“People were able to fight that fear with price,” he
said. But because the current downturn is purely economic, “regardless of price, some people aren’t going to
Even so, Marr and other analysts say that the downturn will not affect all lodging tiers equally. A “flight
from price” among corporate travel managers will put
disproportionate pressure on luxury properties, whose
RevPAR is expected to decline by 8.7%, said Marr.
On the other hand, trading down from luxury and
upper upscale will help support upscale, Marr said.
PwC’s forecast calls for both upscale and midscale
without food and beverage to actually enjoy slight demand growth in 2009.
Midscale without food and beverage, Marr added,
will benefit from “the newer, quality product in that
bucket,” as well as refurbishments.
baum, director of
research information services at PKF
agreed that both the
upscale and midscale
without food and beverage segments stand
to weather the downturn better than other
Robert Mandelbaum, director of
research information services at
He also pointed out
PKF Hospitality Research
that while the outlook for luxury hotels
might seem harsh, “historically, the luxury segment
shows some of the sharpest percentage declines.”
“But they’re starting at a very high occupancy level,”
he said, “and, obviously, a very high average room rate,”
which can provide some cushion.
In looking beyond 2009, Mandelbaum described a
positive scenario for hotels.
In 2010 and 2011, he said, “You’ll see a dearth of new
hotel rooms” because the lending crunch has curtailed
development. “If you do see travel pick up,” he said,
“we’ll have the opposite of this year, with occupancy
picking up rather rapidly.”
D.K. Shifflet’s Klauda added pent-up demand to the
equation. “What we’re telling our clients is to be braced
for 2010,” she said, not because business will stay weak
but because leisure demand could rebound strongly.
Klauda predicted that whereas “right now we see a
lot of trading down, the reverse will happen in 2010,
Even so, timing of the recovery will be a key variable,
because “every month, things are changing.”
Forecast Change Expected
from 2008 2008
Average Domestic Fare
Capacity (Available Seat Miles) 824B
* 10 largest carriers, systemwide
But the scale and scope of the difficulties 2008
brought for air carriers are not likely to be repeated in
2009, said John Heimlich, chief economist at the Air
In recent months, Heimlich said, “the drop in fuel
prices has overwhelmed the reduction in demand,”
resulting in a net benefit for the airlines vs. the period
preceding the oil bust.
Oil’s collapse, Heimlich said, should give airlines
some breathing room to continue to bring supply more
in line with demand, streamline fleets and permanently
close costly facilities.
Even so, Heimlich said, “We need meaningful profits
for several years. We’re hoping we’re really transforming
here and not just recovering.”
Brian Pearce, Heimlich’s counterpart at the International Air Transport Association, seemed to agree, particularly with regard to U.S. carriers.
Though Pearce’s outlook for airlines globally is grim
(“the worst revenue environment we’ve ever faced”), he
credited U.S. carriers with being more proactive with
capacity cuts in 2008 than airlines elsewhere, which he
contended would pay off in 2009.
“We’re expecting the U.S. industry to be profitable
next year, after substantial losses this year,” he said, adding that such an outcome would be “remarkable, as
we’re entering a really big recession.”
Lower fares stand to benefit the rest of the travel industry, and Vaughn Cordle, chief analyst with AirlineForecasts, predicted that carriers would see much of
2008’s fare gains undone in 2009.
Earlier this fall, at a time when airline executives were
still hoping to raise fares further, Cordle correctly foresaw fare erosion. He now predicts that weakening demand will force fares to drop by about 7% in 2009.
What’s more, he thinks leisure fares will come under
particular pressure in the first quarter as the full impact
of the recession sets in, with declines in the double digits if oil prices remain low. He expects capacity for the
10 largest U.S. carriers to continue shrinking perhaps by
as much as 7% to 9% in 2009.
Pearce concurred. “I’d be very surprised if we don’t
see fares fall,” he said.
cept empty cabins, cruise lines can be expected to pull
out the stops in 2009 to prop up demand.
Peter Wild, managing director at the cruise con-sultancy G.P. Wild, said the challenges for cruise lines
could be especially difficult.
“It might, perhaps, be thought that 2009 would see
nil growth in passenger numbers as a result of the global financial crisis and resulting effects on consumer demand,” Wild said in a written analysis.
“However, the cruise industry is generally supply led,
and with significant net increases in capacity over the
next two to three years, the leading operators are likely
to do all in their power to ensure that this capacity is
taken up, if necessary, through wider discounting than
has been seen over the last four to five years.”
Demand stimulation, in combination with incoming
supply, is likely to result in global passenger growth of
4.8% next year, to 16.77 million, Wild said.
A key implication for cruise lines is suggested by his
conclusion that “the effects of the economic situation
are, therefore, more likely to be measured in lower revenue yields than in reduced passenger numbers.”
Despite challenges for cruise in the near term, Wild
noted that “historical precedents would suggest that
more normal patterns of growth may return later in
the decade, especially as the market tends to respond
to the debut of exciting new ships, such as the [Royal
Caribbean] Project Genesis vessels, the new Celebrity
and Disney megaships and others due to debut in the
next few years.”
Given the downbeat travel outlook for 2009, a return
to “normal patterns of growth” would indeed be welcomed by the entire industry, whether late in the year
or even, as appears more likely, in 2010.
CRUISE PASSENGERS — DEMAND
Airlines face further fare cuts
Rapid change also applies to the airlines. Having
started cutting capacity a few months ago, when oil was
at $147 a barrel, carriers now find themselves cutting
capacity further as a result of weakening demand, even
though oil has fallen precipitously.
Cruise will fill cabins for less
Unable to quickly rotate assets out of service or to ac-
Source: G.P Wild
*G.P. Wild stated that flat growth in 2008 was unlikely and
attributable to characteristics of its projection model.