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Travel Industry Shows No Signs of Economic Woes

Miami, Florida
AP
Miami, Florida

U.S. hotels and airlines are bracing for softer demand as the economy shows signs of slowing, but the pain may not hit the travel industry for months.

The U.S. Labor Day holiday this weekend marks the symbolic end of the busy summer travel season, after which demand for airline tickets and hotel rooms drops significantly.

With travel activity at a low level in the fall, the effects of weaker consumer spending may not be that evident until Thanksgiving when airlines and hotels often see a spike in bookings.

Prospects for a softening economy triggered by a crisis in U.S. credit markets prompted consulting firm PricewaterhouseCoopers to lower forecasts for hotel demand growth for 2007 and 2008.

"It wasn't a revision based on performance of the summer. It was more the outlook based on trends in the economy and how they'll affect the balance of the year," said Bjorn Hanson, an analyst at PricewaterhouseCoopers.

The company now expects occupied room nights to increase by 1.3 percent in 2007, compared to a previous forecast of 1.4 percent. For 2008, it lowered its forecast to 1.7 percent growth from 1.9 percent.

Airlines, meanwhile, are ratcheting up fall sales, reflecting a greater urgency to sell tickets.

"We have a lot of sales," airline expert Terry Trippler at travel club myvacationpassport.com.

"Consumer demand is down somewhat. Maybe people are a little cautious," Trippler said, attributing the dip in demand to high fuel prices and foul weather in parts of the U.S. "It's a little weaker than probably they would like and it's a little weaker than we saw last year," Trippler said.

Hotels, which have enjoyed years of booming demand, are also offering incentives. Marriott International lists over 1,600 deals at its U.S. hotels on its Web site.

Choice Hotels International, which operates the Econo Lodge and Comfort Inn chains, is offering customers a free night after two stays at one of its hotels.

Fuel Costs Still A Challenge

Gerard Arpey, chief executive of American Airlines parent AMR, said aggressive competition in a tough market didn't allow the carrier to raise fares enough to recover higher fuel costs.

"We have some capacity problem where airlines -- not American -- are growing rapidly in a difficult environment," Arpey said at the unveiling of a new airport terminal in New York Wednesday.

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"We have gotten some pricing traction in the past year, but not enough to cover the enormous increase in the price of fuel," he said.

But the impact of a slowing economy may not be immediately evident, because leisure travel usually slows in the fall and business trips are largely booked.

Lake Tahoe
AP
Lake Tahoe

"The October-November period is very strong on the meeting side, and we think that business is basically done," said Jan Freitag, vice president for Smith Travel Research, which tracks hotel industry data. "We don't think that whatever effects in the traveling public will affect whatever's on the books."

Recent data suggest robust demand for lodging and air travel. The hotel industry, for instance, sold a record of more than $10 billion in hotel rooms in July, Freitag said.

Meanwhile, the airline industry lobby group, the Air Transport Association, expects a strong Labor Day weekend, forecasting that 15.7 million people, a 2.6 percent increase from a year ago, will fly this holiday weekend.

In July, American Airlines said its booked load factor at the time was higher than at the same point a year earlier.

UAL Corp spokeswoman Robin Urbanski said United Airlines' post-Labor Day bookings were "strong," but she declined to say whether they were up or down from a year ago.

Carriers also hope historically high load factors, which is the percentage of seats filled with paying passengers, will continue beyond summer. Airlines saw record load factors, which can be boosted by lower fares, during the summer.

"I suspect there is not much of a downturn other than what you'd see seasonally," said airline consultant Michael Boyd. "The flights will still be full."

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