Is the party over?
As housing woes in the US spread around the globe and families feel the pinch from rising food prices and fuel, you could be forgiven a bit of bleak speculation that hard times lay ahead for the travel industry.
From local restaurants to major airlines, tourism related businesses are being pinched by rising costs of raw materials like food and energy. But do they also face the prospect of significantly falling demand?
So are travel plans amongst the first things to be abandoned in economic hard times?
First some good news
1. People won’t stop taking holidays altogether. The evidence suggests that as financial pressures increase, people adapt their plans rather than cancel them altogether.
As Travelmole recently reported, US travellers are “trading down, not out” They quote Peter Yesawich, CEO of analysts Ypartnership, as saying “In the next few months we will see a transformation of vacations, not cancellations.”
“Pragmatism and escapism are not mutually exclusive…. Consumers who are feeling deprived often seek solace in affordable entertainment alternatives. Beer, liquor, movies and home entertainment tend to do well in hard times.” Tuning Into The Recession Mind-Set
“Leisure travel…tends to remain fairly constant. People may alter their personal travel plans in search of more modest accommodations, but they still want to take their vacations,” said Mark Woodworth, president of PKF Hospitality Research in this Travelmole report.
The picture for business travel is somewhat different. When economic activity slows, one of the first expense items to get attention is a company’s travel budget. “Historically, we have observed a softening of corporate and group travel as the most immediate reaction to the threat of a recession. We believe this trend will repeat itself in the first half of 2008,” said Mark Woodworth, president of PKF Hospitality Research.
2. There will be winners as well as losers. Opportunities exist for those who can take an adaptive strategy, or whose services/products represent switch choices.
As Marc E. Babej and Tim Pollak write in this great article on Tuning Into The Recession Mind-Set “Affordable pleasures that aspire to premium perceptions in good times would do well to consider touting their affordability in a recessionary environment. Mid-market resorts and cruise lines, for example, should make a virtue out of being accessible escapes - all-inclusives can play predictable expense to competitive advantage.”
3. Growth is still forecast by the IATA, albeit at a slowed rate compared to previous years. “When we adjust for the impact of the leap year, passenger demand increased by 4-5% while freight was even more sluggish in the 2-3% range. Demand is still growing. But clearly we are in a different league from the 7.4% and 4.3% growth that we saw in 2007 for passenger and freight respectively. Things are slowing down,” said Giovanni Bisignani, IATA’s Director General and CEO.
The diagram below shows the IATA 2007 - 2011 traffic forecast.
Now some bad news
1. Cut backs are being made by consumers. Nearly three quarters of Britain’s more affluent households say they are planning to cut their spending this year, according to research from financial provider Axa.
They claim “72 per cent of households with a total income of £30,000 or higher will be taking steps this year to cut spending and many will be driven to radical measures as middle-class inflation, or those goods and services typically consumed by middle-income families hits 5.7 per cent. 44 per cent said they will be eating out less to cut costs, while around one in five said they would socialise less with friends (21 per cent).”
American consumers are already making changes. Travelmole reports that “More than two-thirds of respondents to the most recent survey by Ypartnership, co-authored with the Travel Industry Association, said they had downsized their trips in some way during the past six months because of personal financial concerns.”
The same article reports a survey by AIG Travel Guard found that 47% of US travellers plan to downscale their vacations to save money. More than two thirds of those polled by AIG Travel Guard said they wouldn’t reduce the number of leisure trips they take in 2008; “slightly more than half said they wouldn’t cut back on the quality. But 22% said they would eat in less expensive restaurants, and a slightly lower number said they would stick closer to home; another 16% said they would choose less expensive hotels than in the past.”
2. Anxiety is contagious. Behaviour is affected even if people are not directly under pressure themselves.
Marc E. Babej and Tim Pollak write in Tuning Into The Recession Mind-Set that “economic downturns instill anxiety. Almost no one is immune. Even people who are doing OK themselves will tread more cautiously as they see their peers cutting back on their spending or worrying about losing their jobs. What’s more, in this particular recession, even households with secure incomes will have reason to be on edge. Energy and food prices are likely to remain quite high, while the housing crisis is diminishing almost everyone’s net worth. So expect even those who aren’t really feeling a lot of pain to act as if they are.”
They also make the great point that those who are not suffering directly do not wish to cause their friends and families additional pain by flaunting conspicuous consumption.
So how do you plan for uncertain times?
Previously predictable behaviour can become much less so during an economic downturn. This makes it even more important to keep an even closer eye on market data, your business data and customer feedback.
Being aware of what is going on in as close to real time as possible, means you can be tactical and flexible. This avoids leaving you trapped in a strategy developed for a more optimistic market.
Finally, don’t bury your head in the sand. Acknowledge that downturns change consumer behaviour and realistically consider how changes in demand and consumption are likely to impact your business. This will leave you in a better position to innovate and respond to new opportunities, while others are paralysed and stagnate.
This entry was posted on Monday, April 14th, 2008 at 11:01 pm and is filed under Future trends, Opinion, Peak Oil Travel. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.