Plunkett Research Reports the 10 Major Trends Influencing the Travel Industry

Houston, TX. August 28, 2009 –

Plunkett Research identified 10 major trends happening in the travel industry today. These trends will also help explain why the industry is facing one of the toughest times in years. This and more is revealed in Plunkett’s Airline, Hotel & Travel Industry Almanac, 2010 edition.

The 2009-2010 period finds the travel industry continuing to face challenging times. Consumers’ budgets are tight, and they are cutting down on unnecessary expenses. When the middle class does take a vacation, it is on a reduced budget. Meanwhile, corporate and business travel budgets are tight as well. The travel industry is acutely aware of this problem. Most airlines have cut routes and reduced the total number of seats available, partly by removing older, fuel-guzzling aircraft from service. Travel providers of nearly all types are competing fiercely on price or are offering their customers special inducements and packages.

Plunkett’s 10 Major Trends Influencing the Airline, Hotel and Travel Industry:

1. Discount Airlines Set the Standard But Face Economic Challenges - As discount airlines have set the standard for air travel for the past decade or so, their success has caused important changes in the industry. In late-2008, Southwest announced a profit for the 71st straight quarter (excluding special items) while the other major airlines collectively lost money, largely due to fewer passengers. Up until mid-2008, fuel hedging had a major impact on Southwest’s market dominance. Its fuel hedges covered 80% of its fuel purchases (in 2008, more than 70% of its fuel was purchased at a price equivalent to $51 a barrel for crude oil, which was extremely advantageous). The airline was not immune to rising costs, as its fuel expenses rose by 35% in the second quarter of 2008 despite its hedges. However, Southwest was by far the best prepared airline when it comes to weathering high fuel costs.
2. Global Airlines Face Daunting Challenges - The commercial airline industry has always been particularly vulnerable to economic and political changes. In times of crisis, people travel less while fuel may cost more. The deregulation of the U.S. airline industry in 1978 was a watershed event that led to intense price competition, and several factors conspired in recent years to make the goal of profitability ever more difficult for major airlines to achieve. The stock market crash of 2000, the tragedy of 9/11, rapidly rising fuel costs and intense competition, among other problems, bankrupted several airlines and threatened many more with similar fates. By late 2008 when the global economic crisis hit in earnest, global airlines were awash in losses.
3. International Airlines Try to Lure Passengers with In-flight Perks - Even air travel’s cash cow, premium overseas ticket sales, is feeling the crunch of the economic crisis. In May 2009, the International Air Transport Association (IATA) reported that global demand for first class and business class seats was down 26% from May 2008. May 2009 was the 12th consecutive month of year-on-year declines for those seats. Carriers are responding by slashing fares. Even the New York-London route, which once averaged about $8,800 for a round trip business class ticket, can be purchased for as little as $2,500 with an advance purchase.
4. Open Skies Agreement Lowers Restrictions on Trans-Atlantic Travel - A landmark transportation agreement was signed in April 2007 between the U.S. and the 27 member states of the EU, which replaced existing restrictions on flights between the two regions. In the past, non-stop flights from Europe to the U.S. were limited to particular carriers. With the new agreement, referred to as “open skies,” every U.S. and EU carrier is authorized to fly between any city in those regions. The previous restrictions allowed American Airlines, British Airways and Alitalia to dominate the lucrative trans-Atlantic routes since they had established landing rights at various major airports such as London’s Heathrow. Now, Continental, Delta, Air France-KLM and Aer Lingus, among others, have permission to fly into Heathrow, greatly increasing competition and opening the market for airline takeovers regardless of the nationality of the acquiring company. In other words, U.S. airlines are allowed to fly from any city in America directly to any city in the E.U., and vice versa. For example, British Airways launched a new airline (named OpenSkies) that serves transatlantic routes with premium-class service in June 2008.
5. ADS-B Improves Air Traffic Control - A new air traffic control system that is generating headlines is the Automatic Dependent Surveillance-Broadcast (ADS-B) which commenced service in Canada in January 2009. ADS-B uses GPS information to replace radar when tracking planes. It is more accurate and faster than radar, allowing planes to travel more closely together safely. Jets flying under ADS-B surveillance need to be only five miles apart under current standards, even in remote places such as the Earth’s poles or over oceans where radar coverage is not possible.
6. Private Jet Rentals Continue in the Form of Fractional Share Ownership - Companies continue to be focused on the bottom line, compelling them to be conservative about major capital expenditures, including the purchase of business jets, which can cost as much as $70 million or more for the largest long-range bizjets. Many corporations have determined that they would rather rent bizjets than buy them, especially in the harsh glare of the global recession of 2008-2009. Fractional ownership and rentals have begun to replace outright, fee-simple ownership of corporate jets in many cases. Sales of bizjets to corporate users dropped sharply during the business slowdown of the early 2000s, but the inconvenience of new security rules after 9/11 made access to business jets a must-have for executives who can afford it. Market research firm JETNET LLC reports that corporate operators of general aviation aircraft rose 4.9% to 17,040 in 2008. The global corporate fleet reached 28,367 aircraft, with 17,523 of those based in the U.S.
7. Boeing and Airbus Continue Their Struggle for the Best New Aircraft - The latest news in the ongoing battle for the passenger airliner market is the 2009 announcement by Airbus that it will cut production of its A320 single-aisle planes to 34 per month beginning in October; the French manufacturer is also cutting production of its massive A380 jumbo jet in 2009 from 18 to 14. Meanwhile, Boeing announced plans to layoff 10,000 employees in 2009. Boeing is also dealing with a two-year delay in the release of its highly-touted 787 as well as delays and budget overruns for a new version of its 747. In addition, Boeing announced plans to cut production of its 777 by 29% in 2010. This comes on the heels of Airbus’ troubles with its new Airbus 380 aircraft. Both carriers are enduring cancellations or delays of orders for new planes because airlines are reeling from the global economic crisis. The world’s major airlines face combined losses totaling more than $10 billion for 2009. According to Morten Beyer & Agnew, Airbus had 67 cancellations in the first eight months of 2008 while Boeing had 63 during the same period. By August 2009, Boeing reported a total of 60 order cancellations for 787s for the year, plus 13 new orders.
8. New Aircraft Designs Offer Greater Passenger Comfort/More Efficient Engines - An important selling point in new passenger aircraft, whether built by Airbus or Boeing, is comfort. Changes in seat configuration, window size and cabin climate are all key elements when buying new planes. At Boeing, for example, the new 787 Dreamliner offers a new, patented eight-seats-across configuration in economy class. The three-two-three arrangement allows seats that measure 19 inches across instead of 17, which is standard on Boeing 737s and 757s. However, the plane’s cabin is wide enough to fit nine seats across, allowing some buyers to configure the cabin with narrower seats and more passengers. Boeing representatives estimate that about 75% of the airlines that have ordered the new plane have opted to change to the nine-seat arrangement.
9. Deregulation Opens Huge Travel Markets in China and India - The booming economic growth of both China and India are impacting business sectors around the world. Rapidly growing middle classes in both countries are beginning to travel by air in numbers never before seen, and airlines and hotels in both the home countries and foreign nations are scrambling to get in on the action. In China, a mere 4.5 million citizens traveled overseas in 1995. That number skyrocketed to 47 million in 2007, according to the World Travel and Tourism Council (WTTC). Industry experts predict that more than 50 million Chinese tourists will travel overseas by 2010. India’s growing economy is also boosting travel at an enormous rate. However, intense competition and smaller travel budgets saw many India-based airlines hurting financially in 2008 and 2009.
10. Self-Check-In Kiosks, RFID and Other New Technologies Save Labor Costs for Airlines and Hotels - Most airlines operate self-check-in kiosks at terminals, where the swipe of a credit card supplies a traveler with his or her boarding pass. Another idea under consideration is generic kiosks at airports so that the same kiosks can serve all passengers, no matter which airline they’re flying. In the future, smart cards, containing secure personal information, may become important time savers. Travelers might use the cards as boarding passes, to manage luggage and as identification at airports. Additionally, luggage tags will become “smart.” Rather than bar-coded tags that are common today, the new tags will be embedded with radio frequency identification chips (RFID) containing information about the passenger and his or her flight. As luggage moves along the conveyor belt, scanners supplied with information about the airport’s flight schedule will read the luggage and forward it to the correct plane or divert it if a flight is delayed or cancelled.

Additional information is available in "Plunkett’s Airline, Hotel & Travel Industry Almanac 2010," as well as on our web site, www.PlunkettResearch.com.

ISBN: 978-1-59392-151-4

Contacts:
Plunkett Research, Ltd.
Phone: 713.932.0000
Email: Media@PlunkettResearch.com

About Plunkett Research:
Plunkett Research, established in 1985, is a leading provider of industry sector analysis and research, industry trends and industry statistics. Our research reports and online subscription services are used by the world’s top corporations, consultants, universities, libraries and government agencies. Plunkett’s products save time and effort when you need competitive intelligence, market research, vertical industry marketing data, or industry trends analysis. We cover vital industry sectors such as health care, financial services, advertising, retailing, entertainment, energy and information technology.