Euromonitor launches 2008 WTM Global Trends Report

The 2008 WTM Global Trends report was launched at the World Travel Market 2008 this week, at the height of the biggest financial turmoil the travel industry has faced for some time. The report by global intelligence firm Euromonitor International highlights key trends in the travel and tourism industry worldwide. These seven trends of the future provide insight into how the industry can entice the next generation of travellers, despite the current economic uncertainty.

Commenting on the report’s findings, Caroline Bremner, Head of Travel and Tourism Research at Euromonitor International said, “The current trends resonating with travellers across all regions include the desire for environmental responsibility, social interaction, authentic travel experiences and fair trade practices. In the current economic climate, those companies that adapt and integrate such business practices into their offering will be best placed for survival.”

Euromonitor’s Global Travel Trends 2008 Overview

According to the IMF, the current financial downturn affecting the globe is set to continue through 2009, with world economic growth to slow to 3.9% in 2008 and 3% in 2009. The economic and financial crisis has dramatically altered the shape of the global landscape for travel and tourism, as liquidity dries up, commodity prices rise, inflation increases and consumer demand falls.

Uncertainty hangs over the industry, especially as the full scale of the downturn and government intervention in major banking markets is yet unknown. Recession is expected in the world’s advanced markets and even emerging economies are not immune to the slowdown. However, governments have shown their commitment to restoring economic confidence and the IMF predicts a recovery in 2010. So what should the industry brace itself for in the short term?

More consolidation on the horizon

The airline sector has been the hardest hit by the crisis, suffering from spiralling fuel prices and falling demand, impacting negatively on the bottom line. OAG reported that the global capacity of winter airline schedules was down by 5.2%, removing 46.3 million seats, with the US accounting for almost half. IATA reported that 26 airlines so far have gone bust in 2008, with more casualties expected during the industry shakeout, further threatening job losses.

British Airways reported a decline in its September 2008 traffic in its premium and economy segments, of 8.6% and 4.1% respectively. Following Virgin’s lead, BA has lowered fuel surcharges (excluding upper class) in response to the recent downturn in oil prices, hoping to stimulate demand as advanced bookings dry up. Discounting on business travel is emerging with Singapore Airlines business-class only flights offering deals in an attempt to lure back business travellers.

Consolidation is gearing up: British Airways is poised to merge with Iberia. A new Italian company, CAI, has taken over the assets of both Alitalia and Air One, keeping the Alitalia brand alive. The new company is expected to negotiate a partnership with Lufthansa and Air France/KLM who are also both in the bidding for Austrian Airlines.

Jet Airways and Kingfisher in India have been forced into partnership to deal with the domestic air crisis. Opportunities, however, still exist for the bullish, particularly with a low cost twist. Ryanair announced plans to launch a new transatlantic budget carrier, taking advantage of companies going bust and picking up long haul aircraft for cheap. AirAsia X also bucks the trend by eyeing the UK as part of its continued expansion.

Due to the cost-cutting measures adopted in recent years such as building on ancillary revenues , coupled with this year’s capacity cuts, the outlook for the global airline industry may be more optimistic seeing as oil prices have halved, easing pressure on vulnerable profit margins. Shifts in pricing and regional priorities Hotel occupancy rates are falling in advanced economies such as the US and there are signs of trading down in accommodation by consumers and corporate travellers.

Budget hotel operators and chains with a large brand portfolio, covering different price positions, are expected to benefit from this trend. Hilton Garden Inn, a midpriced brand from Hilton Hotels Corp, is expanding globally, moving into Latin America and Europe so far.

Supply-wise, hotel operating costs have risen due to rising oil prices and there are clear signs that the financial crisis and lack of credit for investors is also taking its toll on future openings. In the UK, independents and unbranded operators are being squeezed out as they struggle to raise capital.

Marriott Hotels is the first hotel chain to report declines in revenue and profit for Q3 2008 and, significantly, has issued a warning that future pipeline projects may be delayed or cancelled. For most global hotel brands, any slowdown in openings will impact on future profitability as they tend to operate a combination of franchised, managed and company-owned outlets.

China and India are likely to remain a strategic priority for new outlet development as growth is predicted to be robust, albeit slowing. InterContinental Hotels Group, for example, recently announced a further six hotels in China through its agreement with Shimao Group. The Middle East will also remain key, offering continued opportunities for both luxury and budget brands alike.

New source markets

National tourism organisations are facing a tough time. For example, in the Caribbean, hotel room rates are reported to be dropping as flights are cut, prices rise and hotel supply outpaces demand. The Bahamas, the British Virgin Islands and others are therefore widening their reach, targeting not only traditional source markets, such as US, but also actively seeking alternative sources of visitors.

Namely, the BRICs – Brazil, Russia, India and China – offer potential with their rising disposable incomes. Hotel/resort companies in the region such as Sandals are even offering consumer credits on flights and health and wellness activities to entice travellers.

Back to basics

Notwithstanding sales and promotions across the board, travel retail companies are revisiting their core offer to secure future success. TUI AG, Europe’s leading travel retailer, is selling off its shipping division, Hapag-Lloyd, to focus on its tourism operations. TUI recently heralded the revival of the bonded package holiday following the recent demise of tour operators such as XL Leisure Group which left consumers stranded.

Interestingly, the company is also promoting its retail network of agents in the UK re-branded as providers of general travel information rather than its website.

This suggests a brighter outlook for the channel, focusing on the personalised touch. In addition, travel agencies are offering customised packages to corporate clients in response to declining travel budgets. In India, Cox & Kings is offering cost-saving measures including indirect flights, economy class and serviced apartments.

Embrace consumer trends for survival

The WTM Global Report 2008 reveals consumer trends that resonate across all regions – the desire for social and environmental responsibility, social interaction, authentic travel experiences and fair trade practices. During the downturn, travel and tourism companies that adapt and integrate such business practices into their product and service offer will be best placed for survival. They will gain a valuable point of differentiation in the face of declining consumer purchasing power.

Consumers are willing to trade up for sustainability, thus operators should let “conscientious consumption” now drive the travel and tourism industry through these uncertain times.

The 2008 WTM Global Trends Report focuses on seven regions highlighting the key trends in each:

Asia: Europeans Settle for a Good Second Life

Asian tourism is benefiting from Europeans vacationing and subsequently settling in the region for a good second life. In fact, the relatively cheaper medical treatments have made medical tourism a big earner for Asian nations. National tourism boards are actively pursuing the retiree market with offers of tax free savings and flexible entry visas.

Latin America: Going Long Haul

Latin Americans are now going long haul to Europe and Asia Pacific thanks to growing disposable income and aggressive promotions. As travel grows as a social status indicator, more Latin Americans will take long haul vacations, providing additional tourists for well-developed country destinations, such as France and the United Kingdom. Due to the cultural differences, especially in Asia, it highlights a need for well-educated travel agents and tour operators to meet their needs.

Middle East: Expatriate Travel

There has been a continued large increase in the number of expatriates from Europe and Asia moving to and working in the Middle East. There is an ever expanding expatriate network vacationing in the region due to the boom in the Middle East economy – driven by oil, construction, hospitality as well as banking.

UK: Free is the New F Word

In the UK, ‘Free’ is the new f-word as innovative pricing models such as ‘name your own price’, and ‘core free goods’ emerge. Generation Y is a key target market for innovative pricing models. This group is between the ages of 18 and 26, are highly web-savvy who use social networking sites and are used to exchanging goods and services for free, especially for travel purposes.

Europe: Travel Networking

Free hospitality is part of the driving force behind the Travel 2.0 trend seen widely in Europe with the rapid development of innovative forms of travel, such as hospitality tourism and home exchanges, transforming these trends from niche with limited appeal into the mainstream.

North America: Philanthropic Travel

Conspicuous consumption is now ‘conscientious’ consumption for North American tourists. This consumer group are increasingly seeking to ‘give back’ while on holiday. There is potential for philanthropic travel to move into the mass market as US consumers are more likely to choose industry suppliers that support local communities by paying market wages or by donating a portion of their profits.

Africa: Fairtrade Tourism

The demand for philanthropic travel can now be met by certified fairtrade holidays available in South Africa with potential to develop across Sub-Saharan Africa. Fairtrade branded holidays to Africa could be a powerful tool to promote tourism to Africa amongst ethical and eco-friendly travellers worldwide.

Commenting on these findings, Caroline Bremner said, “Even with the current economic downturn – there are still new opportunities out there worth exploring.”

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