CHICAGO/LOS ANGELES (Reuters) - More struggles lie ahead for the tattered U.S. travel industry as hotels, casinos, airlines and travel agencies fight the tide of economic recession and flagging travel demand.
It’s a tough battle for the companies. Job losses, obliterated savings and falling home prices have made potential leisure travelers reconsider vacations. Business travel has taken a hit, too, as companies trim costs or shut down.
Executives from travel companies like Las Vegas Sands Corp (LVS.N), Marriott International Inc MAR.N and UAL Corp’s UAUA.O United Airlines will speak this week on challenges facing their businesses at the Reuters Travel and Leisure Summit in New York.
“For anything remotely touching the travel industry it’s definitely a challenging time,” said Warren Miller, a Morningstar equity analyst who covers travel and leisure companies.
“I don’t see a very quick turnaround in demand,” he said. “In the next couple of quarters, I think things can and will get worse.”
Hotels and resorts, already struggling to keep rooms filled as recession-wary consumers and companies cut spending, are now in a political battle to keep bailed-out banks and others from canceling business meetings.
Public sentiment toward luxury perks soured in October after insurer AIG flew top brokers and executives to a Southern California resort at a cost of $440,000 shortly after it received an $85 billion government bailout.
“You can’t take a trip to Las Vegas or down to the Super Bowl on the taxpayers’ dime,” President Barack Obama famously chided bankers earlier this month.
A corporate client of Las Vegas casino operator Wynn Resorts Ltd (WYNN.O) recently paid a $3.3 million fee “to avoid any appearance of profligacy” and canceled $5 million worth of business, Chairman and Chief Executive Steve Wynn said during a conference call on Tuesday.
“People with money that stay at a hotel like ours are being very careful,” Wynn said.
He and other resort operators can detect few signs of a turnaround in sentiment any time soon.
The U.S. airline industry, perpetually in survival mode, is in a rare and enviable position now in which it finds itself somewhat insulated from the recession.
Its improved fortune stems from desperation early last year as the price of oil approached a record high, pushing up jet fuel prices and threatening to ruin some major carriers.
The industry assumed a defensive posture and downsized in an effort to bolster fares and run leaner operations.
Delta Air Lines (DAL.N), which merged with Northwest Airlines last year, slashed domestic supply by 11 percent in the second half of 2008.
Other airlines like AMR Corp’s AMR.N American Airlines and UAL Corp’s UAUA.O United Airlines made deep cuts as well, and more are planned for 2009.
Downsizing combined with a surprise drop in fuel costs kept the industry afloat even as recession eroded travel budgets.
Although most analysts predict airline profits in 2009 — following losses in 2008 — the industry outlook is murky, said airline consultant Robert Mann. It hinges on whether carriers can match their capacity to travel demand, he said.
“On the one hand it’s never looked better. On the other, there’s a wide range of uncertainty,” Mann said.
Travel agencies, often the go-between for travelers and suppliers, are in an especially tight spot. Those companies must convince bargain-hungry customers that travel is in the budget.
Of the three publicly traded online travel agencies — Expedia Inc (EXPE.O), Priceline.com PCLN.O and Orbitz Worldwide OWW.N — only Priceline saw growth in bookings in the fourth quarter. These companies are increasingly focused on generating travel demand through marketing and vacation packages that can cut the total price of a trip.
“We are currently assuming that the economy and the travel market will be challenging for all of 2009, with no indications pointing to significant improvement,” Michael Adler, Expedia’s Chief Financial Officer, said on a February 19 Webcast.
He said hotel bookings face continued headwinds, but he noted that Expedia is seeing “solid room night growth” this year. Adler said, however, that airline booking trends for the next several months show fares slipping with demand.
“All in, we think it is very likely that gross bookings and revenue will decline in full year 2009,” he said.
(For summit blog: blogs.reuters.com/summits/)
Editing by Phil Berlowitz