Downgrading expected in the travel and tourism industry – TravelMole guest comment

Euromonitor International global travel and tourism manager Caroline Bremner highlights the key travel and tourism trends to help strengthen companies’ position in an increasingly hostile business environment

The global economy is struggling due to rising oil prices and the credit crunch which is in turn taking its toll on the travel and tourism industry.

The UK alone is expected to see real GDP growth fall from 3.1% in 2007 to 1.8% in 2008.

This is another storm for the industry to endure, after contending with various disasters, ranging from the Asian Tsunami, hurricanes, SARS and terrorist attacks.

However, tourists have built up a high resistance level to negative external factors and booking suggest that 2008 is business as usual.

The major casualties in the industry thus far are the operators. Airlines have borne the brunt of the spike in crude oil prices, reaching a staggering US$147 in July 2008, causing operating costs to spiral.

In 2008, IATA estimates that the global airline industry will experience losses of US$5.2 billion and already 26 airlines have collapsed so far with Willie Walsh CEO of British Airways predicting another 30 will fold.

In the last week alone, XL Group, Seguro Travel, K&S Travel and now Throb Holidays have gone bankrupt in the UK.

Consolidation will be one of the core strategies implemented to ensure survival of airlines, with British Airways set to merge with Iberia. Both are already seeking approval to partner up with American Airlines following the recent open skies policy between the US and Europe.

Alitalia is on the brink of collapse, Lufthansa has taken a share in Brussels Airlines and Austrian is another acquisition target on the near horizon.

As consumers begin to rein in spending as the rising costs of living and inflation take their toll, one of the major areas of growth will continue to be low cost carriers due to their premise of low cost flights and wide range of regional and city destinations. Scheduled airlines are also offering sales such as Virgin Atlantic and BA.

Budget hotels are set to benefit as value-based options become more attractive and downgrading of travel choices becomes more wide-spread.

Chains in a strong position to reap the rewards of the downgrading trend are the Travelodge brand with over 330 outlets and rooms for £19 in their latest sale. The brand reported a 45% increase on last year in terms of business bookings as companies cut business travel costs.

Key target markets with higher levels of spending such as baby boomers will continue to provide growth potential for sales.

Emerging segments such as Generation Y will also be of growing interest. Considering the web-savvy nature of this demographic, Travel 2.0 features for online platforms will be very important.

In travel retail, niche sectors and health and wellness have become more mainstream, whereby consumers are prepared to trade up for value-added services.

Key emerging high-spending sectors include medical, voluntary, gay and lesbian, adventure, escape and green tourism.

As the economic conditions tighten particularly in the UK, increased polarisation will occur with luxury and budget winning out.