Major media have printed the tallies and have come to the conclusion that more flights have been cancelled in the last 2 weeks than in the 2 weeks following 9/11.
I need to admit here that I do work in the travel industry as my day job, but I’m not identifying with whom, and I’m not singling out any one element of the industry as being any harder hit than another. I’m not advocating government bailouts, and I’m not advocating investors flee the industry out of negative speculation.
What I am doing is providing an infrastructure and economic analysis of what has happened and what that means to both the US and the world economy as a whole.
The insensitivity of government funded insurance companies having monster bashes at big-time resorts notwithstanding, since 9/11 the travel industry, both business travel and tourism based, has been ever so slowly recovering these last 8 and a half years.
Oil prices drove airlines into cutting service levels and raising fares and ancillary revenues from the ever un-popular checked bag fees and on-board meals.
The economic downturns have curbed consumer and business travel spending to events and travel venues by massive degrees. Las Vegas is a comparative ghost town with over 50% of the flights there dropped from service in the last year or so alone.
Other tourism destinations like Laughlin and Reno are even harder hit while major airlines have generally curbed or stopped service altogether in some cases.
Mexico had the distinction of adding the H1N1 scare to the travel reduction causes as last spring the entire Mexican tourism industry unraveled.
Cruise lines are reporting massive reductions in the number of passengers this year, and even the perennial given, time-shares have become ever more available to rent as owners are unwilling or unable to travel.
The weather this winter in Florida has had a big impact on their tourism industry as well as their farming industry, producing a coordinated double-barreled attack on the Floridian state economy.
Between the industry losses from those who are unable to afford to travel, and the losses from those whose travel was curtailed by weather or business economic constraints, and those whose travel expenditures had to be refunded to them because of the weather, it’s pretty safe to say that the travel industry has lost perhaps as much as 40% or more of their revenues for the months of November to March.
Think about that number for a minute.
It’s a generalization, but it’s a reasonably educated guess.
Remember, if the airlines don’t bring in the passengers, then the hotels don’t get to resell the hotel rooms and don’t get the ancillary revenues they depend on like restaurant takes and guest services. And if the passengers don’t make it to the destination then the local retailers don’t do any business and the local entertainment venues have no customers. And if there are no travelers then there are no tourists filling up the local eateries, renting cars, or connecting to cruise ships. Connecting train and bus service loses passenger base, destination weddings get cancelled, conventions and events fail or cancel, and so much more.
In one fell swoop, the massive snow storms in Washington, D.C. leveled the boom on the national economy while we’re still in one of the largest economic downturns in a century.
The natural reaction is for everyone to tighten their belts yet another notch, stay home and save that family holiday for another year when things get a little rosier and everyone can see a little light at the end of the tunnel. And for most people, I’d advocate that approach to keeping yourself solvent in a crisis; but…on a national economic level the result of that belt tightening is going to have extreme long term consequences.
Here’s what you can already see coming down the pipeline in the coming year: airlines don’t have a big profit margin on their overall operations. No airline has the ability to absorb a 40% whack during a peak travel season, especially not when they are still reeling from a series of economic disasters including 9/11, extraordinary fuel prices, and international business travel collapse. By definition a company that might have between a 4% and a 7% profit margin is going to hit economic crisis when they suddenly lose 40% of their revenues over a 6 month or longer window. And when a company can’t handle that kind of crisis – it gets sold to someone else or it closes its’ doors. Here and now you can tell that one or more of the major domestic US carriers is going to be crippled as a result of this year’s weather and will face economically forced industry consolidation or final bankruptcy.
Similarly Las Vegas is in dire straits. Not just the resorts that were already in financial distress as a result of the state of the economy, but the city and the State of Nevada as well. The state and the city both depend on the revenues generated from the tourism industry, and a 40% or higher cut in those revenues is going to cause state-wide economic crisis. If you recognize what the destruction of the car industry did to Detroit, you’re about to see the same thing happen to Nevada unless something dramatic happens to change things there. And that’s a scary prospect.
Mexico’s tourism industry is still recovering from the lingering impact of the H1N1 issue last year on this year’s new travel bookings, and with the earth quakes in the Caribbean, Haiti and Grand Cayman in particular, the Caribbean is also in dire straits. Jamaica is still suffering from the negative publicity surrounding the high crime rates there, as are the Dominican Republic and other Caribbean nations. With 20-40% reductions in tourist dollars coming to their struggling economies, those nations will be pushed to the brink of disaster as well.
Major, successful sports franchises are almost universally offering reduced seasons-ticket prices and reduced single and multi-game package prices to lure customers who are not renewing as readily in the current financial downturn.
This means there is also a corresponding reduction in spending on team merchandise, advertising revenues, and sponsorships, even in an Olympic year.
All of this means again fewer people traveling to games, fewer hotel rooms being booked and reduced revenues at venues and retailers.
The final point? Expect to see hotel chains consolidate or go under too, as well as thousands of restaurants, retail outlets, and entertainment venues. Musicians, artists, waiters, servers, bar staff, taxis, limousine drivers, wholesalers, cashiers, stock clerks, retail managers, cleaners, call center employees and so on are going to hit the unemployment lines this year as a result of this winter’s economic wallop.
And when you do want to go somewhere next time? You can already expect the prices to be a lot higher once the number of suppliers drops to practically none.
So for those of you who think the travel industry’s troubles don’t affect them because you don’t really travel anywhere, give it another thought. When California, Florida, Arizona, Hawaii, Alaska, St. Thomas, Puerto Rico, Louisiana, New York, Pennsylvania, and Nevada all have a massive economic disaster on their hands due to suddenly and dramatically decreased tourism and travel revenues and the state governments lose 12-40% of their income and sales tax collections when they are already having a hard time making ends meet, think again as to whether travel impacts your life. When the Federal government loses an equivalent amount of its tax revenues on the same basis, think again about whether the state of our national travel infrastructure has an impact on you and your family. When costs for shipping goods, mail, skyrocket or the cost of seeing loved ones goes back to the rates of the 1970’s and 80’s where it was 2-5x what it is today, think again about the impact of the travel industry on your life. Even if you don’t happen to travel.
Barring some extraordinary market turnaround, that’s where we’re headed, and apparently even winter weather alone can take us there. It might be time for us as individuals to think a little more about the role travel has in our lives and how we as citizens plan to handle it going forward.
