2009 Industry Outlook: Tourism, Hospitality & Leisure
Economic difficulties are expected to continue well into 2009, affecting how and where people travel. According to Deloitte’s October 2008 travel survey, 38 percent of respondents said they expect to spend less on vacation/leisure travel over the next 12 months, nearly double the 21 percent who expect to spend more.2 For example, consumers may be less willing to take a traditional, seven-day vacation, opting instead for a long weekend or a “mini-vacation.” Skyrocketing airplane ticket prices likely will prevent some people from flying to their vacation destination; they may decide to drive to a spot closer to home.
From a U.S. corporate travel perspective, companies will continue to look for near-term ways to cut discretionary costs – including business travel – to bolster their bottom line in this challenging marketplace.3 For example, an October 2008 Business Travel Coalition survey of 106 corporate travel buyers showed that nearly 26 percent had “implemented emergency travel cutbacks in the past weeks as a result of the financial crisis.” However, taking a longer view, the value placed on human connection and interaction remains important and business executives will still need to meet in person to make deals and decisions. While online video conferencing offers tremendous convenience and significant cost savings, it will never replace business travel or group meetings. In a November 2008 Deloitte Insights podcast, a THL industry senior economist commented that “[business executives will] still need to get together, look each other in the eye and understand one another’s body language [to conduct business].”4
Globally, while U.S. companies’ overseas growth may slow in the near term, THL companies view expanding their global footprint as an effective way to increase market share, build brand awareness and spread risk over the long term. The 2008 Olympics proved to be a big showcase for the THL industry and is expected to continue driving construction of hotel properties in China’s large- and medium-sized cities. In addition, most big hospitality companies were showing growth outside of the United States throughout the summer months. The cruise industry is expecting continued strong passenger numbers and is investing in bigger, more spectacular ships. Five cruise lines will debut their biggest ships to date within the next 15 months at a combined estimated cost of $4.47 billion. Among them is Royal Caribbean’s 220,000-ton, 5,400-passenger Oasis of the Seas, set to launch in December 2009.5
On the whole, THL companies can expect to be under continued duress well into 2009, but smart hospitality organizations with innovative and cost-effective programs will be able to increase customer loyalty and drive demand. Specific issues that are generating both challenges and opportunities for the industry include:
Building brand value
Increasingly, sustainability is becoming a more important factor to compete in the THL marketplace. While tensions can exist between pursuing sustainability and achieving profitable growth, particularly in a year when access to credit for capital greening projects is limited, evidence suggests that expenses can be lowered and demand can be increased by pursuing an eco-friendly strategy. For example, as there are far more “unsustainable” buildings in the United States than there are “green” buildings, THL companies in 2009 have a real opportunity to seize first-mover advantage in advocating and practicing sustainability – both for existing buildings and new construction – that may enhance the brand’s overall image and attractiveness to consumers.7 It is important to note, however, that while going green is smart for business, it will require frequent monitoring, both in terms of what consumers are thinking and in how buildings are performing relative to the latest standards.
Strengthening marketing and sales
- Optimizing performance management capabilities. Establishing controls and metrics that enable hospitality companies to monitor progress toward achieving revenue growth can help them to justify their marketing, advertising, promotion and sales budgets. Similarly, linking marketing and sales budgets to the top-down corporate strategy goals can narrow the gap between marketing and sales budget allocation decisions and targeted growth expectations. Finally, measuring return on investment (ROI) against marketing spend can help to identify the effectiveness of the multitude of available options, such as multichannel marketing, digital media channels, Internet marketing programs and consumer collaborations.
- Improving spend effectiveness across sales and marketing channels. Two actions that can help THL organizations improve their sales and marketing channels are: 1) identifying emerging cost-effective channels, including user-generated online content such as blogs, wikis, special-interest and social networking sites, audio and video podcasts, mobile phones, personal digital assistants (PDAs) and iPods; 2) using market conditions to renegotiate marketing/advertising contracts and vendor relationships.
- Re-evaluating customer segments and touch-points. Economic pressures and the corresponding pullbacks in personal and business travel are creating a need for THL companies to re-evaluate their understanding and classification of their customers. Specifically, companies should rethink how to best segment their customer base and retarget different demographics to make up for the projected loss in traditional travelers and revenue.
- Focusing loyalty programs on value. Effective brand loyalty programs can often contribute significantly to a hotel’s total paid lodging room nights. Many hospitality providers are improving their loyalty program effectiveness through a combination of rewards (e.g., points, miles and merchandise) and awards recognition (e.g., identifying needs, marking sure guests are called by name, delivering personalized services). As economic pressures change individuals’ travel behaviors, it is increasingly important to connect with loyal customers on an emotional level and to develop innovative approaches to increase the value of their membership programs.
Although the 2009 forecast for the THL sector is somewhat negative, the outlook is slightly rosier than for other industries Businesses will continue to cast a discerning eye on employee travel and group meetings at resort properties, but road warriors will press on. From a leisure travel perspective, consumers seem to be hanging on to their vacations and timeshare properties. They may take a shorter trip in 2009 and travel by car rather than air, but people love to stay in hotels, visit amusement parks, casinos and historic sites, and eat at restaurants, because they have positive experiences there. THL companies that continue to focus on building customer loyalty and look for opportunities to grow, particularly overseas, should be able to navigate, and even prosper, in these troubling times.