Travel industry starting to look up slowly

Dozens of PowerPoint pages and hundreds of statistics came down to a simple conclusion: The U.S. travel industry should improve in the near term but it won't sizzle.

Speakers at this week's outlook conference staged by the U.S. Travel Association generally offered their findings and predictions with caveats. Hotel bookings have rebounded, yet room rates have barely moved. Airlines have started adding seats to their schedules again but have kept fares substantially higher than last year. Convention-center construction has all but halted and attendance could take several more years to regain the peak.

"The good news is there is much less bad news in 2010," said Steve Hood, senior vice president of Smith Travel Research.

The hotel industry has partly become a victim of its own success, several speakers said. Bookings have rebounded sharply from a dismal 2009, spurred by heavy discounting. Yet travelers have come to view cheap rates as permanent, and they aren't willing to pay what was commonplace during the boom, said Peter Yesawich, CEO of the consulting firm Ypartnership.

As a result, he said, hotel operators "think now is the time to recover what was lost in the last 18 months (in pricing). But consumers are pushing back."

Hood noted that demand had increased 7.5 percent through September of this year, including an all-time high of 102 million room bookings in July. At the same time, revenue per average room has dropped slightly as new properties continue to open, akin to the Las Vegas experience.

"By far, this is the strongest demand rebound in history," he said. "But we are seeing a slower (rate) recovery than we are used to."

Smith's projections put demand growing at 2.5 percent and average daily rates rising by 3.9 percent, although he added that just how quickly rates rise is "one of the biggest questions."

Other factors have crept into play. Increasingly, Yesawich's polling has shown that travelers are opting for weekend getaways -- "speed vacations" as he termed them -- driven by last-minute deep discounts posted online or through e-mail alerts.

The convention business has started to see better results partly because a decade-long construction boom has finally run its course. The amount of facility square footage rose more than a third to 90 million square feet in that time, helping to drive average attendance per center down to 250,000 this year from 300,000 a decade ago, said Robert Canton, director of the sports and tourism practice at PricewaterhouseCoopers.

Bookings have started to rise, with big centers doing better than small ones, but the company's prediction shows it will take another four years to match the 2007 peak.

Airlines have started to move away from financial calamity, but have not started to crowd the sky with planes, said Chuck Thackston, general manager of data and analytics for ARC, which settles ticket purchase accounts. He expects load factor, the percentage of seats airlines fill, to remain in the low 80 percent area for the next couple of years. The number of tickets sold rose 7.3 percent this year, while prices rose 16.3 percent

The industry has taken small steps to expand its flight schedules, but at a slow pace and not enough to replace flights cut during the recession. The reduced number of flights equaled those of Northwest Airlines before its merger with Delta, he said.

The customer who has continued to travel is generally college-educated, according to Yesawich's research, while those with high school diplomas are much likelier to stay home.

"The market, by default, is gradually moving upscale, he said.

Contact reporter Tim O'Reiley at
toreiley@reviewjournal.com or 702-387-5290.