The Travel Industry in 2008

The nice folks over at Deloitte & Touche were good enough to send me their new report looking at what trends to look for in the travel, hospitality and leisure industry in 2008. While there was a lot of good news over the past year there are some potential squalls ahead.

Read on for some of the high- and low-lights:

* In 2007, U.S. travel and tourism demand is expected to generate $740 billion in total industry sales, rising 21.9% since 2004.

* Major U.S. airlines reported better-than-expected results in the third quarter of 2007, despite escalating operating costs and increasingly dissatisfied customers.

* Leisure travel was also up. A survey by Deloitte says that 93% of respondents took a vacation in the 12 months prior, up from 83% in 2005.

* U.S. hotels are continuing to gain in pricing power. A study by Smith Travel Research shows that in the first nine months of 2007, average room rates rose 5.7% while revene per available room (RevPAR) also gained 5.7%, and full year RevPAR is expected to be up 6%.

* U.S.-based cruise lines are also doing well, thanks in large part to both Baby Boomers on holiday as well as to increasing demand from foreign travelers.

* The casino industry continues to have a hot hand. Domestic and international growth is up and gross gaming revenues in the U.S. for 2006 climbed 6.8% over 2005 to reach a record $32.42 billion. Tribal gaming increased 13.7% to $25.7 billion.

* In the food service sector, menu prices rose 4.1% in the 12 months ending September 2007, the strongest year-over-year gain in more than 16 years.

But there are, as mentioned, some disquieting factors too. As the report notes: "The THL industry's positive momentum, however, is tempered by growing concerns in late 2007 around economic indicators such as a tightening in U.S. credit lending, a slumping housing market, and a softening in consumer confidence. Many consumers who previously relied on cash-outs from refinanced mortgages to support THL spending now have limited access to this source. Higher costs for fuel, commodities and labor are likely to put mounting pressure on profit margins, and competition in intensifying in an increasingly global economy. Considering these and other factors, the outlook for 2008 is cautious optimism. Growth for the industry is expected to move at a slower pace than in recent years, but concurrently there are dynamic opportunities for achieving differentiation and deepened customer relationships."

Hmmmm. "Cautious optmism" always strikes me as a dangerous oxymoron. Sounds as though the extraordinary run-up the THL industry has enjoyed over the past few years could be about to stall. My hunch is that those companies that are expanding in developing markets such as China will continue to do well as will those companies that cater to the luxury and corporate traveler. Those that concentrate on middle-of-the-road package travelers could be walloped.