Let me begin by stating that I work in the hospitality industry, but I'm not an "expert" on some of the topics I'll touch on in this diary. I do hope, though, that anyone with deeper knowledge will chime in via the comments.
Given the overall state of the economy, it will come as no surprise that the outlook for the hospitality and tourism sector isn't rosy as we limp through the final days of the disastrous Bush/Cheney administration.
Some thoughts and analysis after the jump...
Most of the focus here will be on the US domestic market, although it can't be viewed in isolation given that cities like NYC have benefited from European and other tourists drawn by the weak dollar. Also, the focus here will be on business travel & groups/meetings, although declining leisure travel will also have a significant impact in 2009.
BUSINESS TRAVEL
The National Business Travel Association (NBTA) is the leading industry trade association for professionals ranging from corporate procurement departments and travel managers to travel management companies (i.e. American Express & Carlson Wagonlit, among others) to the full spectrum of suppliers (hotel chains and independent hotels, airlines, car rental companies, etc).
In mid-November, NBTA released its 2009 Business Travel Overvew and Cost Forecast. Some highlights of NBTA's projections:
"This year we saw a slowdown in the growth of business travel from the rate of growth we saw in 2004 through 2007. In 2009, we will see a continuation of that slowdown in growth," said NBTA President and CEO Kevin Maguire, CCTE, GLP.
NBTA’s research predicts that as a result of the current economic slowdown, travel managers will amplify their cost-containment strategies in 2009 by implementing or expanding a number of measures, including: reducing non-essential travel; enforcing new travel policy mandates; and implementing tools like eFolio hotel data, which enables automated reporting of hotel spending information in order to streamline expense reporting and flag out-of-policy spending.
To develop the 2009 Business Travel Forecast, NBTA fielded an online survey of U.S.-based travel buyer members from September 15 to October 21, 2008, as well as analyzed data from earlier NBTA surveys and from the Bureau of Transportation Statistics, IATA, Smith Travel Research and other sources.
So, keep in mind that they're predicting business travel to continue to grow in 2009, but this survey was conducted prior to the dismal November employment numbers were released (and revisions to the unemployment statistics previously released for September and October). Fewer employees would seem to indicate fewer business trips, and I suspect that the key words "reducing non-essential business travel" will continue to be redefined in 2009 as companies continue belt-tightening measures.
GROUPS & MEETINGS:
Meeting Professionals International (MPI) is to meeting planners what NBTA is to travel managers. Professional Convention Management Association (PCMA) and ASAE & The Center for Association Leadership are other leading trade associations with a focus on groups, meetings, events, conventions, etc.
The November issue of MPI's One+ magazine includes a feature on The Plunge and the Predictions. Again, following are some highlights:
"We’re out of the frying pan and into the fire," according to findings from MPI’s latest Quarterly Business Barometer, conducted in September.
Even before the October economic surprise, survey respondents identified the poor economy (16.6 percent), budget cuts (12.6 percent) and increased travel costs (9.9 percent) as the top trends affecting the meeting and events industry over the next six months. In the same projected time frame, most people (44 percent) expect to see industry business remain flat or increase by less than 5 percent.
...the prospect of a deep recession, which now seems inevitable in the wake of the financial turmoil, will almost certainly reduce attendance at events in 2009 and 2010. The barometer found that 45 percent of respondents have experienced decreased event attendance during the past six months compared to the previous year, with 37 percent of respondents reporting flat or slightly increased (less than 5 percent) attendance.
According to PKF Hospitality Research’s third quarter 2008 forecast, released in late September, there will be a decline in U.S. hotel room demand of 0.2 percent this year with a 1.1 percent decline expected in 2009.
Components of the industry fueling this decline include airline capacity cutbacks and the glut of new properties slated to open before the end of 2009 (totaling 275,000 guest rooms, a 6.2 percent growth in available rooms over the end of 2007).
I believe that this last point is key. In the wake of 9/11, development of new hotel projects slowed dramatically in reaction to the drop in demand. However, as hotels returned to profitability in recent years and with easy access to cheap credit, there is a big pipeline of hotel projects in development.
With companies canceling or postponing meetings due to AIG-style "perception" concerns, and with the emphasis on restricting non-essential business travel rolling over to the groups & meetings market, we're already starting to see aggressive price wars for events to be held in 2009 and beyond. The shift from "seller's market" to a "buyer's market" will mean that companies are finding better values (lower rates and additional concessions such as comp rooms, comp meeting room rental, upgrades, etc). However, keep in mind that nearly every city collects occupancy tax off of hotel revenues, so declining revenues will contribute to shrinking tax proceeds for cities, and cut-backs in services and/or increases in fees to make up for it in other ways.
Smith Travel Research has also released its 2009 projections, including the following:
• a 3.5-percent year-over-year decline in occupancy to 59.1 percent—the lowest level since 2003, when it was 59.2 percent;
• a 1.0-percent year-over-year increase in ADR to an all-time industry best of $108.52;
• a 2.5-percent year-over-year decline in RevPAR to $64.10.
• a 2.4-percent year-over-year increase in supply and a 1.0-percent decrease in demand.
ADR is average daily rate (or the average rate that hotels are getting for occupied rooms). RevPAR is revenue per available room (the average rate for all hotel rooms, regardless of whether they're occupied).
I suspect that 2009 will include more stories about layoffs, projects being delayed, and bankruptcy filings before things start to pick back up again. Hopefully, we won't see Ian Schrager and J.W. Marriott, Jr. in DC asking for a bailout!