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TIA Travel Outlook

TIA Travel Outlook is the first in a planned series focusing on

important market segments in U.S. travel and tourism in the context

of war and a continuing soft economy. Additional outlooks will focus

on business travel and inbound international travel to

the U.S.


travel has been the relative star in the U.S. domestic travel

constellation, although its luster has dulled in recent months.

While domestic leisure travel increased 1.7 percent in 2002,

growth was much subdued in the waning months of the year, and weakened

even further this year in the weeks leading up to the start of the

war. In the short-term, leisure travel is likely to be depressed

even more by a combination of factors

  • The U.S.-led

    war in Iraq put consumers on edge prior to the onset of hostilities.

    Leading consumer confidence indexes have plummeted to their lowest

    levels since the fall of 1993. (1)

  • On March

    17, the Department of Homeland Security upped the terror threat

    from yellow (significant but nonspecific threat) where it had

    been since February 27, to orange (a high risk of terrorist attack).

    The last time the country was at orange, international advance

    air bookings dropped more than 20 percent. (2)

  • The public’s

    rating of the economy is now at a 10-year low. (3)

  • In February,

    U.S. companies eliminated more than 300,000 jobs, the largest

    decline in jobs since the month following the 9/11/01 terrorist

    attacks, increasing the unemployment rate to 5.8 percent. (4)

  • All of these

    factors have caused consumers to retrench.Consumer spending, which

    has been supported by super-low interest rates that have led to

    a strong demand for housing, cars and other durables, grew at

    a 1.5 percent rate during the fourth quarter of 2002, the slowest

    pace since the third quarter of 2001. Weakness in retail sales

    continued in January and February. (5)


the short-term, expect the fear about war in Iraq and the rising

threat of retaliatory terrorism here at home, coupled with the downward

spiral in consumer confidence, to further delay recovery of the

travel industry and to put a damper on spring travel. Also expect

many of the emerging patterns in leisure travel to continue and

perhaps even intensify:

  • U.S. travelers

    are more reluctant to commit, postponing trip planning and fortifying

    the very late booking patterns seen in the last few years. The

    timing of this situation is important, as now is the time most

    Americans begin to make their summer vacation travel plans.

  • Women remain

    far more personally concerned about the risk of terrorism than

    are men – significant in that women are the primary trip planners

    in most U.S. households. (3)

  • The preference

    for domestic travel instead of travel abroad will intensify, as

    Americans’ rising fear of being near hot spots or being stranded,

    combined with their concerns about the anti-Americanism being

    reported in many of our most popular international destinations,

    cause more Americans to shift to domestic destinations.

  • While this

    could be a boost to some U.S. destinations, the numbers of travelers

    shifting to domestic destinations are likely to be too small to

    affect overall national performance since outbound international

    travel rarely exceeds 5 percent of total travel by Americans.

  • Certain destinations

    such as those near to major population centers could benefit as

    closer-to-home destinations, accessible by highway, continue to

    gain in popularity. If gasoline prices remain high this spring,

    however, this market could be negatively affected as well.

  • Most consumers

    anticipate an additional gasoline price increase and think that

    the increase will be temporary. If it is temporary, gasoline prices

    in and of themselves are unlikely to depress leisure travel. (3)

  • Air travel

    – both business and leisure – is likely to continue to suffer.

    During the 1991 Gulf War, domestic air travel was depressed in

    terms of passenger volume for about a year, leading to four years

    of losses totaling $13.1 billion. This time around, domestic air

    travel has already been weak for almost two years and has yet

    to recover to pre-9/11 levels. Leisure air travel, while down

    in 2002, has been providing whatever lift we have seen, with

    losses only about half as great as for business air travel. (2)

  • Air passenger

    revenues fell 26 percent below 2000 levels in 2002, and are now

    running at 1995 levels. If the war in Iraq lasts one quarter,

    forecasts are for a 15 percent decline in air traffic during that

    period, and total 2003 losses of $10.7 billion. (2)

  • The U.S.

    lodging industry seems to be recovering a bit faster than the

    airline industry but has also weakened in recent months. U.S.

    hotel room demand actually increased 0.8 percent in 2002, but

    was still down 2.7 percent compared to 2000. This was driven by

    growth in leisure travel demand, while business lodging demand

    remained depressed. (6)

  • Federal security

    alerts have had immediate short-term effects on lodging demand.

    Within one week of each of the seven federal security alerts between

    October 2001 and November 2002, U.S. hotel occupancies declined

    an average 3.5 percent. (7)

  • Hotel bookings

    in the coming weeks of the war are expected to be down 5 percent

    from prewar projections. If the war is brief, hotel RevPar is

    likely to decrease 1.5 percent in the first half of 2003, followed

    by a return to growth in the second half. (7)

  • Travelers

    will enjoy a buyer’s market as travel suppliers continue to

    offer new bargains, as well as flexible and liberal refund policies

    as they have been doing in recent weeks to spark business and

    quell customers’ anxiety. Nominal (not adjusted for inflation)

    airline ticket prices are now at their lowest since 1987. (2)

  • Overall consumer

    spending, including travel, is likely to slow further in the near-term.

    While travel has grown very slightly in volume (due to the relative

    strength of leisure travel), travel spending has been down. (8)


we are lucky, a quick resolution to the war in Iraq could result

in at least some recovery in leisure travel by the all-important

summer season.

  • In the initial

    days of the war we experienced a resumption of the CNN effect,

    as people opted to stay home and watch the war coverage rather

    than venturing out. 63 percent of Americans say they are following

    news of the war very closely, slightly below the 70 percent who

    did so during the early days of the 1991 Gulf War. (3)

  • But, 18 months

    of existence in a post-9/11 environment has likely made for hardier

    consumers, who have learned to weigh the risks and rewards, and

    who are anxious to get on with their lives.

  • The prospects

    for summer leisure travel now seem dependent on the length of

    the war and what the longer-term aftermaths turn out to be. If

    the war is over in a month or two, summer leisure travel could

    potentially be saved.

  • If the fighting

    ends quickly most economists expect the economy to gain significant

    momentum. Once the situation in Iraq is resolved, businesses will

    likely resume spending and hiring, which will boost consumer confidence

    and economic growth, as well as consumers’ willingness to spend,

    including for travel.

  • In the absence

    of terrorist attacks here at home, Americans are likely to be

    anxious to resume leisure travel as soon as possible and may even

    boost their travel significantly because of pent-up demand.

  • Based on

    a survey conducted in late January, consumers’ interest

    in travel continues its upward trend. And consumer perceptions

    of the affordability of travel, while down significantly

    from late 2001 and early 2002 when a flurry of discounts were

    announced in response to the aftermath of 9/11, are still quite

    positive. (9)

  • The consensus

    is that oil prices will plummet rapidly following resolution of

    the war. Falling gas prices, coupled with Americans’ ever-constant

    preference for auto travel that has only become more entrenched

    over the last few years, could help stimulate auto vacation travel

    this summer.

  • Travel by

    air, even for leisure, however, is expected by airline analysts

    to continue to remain depressed for quite some time to come.


if the war continues longer than expected, if it is not the success

that many expect, if other geopolitical uncertainties remain, or

if terrorism resumes once again within our own borders, the prospects

of a full recovery in leisure travel, and of a healthy summer season,

would dim significantly.


    1. Conference

      Board’s Consumer Confidence Index

      University of Michigan’s Index of Consumer Sentiment

    2. Air Transport


    3. Gallup


    4. Bureau

      of Labor Statistics

    5. U.S. Department

      of Commerce

    6. Smith Travel


    7. PricewaterhousCoopers


    8. TIA Travel

      Expenditure Estimates

    9. TIA Traveler

      Sentiment Index


for the latest information on the state of U.S. travel and tourism

and what the industry and consumers can expect in the weeks and

months ahead.