2015: A Boom Year for Travel

NEW YORK––These are the best of times for all segments of the travel industry, according to speakers at the 2015 Travel Marketing Forecast and Think Tank, hosted here last month by the Association of Travel Marketing Executives (ATME).

Airlines, hotels and tour operators all anticipate a record year in 2015, speakers said.

It’s good news for travel agents too, provided they can navigate the changes in technology and distribution emerging across segments. (See sidebar.)

Airlines: Capacity limits and profitability
The airlines are doing so well that for the first time their stocks are considered investments rather than trading options, said Henry Harteveldt, founder of Atmosphere Research Group.

Limited capacity and lower fuel costs are key factors driving the positive results.

In fact, last year there were 4,100 fewer daily flights in the U.S. than in 2010. Only 2% more seats were added in 2014, and this year domestic air capacity is projected to increase by just 3%.

“They may add a few flights early or later in the day, but not many,” Harteveldt said.

He predicted that prices will stay high. “Fares will not go down, because there is not enough competition.”

Consolidation has created a position of strength for the “big four” carriers––American, United, Delta and Southwest––which control 87% of capacity, according to Harteveldt.

One exception may be international travel, where heightened competition could lead to lower prices. For instance, the three big Middle Eastern airlines––Emirates, Etihad and Qatar––compete on a number of routes in the Middle East, Africa and Asia.

More unbundling
Ancillary revenues will drive airline profits as carriers continue to unbundle fares.

“Without those revenues, the airlines would have been barely profitable or not profitable at all,” Harteveldt said.

Even Southwest Airlines will feel the pressure to add ancillary charges, he predicted.

Giving travel agents the ability to sell ancillary products is on the horizon, a development that will impact agents heavily. The possibilities so far are “intriguing but raw,” Harteveldt said.

Air distribution
As for distribution, Harteveldt said the airlines will focus on high-value channels, including their own websites, mobile and travel management companies, while OTAs, travel agencies and wholesalers will also remain important.

He noted that more than 80% of young travelers, ages 18 to 23, book online; at low-cost carriers the overwhelming majority of bookings are made online.

“Mobile is the crown prince of distribution, though not yet king,” Harteveldt said.

“Still, growth will not be as rapid as it should be in mobile because airlines are not investing sufficiently in it, partly because CEOs still don’t see the return.”

Hotels: In the sweet spot
For its part, the hotel industry is setting records on all fronts––occupancy, rate and revenue per available room (RevPAR), according to Glenn Haussman, editor-in-chief of the trade publication Hotel Interactive.

The hotel industry is in its “amaze-days,” said Haussman.

“We are in the sweet spot for this industry, and we can expect good times for several more years.”

‘Millennial makeover’
Meanwhile, hotel product is undergoing a huge shift in what Haussman called “the millennial makeover.”

Millennials are “digital natives” who have different expectations of their hotel stays, he said. For instance, millennials prefer:

• automated check-in kiosks (something that failed a decade ago)
• receiving information quickly from multiple sources
• pictures, sound and video before texts
• interacting in real time
• user-generated content

“To market hotels you have to think like a digital native,” Haussman said. “You have to make the experience personal by encouraging sharing and by experimenting with things like social gaming. You have to engage customers beyond the boundaries of the hotel.”

Hausmann cautioned hoteliers not to “go crazy” in trying to please millennials.

“The trick for hoteliers is to keep older people in mind while meeting the needs of millennials.”

On the hotel distribution front, Harteveldt said the OTAs had been “contained by the hotel companies.” As a result, the percentage of hotel revenues that come through OTAs is not likely to increase much.

Tours: Optimism reigns
In the tour sector, a full 95% of members of the U.S. Tour Operators Association (USTOA) are anticipating continued growth in sales and revenues in 2015, USTOA CEO Terry Dale reported.

The tour segment enjoyed double digit revenue increases from 2012 to 2013 and continued strong growth in 2014, he noted.

“This could be the best year ever, and improved products are an important part of that,” Dale said. Even the recent terrorist attacks in Paris had not affected travel to that city, he added.

Understanding the consumer
Dale discussed findings of a new survey on packaged travel conducted through a partnership between the USTOA and Cornell University’s Graduate School of Management, which is creating a Packaged Travel Index to track consumer patterns.

The first survey showed that while men are more confident about spending money on travel, women see travel as a higher priority.

Nearly half of the 1,500 respondents said they planned to take three or more trips this year. They will average three travelers per trip and spend $2,500 per person.

The surveys will be repeated twice a year to help predict consumer behavior.