagged  in profit growth.

The industry’s positive momentum continued in the first of 2012 quarter against difficult year-over-year comparisons.  During the period from January to March, Smith Travel Research (STR) reports that all key performance metrics rose in year-over-year measurements.  Hotel room demand rose 4.1 percent, occupancy was up 3.8 percent, average daily rate (ADR) increased 4.0 percent and revenue per available room (RevPAR) posted a 7.9 percent gain.  STR expects ADR growth to continue at, or near, its current pace with some deceleration in occupancy growth for the balance of 2012.

The U.S. hotel industry is expected to report strong performance results in summer 2012, according to STR’s summer forecast.  During June, July and August, STR predicts demand to be up 2.1 percent, occupancy to rise 1.8 percent, ADR to increase 3.9 percent and RevPAR to increase 5.7 percent.  The forecast predicts ADR this summer will near the 2008 peak ADR of $107.74.  The industry is expected to surpass the RevPAR 2007 peak of $73.26.  Overall in 2012, STR predicts occupancy to rise 1.5 percent to 60.9 percent, ADR to be up four percent to $105.74 and RevPAR to increase 5.5 percent to $64.43.

Better performance has encouraged hotels to step up their hiring.  The number of Americans working at hotels, motels and casino hotels rose 2.9 percent in February to 1.6 million from the same month in 2010, outpacing a 2.7 percent increase for all employees, according to the U.S. Department of Labor.  A rise in leisure and business travel is “creating employment opportunities all across the country in the travel industry that is helping in the job recovery and benefiting the economy,” said David Huether, senior vice president of economics and research at the U.S. Travel Association.  About 7.6 million people or 5.7 percent of the U.S. workforce, held tourism-related jobs in March.

Travel Industry Continues Sustainability Efforts
Over the past few years, more pressing issues such as health care reform, economic recovery and the upcoming presidential election have eclipsed discussions about the environment.  Therefore, it is probably not surprising that new results from the March 2012 Harris Poll continue to show a decline in “green” attitudes and behaviors among U.S. adults.  The latest survey finds that many green behaviors, including those capable of saving consumers money, continue to decline.  And perhaps more alarming, considerably fewer U.S. adults now express concern for, and awareness of, environmental issues.

Despite this, the travel industry continues to make progress to become more sustainable.  Using data on 46,000 U.S. hotels provided by Northstar Travel Media, and building energy data from the U.S. Energy Information Administration, Brighter Planet has applied its own lodging model to determine the best and worst performing hotel chains when it comes to energy efficiency and carbon footprints. 

A Carbon Measurement Working Group with representation from most of the leading hotel chains is currently working to standardize the methodology and metrics used to calculate and communicate carbon impact.

Sabre Holdings has just launched the Sabre Eco-Certified Hotel Program that provides clear-and-easy access to sustainable properties, including more than 4,700 hotels certified by globally-recognized certification schemes. This builds upon Sabre-owned Travelocity’s Green Hotel Directory.

Meeting Professionals International has released a sustainability report on its World Education Congress 2011, compiled using the Global Reporting Initiative Event Organizer Sector Supplement (EOSS).  MPI helped develop the EOSS criteria, and meeting professionals now can use the EOSS free of charge to measure the sustainability of meetings of all sizes by greenhouse gas emissions and waste, plus attendee travel, the legacy of the event, and sustainability initiatives employed for the event.

Technology Tidbits

• eMarketer expects U.S. retail ecommerce sales to reach $224.2 billion this year, up 15 percent from 2011.  To help marketers navigate this growth, eMarketer has created a "roundup" of its most relevant recent coverage, including eMarketer's most recent retail and ecommerce sales forecast through 2016 and updates on other trends affecting commerce and retail marketers. 
• Search trends are constantly evolving. Milestone Insights shares some of the latest search trends and their impact on overall internet marketing strategy. 
• Last minute bookings are not a new phenomenon.  What is new today is that increasing numbers of travelers have the ability to search and make a booking via a mobile device.  In addition location-based services, which allow marketers to target travelers with relevant offers near their current location, are growing rapidly.  Recent research by EyeforTravel, provides interesting statistics on and insights into this growing phenomenon.  
• Total spending on online travel is expected to reach nearly $120 billion this year in the U.S., up a healthy 11 percent, according to eMarketer.  But compared to overall online retail sales growth in online travel is slow, indicating maturity in the market.  The U.S. mobile travel market is growing more quickly.  eMarketer estimates 16 million Americans will book travel via mobile this year, up from just over 12 million in 2011.  By 2016, the number of mobile users booking travel on their devices is expected to more than double to 36.7 million.  And significantly more mobile users will research, but not necessarily purchase, travel on their phones throughout the forecast period: 37.8 million this year, rising to 74.3 million by 2016. 

Demographic Tidbits

• According to a new Nielsen report, State of the Hispanic Consumer: The Hispanic Market Imperative, if the present U.S. economy substantially benefits from Hispanics, the future U.S. economy will depend on Hispanics by virtue of demographic change and the social and cultural shifts expected to accompany their continued growth.  Latinos have amassed significant buying power ($1 trillion in 2010 and projected to grow 50% of $1.5 trillion in 2015).
• On the surface, very little appears monolithic about adult Millennials (defined as those in the 18- to 29-year-old age group and also known as Gen-Y).  Yet, there are many generational ties that bind this diverse group of young consumers and differentiate them from older consumers.  A new Packaged Facts report, Millennials in the U.S., analyzes the consumer attitudes and behavior of 18- to 29-year-olds, comparing them to Gen-X consumers (those in the 30- to 44-year-old age group) and consumers 45 years of age and older.
• Another free report by the Boston Consulting Group entitled The Millennial Consumer also provides useful insights into this new group of young adults that rivals the size of the Baby Boom generation.
  
• Many young adults today are postponing marriage, delaying parenthood, and moving back in with their parents. A new Census Bureau brief, Households and Families, 2010 provides a detailed look at the household and living characteristics of those 18 – 29 years of age.

So, that’s it for this month.  While it is obvious that the travel industry will continue to face challenges in the months ahead, a number of indicators suggest an increased likelihood of better performance, especially during the all-important summer season. Check out some of the resources above to help you better understand some of the major demographic and online travel trends that will be driving travel behavior in the months to come.