Though the past year was not the most stable and worry-free of periods for the U.S. inbound tour and travel industry, the trends that had been established and which held through 2017, could be less open to disruption from exogenous factors than they were at the beginning of 2017, when there was widespread concern that arrivals to the United States would decrease sharply in reaction to a Donald Trump presidency. But, things did not turn out as badly as feared.
The Big Picture:“Macro” variables that have an impact—such as global currency exchange rates, geopolitical issues (“Brexit” in the UK; saber rattling by North Korea; the “Trump factor”—that can’t be projected on to a trend line) and global security concerns that do not respect national borders concern us all.
And among these factors, that which has had the greatest impact on the trend line for international and overseas travel to the United States in 2018 and early 2019 is the currency exchange rate. INBOUND regularly follows the fluctuations among the world’s most traded currencies—the U.S. Dollar, Euro, Japanese Yen, British Pound and Canadian Dollar and a few others*—whose value against the U.S. dollar are shown from one year ago and two years ago.
Airlines: Air fares are usually the second largest component of a travel package (lodging being the largest) and for the past several years they have, for the most part, been a value for the tour operators abroad and U.S.-based receptive tour operators who assemble the packages that bring visitors to the United States. Last year, low-cost carriers—Norwegian Air, WOW, Wizz, Volaris, Viva and more—either flew directly to the U.S. or connected to U.S. flights at hubs in greater numbers than ever before. Competition was fierce enough that low-cost Air Berlin could not keep up and it went bankrupt last August.
Much of the same is in order for this year. Of particular interest is what is happening in Europe with the brands of the International Airline Group (IAG), which includes British Airways, Aer Lingus, Iberia and two low-cost carriers: Barcelona-based LEVEL, launched last year, offering direct service to USA; and Vueling, a low-cost carrier also headquartered in Barcelona, but which also connects to Iberia in Madrid. Iberia, too, has low-cost flights to Barcelona. European and U.S. legacy carriers are operating at low margins and cutting costs elsewhere (with hedge contracts for fuel, for instance) in order to keep their fares low and competitive. Also, look for additional connectivity between second-tier cities in China and their second-tier counterparts in the U.S. as landing slot availability becomes scarce.
Attractions will continue to become a larger, more integral part of tour packages due to a combination of factors: the growth of what were once considered “extreme” activities such as indoor rock climbing and axe throwing through alternative media channels of distribution; the emergence of OTA’s and tech-driven RTO’s such as Hotelbeds, that can automate inventory of small-margin tickets and gated admission attractions so that they can be packaged dynamically with hotels. Additionally, new technological applications such as Bandwango, allow DMOs to join other entities as third-party sellers of attractions products.
Car Rentals will increase their share of the overall budget that visitors to the United States allocate to ground transportation, as Fly-Drive itineraries continue to increase among travelers from some markets—especially China—and some visitors to the USA have taken to caravan driving, eschewing the traditional tour bus or van (See “Group Sizes” below), both of which required an on-board guide. In particular, well-to-do Milennial travelers prefer to do it on their own. In China cars are being rented through intermediary companies that package car rental, with driver’s license translation and local guide.
DMOs are evolving from their historic role as an information sources /referrer of leads/and promotional agencies to marketing organizations that, through the social media and new digital tools, can trigger the intent to travel among website visitors, as targeted international campaigns are being delivered to consumers in source countries for as little as $5,000. The next trend will be to use social media tools such as video and Virtual Reality to help international tour operators to sell through packages that include a destination’s product
Group Sizes: FIT and Group Travel are undergoing, and will continue to undergo, a change in definition and dimension. Groups no longer comprise just 50 passengers who fill a traditional bus. The change is reflected in the fact that a growing portion of groups now use 12-passenger Mercedes Benz Sprinters. No longer is a step-on guide always a part of the group, as some travelers, especially Millennials, enjoy the freedom and flexibility of smaller groups. Further granulating the definition of the tour group is the PIT, or Partially Independent Traveler (as opposed to FITs, or Fully Independent Travelers) who might travel in small groups, but have more “on-your-own” time or time without a prepared itinerary. And then there is the rather obtuse definition of FIT among Chinese visitors—which can be defined as small groups of between 4-10 people traveling together who book hotel, air and a modicum of ground travel through travel agents or OTA’s.
Hotels in the U.S. are in the midst of a period of slow-to-flat business growth and occupancy, as demand has not kept up with supply in recent years. As the third quarter of 2017 came to a close, the big three hotel research firms—CBRE, PwC and STR—gave us this picture:
Whether this trend continues into and through 2019 (and it may) or has any impact on the ability of tour operators to wring lower rates or find larger allotments on more dates is open to question. But one thing seems certain: Hotels are squeezing every available potential source of revenue for all that they are worth, as they have replaced restaurants with “grab-and-go” soup and sandwich stations and, in some U.S. cities, have began slapping “urban destination fees” on to hotel bills for such extras as internet access, food vouchers and gym usage. This add-on was invented in Las Vegas, as a “resort fee” in the midst of the 2008-09 Great Economic Recession. As long as demand is soft, look for more add-ons.
Independent Hotels: As hotel corporate flag contracts lapse or ownership changes hands more hotels are opting for their independence to unshackle themselves from corporate brand regulations as consumers continue to reject the “cookie-cutter” in response to properties that more reflect the uniqueness of the local community.
Free Cancellation will no longer be emphasized as a hotel’s selling point. With average cancellations rates of 40 percent with booking.com, 28 percent on Expedia and 23 percent on a hotel’s own website, hotels will be pulling back on free cancellation services, which may shorten the booking window even further as international travelers realize they will no longer be able to book a hotel or air ticket without cancellation fees.
Technology-Driven Tourism: More a fact of business life than a trend, the way that the travel trade conducts both B2B and B2C marketing is tied to the latest development with the Google or Facebook algorithm and WeChat app. What has changed since the launch of the digital age (let’s agree that it took place in the third quarter of 2007 following the June 29, 2007 release of the first iteration of the iPhone) is the way that wholesalers interact with the travel suppliers and DMOs who deal with travel consumers, and it has changed in a fundamental way. It is a dynamic, not a static, process. No longer do consumers get their inspiration or intent to travel from a print ad that tries to appeal to a broad swath of the traveling public. Rather, increasingly, they are accustomed to, and moved by, targeted content-rich copy, video or sound that also incorporates an interactive element. The most recent developments seem to suggest an even greater dominance of mobile (vs. that for PC, laptop or tablets) applications and use. Also watch for: The growing presence of Virtual Reality (VR) in travel agent offices around the world promoted as “the next best thing to being there.” VR will work in combination with Augmented Reality (AR), where additional captioned information pops up within the video at designated places.
Testosterone Tourism—Product with Hair on its Chest: Visits to gun ranges, operating heavy equipment at faux construction sites, and indoor hatchet throwing in Philadelphia? Five years ago when the 2013 IPW was staged in Las Vegas, international and receptive tour operators got their first full look at a product development in its nascent stages: Testosterone Tourism. The phenomenon seemed to satisfy the desired of some visitors to the U.S. to get the type of rush they cannot get in their home countries by shooting machine guns at the several ranges from the Greater Las Vegas area exhibiting at IPW. The appeal of this sort of “Testosterone Tourism” (also referred to as “Adrenaline Tourism”) extends, in spirit, to the myriad zip lines, bungee jump variations, racetrack driving in exotic automobiles and virtual reality games in which patrons are made to feel like they are battling monsters directly out of a “Ghostbusters” movie—as they are at Madame Tussauds in Times Square in New York City. A solid trend into the next decade.
Tour Operators and Receptive Tour Operators: Mergers and acquisitions, globalization and finding the right combination of services and products in order to compete with OTAs will preoccupy and bedevil tour operators and U.S.-based receptives in 2018 and 2019. Last year, in what was arguably the biggest story in the tour and travel industry in 2017, Hotelbeds acquired GTA and Tourico Holidays. Then, Brazil’s largest travel agency/tour operator, CVC, acquired the Grupo Tour operation, followed by CVC signing an agreement with Japan-headquartered JTB Americas, in which the latter will sell Brazil product in U.S. markets. And another of Japan’s largest operators, H.I.S., acquired Canada’s largest receptive tour operator, Jonview Canada. As well, there were a number of agency and specialty operator acquisitions in key European markets. The principal reason for all of this is simple: travel companies want to increase share, fortify their presence in, or expand business by moving into, new markets—whether the traffic is inbound or outbound. Another development driven by the merciless nature of the marketplace is the departure from the industry of some long-time sales and marketing professionals from the receptive tour operator industry. Some have set up their own consultancies or home-based businesses as they struggle to stay a part of the industry. Others have gone on to other sectors of the economy.
The Trump Impact Year 2: Fear and Loathing. When news of the election of Donald Trump as President of the United States spread throughout the exhibit on the final day of the 2016 World Travel Market (WTM) in London, the mood of the event prompted many in the tour and travel industry to believe that the Rapture had descended upon mankind and that the end of inbound tourism to the USA was part of it. While it is true that a harsh feeling toward the new president has correlated with a decline in demand for USA product in some key country markets, it does not seem to have had any impact on the major growth markets of Asia. This could change dramatically if the administration, through miscommunication and pronouncements designed to shore up the president’s base, if the economic issue of our trade deficit with China becomes a political one whereby China is demonized in any way. To be sure, the dimensions of the impact of the Trump presidency are real. But greater than his effect on travel to the United States is that of the strong U.S. dollar. Once there are more data available from surveys that dig deep into the response results, we will have a better idea of the true Trump Impact.