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2007 Travel Industry ForecastJanuary 1, 2007 By: Mark Rogers, Joe Pike, Jennifer Merritt, David Eisen Travel Agent
As we put away the party hats and turn our focus back to
work, Travel Agent is ringing in the new year with a look at trends to
expect in 2007.
According to the American Express Business Travel forecast,
the costs of airfare, hotels and rental cars will increase this year by between
2 and 8 percent. But airfare to the
is dropping as more airlift to the region occurs, says Chris McGinnis, editor
of Expedia Travel Watch, as noted in The San Francisco Chronicle.
It is expected that more people will book online than
offline for the first time this year, but a Travel Industry Association (TIA)
spokesperson says that agents who focus on the personal touch have nothing to
worry about. Cruising remains robust, except for the Caribbean; however, a
all-inclusive resorts. Read on for the details.
Online Travel Bookings to Surpass Offline Bookings
Allen Kay, spokesperson for the TIA, says travel agents
should not be worried about a recent PhoCusWright, Inc. study that projected
online travel bookings will surpass offline bookings for the first time in
Kay says the news is not surprising for any agent who has
been tracking the progress of online travel bookings, noting that TIA has made
several similar projections recently.
"Travel agents have already discovered that there has
been a shift in business. But you still have larger companies that do great
business; they are leaving large firms and opening shop in small towns,
catering personally to local clientele and demonstrating that they have
experience and that they will continue to be a successful," Kay says.
"The travel agents who know their business and know their customer—offer
personalized customer service—will still have a place in the industry come '07,
'08 and beyond."
The report, PhoCusWright's U.S. Online Travel Overview, now
in its sixth edition, analyzes the domestic leisure/unmanaged business online
travel market by segment, channel and major players, projecting trends through
2008. Caribbean Pricing Down For Carnival and Royal Caribbean
After years of suppliers (e.g., airlines and hotels)
outperforming online travel agencies (e.g., Expedia and Orbitz), growth rates
for both channels will converge by 2008. Suppliers have enjoyed an advantage
over online travel agencies due to the relatively inexpensive task of acquiring
online customers from their own offline channels. This advantage, however, is
disappearing, the study shows.
"It's our observation that the trend is basically that
consumers are continuing to embrace online business," says Michael
Cannizzaro, PhoCusWright's director of information services. "Shopping and
buying online is becoming universal. They (consumers) will continue to want to
The survey notes the growth of dynamic packaging—the ability
for consumers to easily combine airline, hotel, rental car and other product
purchases online—is projected to slow significantly from 51 percent growth in
2005 to 18 percent in 2008.
Also, hotels will be the fastest-growing segment online,
surpassing air travel, which until 2006 had long been the fastest-growing
product segment. According to the finding, "The advanced level of the
in which many innovations, such as dynamic packaging, meta-search and
user-generated content incubate in the
Many of these innovations include the new online
capabilities that PhoCusWright has termed "Travel 2.0," the travel
industry's application of Web 2.0 practices empowering the online consumer.
Kay, however, encourages agents to focus on local clientele,
develop more personal relationships with clients and on niche markets—all ways
to encourage travelers to book with an agent as opposed to online.
"We have researched this and we came up with a similar
forecast so we are not surprised by this study," Kay says.
"There are some extremely popular online offerings and
incredibly competitive deals. But this is still a great time for travel agents.
People will shop and buy more online, but there is still a contingent of people
who feel more familiar dealing with travel agents."
Cruises: Solid 2007 Except for Caribbean
pricing that reared itself in the latter part of 2006 will spill over into
2007, according to an analyst at A.G. Edwards, the St. Louis-based brokerage
firm. Analyst Timothy Conder wrote in a December report that
pricing continues to modestly weaken despite a rather placid hurricane season,
moderating fuel prices and the delay of the Western Hemisphere Travel
Initiative. Furthermore, the upcoming wave season, which typically runs from
the second week of January through March and generally accounts for 30 percent
to 40 percent of the industry's annual bookings, could be downgraded to a
ripple, as off-season
usually is a fair barometer of wave season pricing.
Pessimism over a soft
was reflected in Carnival Corp.'s fourth quarter report, but the company, which
owns 12 cruise brands, also had good news. Carnival reported that early wave
season indicators, such as bookings and occupancies, were positive, especially
on Caribbean cruises that exceed five days (bottoming
pricing is attributed to shorter cruises).
Carnival Corp. said that it understands that travel agents
are more reluctant to sell shorter
cruises because the commissions aren't high enough. "Clearly, as prices go
down, agent compensation goes down," said one Carnival executive during
the company's Q4 conference call. Though citing "negative sentiment"
by some travel agents, the company said it had incentives in place to motivate
agents to advocate short
While the overriding sentiment concerning the Caribbean
isn't favorable, cruising elsewhere, such as in
Edwards report and other analysts, such as Robert LaFleur of Susquehanna
Financial Group. Most cruises outside of the
are skewed toward seasoned cruisers, who are typically more financially stable
than first-time cruisers. First timers are more prone to take their maiden
voyages in the Caribbean and because they may be more affected by economic
factors than seasoned travelers, it is making the
a tougher sell.
Yet, the question remains as to why
pricing is down given a bustling economy and a quiescent hurricane season. A.G.
Edwards said that higher interest rates and increases in gasoline prices are
dampening consumer demand; also that mild Northeast weather may have lessened
consumer desire to go to the
that experienced cruisers are tiring of the region.
All-Inclusives: Caribbean Resorts Looking Good
Going into 2007, it appeared as though cruise companies with
catbird seat in comparison to all-inclusive resorts. After all, cruise clients
weren't facing the same passport deadlines as air travelers, and fuel prices
were dropping. Instead, all-inclusive resort companies are reporting strong
sales for the first two quarters of 2007.
"We're looking at a very positive 2007," says Matt
Mullen, senior director of sales, AMResorts. "Our advance bookings are up
15 to 18 percent for the first and second quarters of 2007 over last
Mullen explains that part of this success lies with AMResort's
promotional push in anticipation of fallout from the Western Hemisphere Travel
Initiative, which will affect travel from the
Beginning Jan. 23,
passports will be required for air travelers returning from the Caribbean,
passengers are facing a later deadline of June 1, 2009.
In addition to the passport initiative, AMResorts was
dealing with the aftermath of the 2005 hurricane season, most notably
hurricanes Wilma and Katrina. "Two thousand six was a question mark in our
minds," he says. "The hurricanes had their effect on people, and we
really didn't know how that would impact bookings. The Mexican government did a
great job in restoring
into an even greater destination."
According to Mullen, AMResorts' all-inclusive properties are
booked at 90 percent occupancy for January, and the company is forecasting 90
percent into the year, except for shoulder seasons after Easter. "Punta
Cana and the Riviera Maya are stapled into the travel agents' minds as offering
great value for their clients, as well as what they bring in the way of
commissions on the all-inclusive package," says Mullen. "We rely
heavily on lift, and it's excellent into all our locations, including Los Cabos
"We find that the booking window has been shortened
going into 2007," says John Lynch, executive vice president of sales
worldwide for Unique Vacations, worldwide representatives for Sandals and
Beaches Resorts. "This can create confusion regarding projections into the
next two quarters, although there is no significant downturn." Lynch
acknowledges an increase in competition in the all-inclusive category.
"But at Sandals and Beaches we feel a comfort level about our position in
the all-inclusive market."
"I hate to be optimistic, but bookings are going very
well," says Paula Hayes, senior vice president of sales, Club Med North
America. "Our re-opened
contributed to this upswing." Hayes notes that Club Med Cancun
company's most booked family village. "Part of the increase in our figures
for 2007 is our increase in price. When you move up market your prices
increase," she explains. "Although our volume is also slightly
Hayes describes Club Med as being something of a niche
product, having the only all-inclusive in the
Med Sandpiper in
villages all over the world. Club Med's demographic also holds up well under
the exigencies of the Western Hemisphere Travel Initiative. "Even though
only 27 percent of U.S. citizens have passports, we've found through our
research that 80 percent of our guests from the U.S. have passports, so we're
less likely to be effected by the restrictions," says Hayes. —David
Eisen, Joe Pike and Mark Rogers
Airlines Cool Consolidation Talks
In December, a flurry of merger and acquisition talks blew
through the airline industry, giving rise to the potential for industry-wide
consolidation between such carriers as Delta Air Lines and US Airways, as well
as Midwest Airlines and AirTran Airways. Rounding out the M&A discussions
is speculation of merger talks between Continental Airlines and United
Airlines. So far, not one consolidated carrier has materialized.
United Airlines Corp. and Continental Airlines have yet to
publicly disclose any details of their discussions. The first papers to report
the potential consolidation—The New York Times and The Wall Street
Journal—said specifics of the talks were not given and both papers
cautioned about the uncertainty of the deal. However, the paring could be
blocked by Northwest Airlines, due to a 2000 pact between Continental and
Northwest that gave Northwest a "golden share" of Continental in
exchange for Continental buying back some of its stock Northwest held.
Northwest's stake in Continental gives the carrier the power to block any
potential acquisition. Calyon Securities airline analyst Ray Neidl in a
research note said a merger between Continental and United would have to
satisfy "a series of operational issues as well as antitrust
concerns"—the latter being a reason cited by Delta in its decline of US
Airways' offer, which kicked off the merger mania in mid- November.
Delta Chief Executive Officer Gerald Grinstein said from the
beginning that he was firmly against the $8.5 billion takeover bid, believing
it would be difficult for a combined company to overcome internal and
regulatory hurdles. On December 19, 2006, Delta formally rejected US Airway's
offer, countering it with a reorganization plan to emerge from bankruptcy by
the spring of 2007.
"We concluded that your proposal is structurally
flawed," Grinstein that day wrote in a letter to US Airways CEO Doug
Parker. "It represents an unacceptably high risk of not achieving
antitrust clearance because it would harm consumers and communities due to is
substantial anticompetitive effects."
Midwest Remains Independent
Meanwhile, on December 13, AirTran Holdings offered to buy
for $290 million, the second bid in three months AirTran had made for the
carrier. The first proposal on October 20 was rejected by Midwest and on
December 14, Midwest Air's board stood steadfast in its original decision,
declining the second merger proposal on the belief that the plan would not be
in the best interests of the company, its stakeholders, employees or customers.
Timothy E. Hoeksema, chairman and CEO of Midwest Air, in a statement said the
board unanimously concluded that Midwest's business plan as a stand-alone company
would support a "considerably better return to shareholders than AirTran's
offer," adding that the carrier expects growth of more than 10 percent and
higher profitability over the next three years. —Jennifer Merritt
Denver's Snow Troubles
Last Friday's forecasts called for more snowfall in
expected to impact travel at the city's airport as it did just before the
Christmas holiday. In anticipation of complications, both Frontier Airlines and
United Airlines—Frontier is based in
and the city serves as a major hub for United—issued guidelines for travelers
and announced a waiver for those changing travel plans.
"Travel agents do have the ability to make changes to
plans without any associated fees," says Robin Urbanski, a spokeswoman for
United, noting that the waiver is loaded in the Apollo GDS.
Passengers traveling to, from or through
2006 were not subject to standard change fees, advance purchase, day or time
applications, blackouts or minimum or maximum stay requirements. Full refunds
of cancelled flights are available.
For passengers who began travel after December 28, both
Frontier and United made allowances for one change to travel plans without a
change fee or advance purchase requirement, so long as travel is completed by
January 11, 2007. Beyond that date, additional fares may apply. A rescheduled
or new itinerary may be open to higher fares if it does not meet the original
rules and restrictions.
Passengers forced to leave luggage behind when stranded in
having trouble connecting with their belongings. United's Urbanski advises
travelers and agents to take advantage of the carrier's luggage tracking system
on its web site. "What a lot of people don't know is that you can go to
United.com and track your bag through the claim number," she says.
"Make sure bags are identified on the outside and the
inside," advises David Castelveter, a spokesperson for the Air Transport
Association. "Advise clients to put a copy of their itinerary inside, so
the airline knows where they're going and how to reach them," he says. —Jennifer