Global Travel 2011: First Half-Year Report
By Gary Bowerman
“Assessing future travel influences is almost impossible without reference to that trickiest of trends category – global unpredictability.”
Back in January, I attempted some predictions for the 2011 business travel year. The most obvious was: “Every year brings its own combination of challenges, both natural and man-made, that impact people’s lives, work and travel patterns around the world.”
Expecting the unexpected could not have foreseen the Japanese earthquake, tsunami and nuclear disaster; the deep-rooted upheavals in the Middle East; the scale of flooding in the United States and Australia; or the devastating mudslides in Brazil. We have witnessed another Icelandic volcano eruption, ongoing aftershocks following the Christchurch earthquake in New Zealand, and other natural disasters around the globe.
Rolling 24-hour news means we are better briefed about natural and man-made events and their global impact. To some degree, this helps prepare us for the journeys ahead. Corporate travelers also keep their eyes glued to the business pages of the newspapers – and we are still trying to fathom whether the global recovery is strengthening, sustaining or slowing.
“As the world economy recovers from global recession, bookings indicate that companies are still cautious to restore travel budgets,” says the World Travel and Tourism Council.
Travel sentiment appears to be strengthening, however, according to the Global Business Travel Association’s (GBTA) 2011 Industry Pulse: Business Travel Buyers’ Sentiment report. Sixty percent of surveyed travel buyers feel the economy is doing better than one year ago, and 57% feel it will continue to improve over the year. International travel is gaining momentum, too. Buyers project international spend to comprise 34% of 2011 total travel spend, up from 31% in 2010, and 28% in 2009.
Released in May, the World Travel & Tourism Council/Oxford Economics report: Business Travel: A Catalyst for Economic Performance Council Business interviewed 500 global business travelers in the US, UK, Germany, Brazil and China. It found strong support for more business travel: “74% of executives believe that business travel is ‘extremely’ or ‘very’ important in increasing profits, increasing sales (75%), developing supplier partnerships (70%), and in spurring innovation (70%).”
This optimism is supported by travel statistics. In May, the UN World Tourism Organization (UNWTO) announced that international tourist arrivals grew by “close to 5%” during the first months of 2011, consolidating the 7% rebound registered in 2010”.
According to an early 2011 UNWTO forecast, international tourist arrivals are projected to increase by 4% to 5% this year. That prediction still stands. “The impact of recent developments in North Africa and the Middle East, as well as the tragic earthquake and tsunami that hit Japan in March, are not expected to substantially affect this projected growth,” the UNWTO says.
The US Travel Association reported in June that US travelers were making their mark on the nation’s still sluggish economic recovery. While overall exports remained largely stagnant in April, travel exports were “a bright spot”.
"Compared to April of last year, travel and passenger fare exports were up a solid 18.6% in April, surpassing the fastest 12-month change of 18.4% achieved last year in June,” said David Huether, US Travel Association Senior Vice President of Economics and Research. Travel accounted for two-thirds of overall US service export growth in April. International visitation to the United States increased also, up 2% in the first three months of 2011, compared to the same 2010 period.
That’s the positive news. But there is one critical issue concerning the travel industry as it looks ahead to the second half of 2011: price rises. The main catalyst – though not the only one – is the ongoing high price of fuel, with oil hovering around US$100 per barrel.
The GBTA 2011 Industry Pulse survey revealed that although travel buyers said that more trips (59%) and more travelers (37%) will continue to increase travel spend, “they most often cited increased airline fees (71%) and higher rates/fares (69%) as contributors to larger travel budgets”.
Evidence that higher rates and fees are impacting travel budgets is found in the average rates/fees that travel buyers expect to pay in 2011. “With the exception of domestic car rentals, buyers expect average rates/fares to rise between 3% and 5.5% in 2011,” says the GBTA.
In June, the International Air Transport Association (IATA) warned that fuel price hikes, in addition to other global shocks during the first half of 2011, are impacting airline profitability. IATA reduced its 2011 airline industry profit forecast to US$4 billion, significantly down on its $8.6 billion profit forecast in March. In 2010, IATA airline members recorded an $18 billion net profit.
“Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations,” said Giovanni Bisignani, IATA’s Director General and CEO. Bisignani added that the industry is encountering “a very fragile balance… with a dismal 0.7% margin, there is little buffer left against further shocks.” IATA predicts airline capacity will expand 5.8% this year, but the gap between capacity and demand growth widened to 1.1 percentage points, from 0.3% in the previous forecast. Fixed costs and capacity adjustments are expected to continue lagging behind the fall in demand, driving load factors down. Aircraft utilization is also dropping. “This decline in asset utilization, represented by lower load factors and average hours flown per aircraft, is the most significant downward pressure on airline profitability,” IATA says.
Another reason for rising travel costs, of course, is the expansion of ancillary fees. The US Department of Transportation announced in June that US airlines earned almost US$5.7 billion in fees in 2010 – comprised US$3.4 billion in baggage fees and US$2.3 billion in reservation change fees. “These are the only fees paid by passengers that the Bureau of Transportation Statistics can identify separately,” said an official statement. The Department website, www.dot.gov/affairs/2011/bts3011.html, features full lists of the earning per quarter in each fee category by US-based airlines. So, in the spirit of walking once more the perilous travel predictions plank, here are three rather obvious suggestions. Global unpredictability is not going to become more predictable; travel budgets will need a degree of elasticity to deal with rising prices; and – perhaps the most inarguable of all – rising ancillary fees are now a fact of travel economics.
This blog has been commissioned by AmEx.
About Gary Bowerman: Oxford-born Gary Bowerman has travelled the world in search of a good story. After cutting his teeth in legal and tax publishing in London, Gary moved on to edit international business and travel titles before relocating to China in 2004. Resident in Shanghai, he has recently been a contributor to CNN Traveller, Business Traveler,CNBC Europe Business, New York Times, Travel & Leisure and South China Morning Post. Editor of the Singapore Highlights and Beijing Highlights guides, Gary is also one of the founders of Hong Kong and Shanghai-based media and marketing communications agency Scribes of the Orient.
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