Travel industry shifts gears

Slowing economy makes itself felt

November 10, 2006|By Kathy Bergen | Kathy Bergen,Chicago Tribune

The U.S. travel industry's robust recovery is slipping into slow-growth mode as rising consumer prices and weakening corporate profits instill caution in leisure and business travelers, the Travel Industry Association forecast yesterday.

Domestic vacation travel is expected to rise 2 percent this year, to 2.03 billion individual trips, and by an additional 1 percent to 2 percent next year, to about 2.05 billion trips. U.S. business travel is likely to be flat this year, with 516.8 million trips, and to rise 1 percent to 2 percent in 2007, to about 524.9 million trips.

"It kind of reflects the downshifting of the economy overall," said Suzanne Cook, senior vice president for research at the travel trade organization. "But it's not necessarily bad news because we're still growing and we're at some record highs, especially in leisure travel ... we're just at a pause."

In spite of these tepid rates of volume growth, the travel industry will see coffers swell next year, largely because hotels, airlines and rental car agencies, among others, have been able to raise prices.

Spending in the United States by domestic and international visitors is expected to exceed $702 billion this year, a rise of about 7.5 percent over 2005. And spending should rise an additional 5.3 percent next year, to $740 billion, the travel association projects.

"I think we're in pretty good shape because it's such a huge business," Cook said. "Increases of 1 or 2 percent may seem small, but it's against huge bases."

Tourism is the nation's third-largest retail industry, behind automotive and food stores, according to the American Hotel & Lodging Association.

Travel price increases will be felt keenly in the business travel sector, which has been slower to recover than the leisure market because electronic communications have replaced some routine trips. As well, many corporations tightened purse strings after the Sept. 11 attacks and have been reluctant to ease up.

In a separate study, American Express Business Travel predicted that the cost of an average domestic trip would rise by 4.5 percent, or $46, in 2007, while an average international trip would increase by 4.6 percent, or $180.

"Keeping executives on the road while holding budgets in check will be a challenge for organizations in 2007," said Mike Streit, vice president and global leader for the company's advisory services.

Domestic economy airfares might rise 3 percent to 5 percent, while international business fares might go up 3 percent to 7 percent, the company estimated. Meanwhile, room rates at midrange North American hotels could rise 2 percent to 6 percent, while rates for high-end hotels could go up 3 percent to 8 percent.

Looking globally, the U.S. travel industry remains vulnerable to natural disasters, health scares and hostilities around the world, the Travel Industry Association noted. And the levels of international visitors have been slow to rebound, in part due to U.S. image problems stemming from the war in Iraq. Five years after Sept. 11, international visitor levels might surpass 2000 levels this year.

"But visits from some markets, like the United Kingdom and Japan, are still 15 percent below where they were," Cook said. "There's a long way to recover, and it's important because they come and stay for a week or two, and they spend a lot more."

These visits not only boost the U.S. economy, she said, "but there's a public diplomacy aspect. They find out we are a nice country, with nice people, and there's a lot of good to be gained."

Kathy Bergen writes for the Chicago Tribune.

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