This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ Sad to See Summer End? Travel Industry Is, Too August 29, 2003 By MICHELINE MAYNARD Long lines at airports, car-rental counters and hotel registration desks this Labor Day weekend are of little consolation to the weary travel industry, which is already looking past them to expectations of another difficult fall. Analysts and executives said they feared that the travel industry's woes would return, even before the last summer-vacation suitcase is unpacked. The sluggish business climate is simply too much of a damper to provide any hope that this summer's busy travel season has legs beyond this Labor Day, which falls on the earliest possible date for the holiday. Added to that are travelers' lingering fears over terrorism, the continued conflict in Iraq and the imminent resumption of security fees on airplane tickets. "It is going to be a bit of a long winter," said John P. Heimlich, managing director of economics for the Air Transport Association, the airline industry's trade group. That might sound overly bleak, given that airplanes have been crowded all summer. There are exceptions: the hotel industry, in particular, has hopes that the trend toward increased room revenue, which began earlier this summer, will continue. Officials across the travel industry note that leisure and business travelers are waiting far longer than they did in the past to book trips, making demand difficult to forecast and creating some optimism that things might turn out better than expected. But Mr. Heimlich said he thought the spurt of business this summer was partly a result of pent-up demand by travelers who put off winter and spring trips because of concerns over the war and SARS. Over all, Mr. Heimlich said he saw no imminent rebound in business travel, which is off 15 percent from 2000, which is considered the industry's peak year. Corporations have already set their travel budgets for the rest of the year, and if anything, are likely to cut back even further if air fares rise, or if companies' balance sheets look precarious, he said. "Businesses don't just fly more all of a sudden; there has to be a need," Mr. Heimlich said. Robert W. Mann, an industry analyst based in Port Washington, N.Y., said the airline industry generally sets its schedules two weeks after Labor Day. The last two years, the industry has made steep cuts in fall flights. "It's safe to say everyone is very concerned to see what happens after Sept. 15; that's the bellwether," Mr. Mann said. As airlines determine their schedules, car-rental companies in turn will adjust their own fleets to match the expected demand. Craig R. Koch, chief executive at the Hertz Corporation, a unit of the Ford Motor Company, said he was guardedly optimistic. "I think the post-Labor Day season will be kind of flattish," Mr. Koch said in an interview this week. He added that the leisure travel market, which generally fizzles after Labor Day weekend and does not pick up again until Thanksgiving, is showing some buoyancy. Indeed, revenue per available room, a crucial measure in the industry, has risen in eight of the last nine weeks, according to Jan Freitag of Smith Travel Research. "That is a very positive sign coming out of the third quarter and heading into the fourth," he said. Michael J. Rietbrock, an analyst with Smith Barney, said that the industry's tight supply of rooms before the Sept. 11, 2001, attacks and the halt to construction afterwards, could mean that prices would rise even more should demand be stronger. "We believe the stage is being set for a sustained recovery in the hotel business," Mr. Rietbrock said. Sue A. Brush, senior vice president of Westin Hotels and Resorts North America, a unit of Starwood Hotels & Resorts Worldwide Inc., was also optimistic about the outlook for corporate travel. Westin's revenues are up 2 percent in the first seven months of this year compared with the same period in 2002, she said, and she added that she expected business bookings to pick up this fall, after two straight years of decline. September and October are traditionally Westin's strongest months of the year for business travelers. Ms. Brush based her prediction on a pickup in bookings by individuals, and by small business groups. But, free spending is not the state of affairs in either hotels or rental cars. "People are traveling more than they were last year, they just aren't spending as much," Mr. Freitag said. Instead, he said, they wait to snap up last-minute discounts from Web sites. Back in the good old days of three years ago, Mr. Koch said, business travelers boarded planes and rented cars regardless of the cost. "If you're going to make a commercial trip, you're going to make a commercial trip," he said of that era. But in today's weak business climate, "unfortunately, they're not going to make commercial trips," he said. There will be even less justification for last-minute flying after Oct. 1. That is when the government will reinstate a fee of $2.50 per flight segment to pay for security costs; that fee has been waived since June 1. That might not sound like much, but for corporations with thousands of employees on the road, the fees quickly mount. "Even $2 or $3 a ticket means you won't make your profit margins," Mr. Heimlich said. Regardless, the airlines, hotels and car-rental companies are all responding to forecasts of tepid travel with fare sales to international destinations like Hong Kong and London, and discount rates for hotels in New York and Las Vegas. Major airlines have also canceled "use it or lose it" policies" that rendered nonrefundable tickets worthless if not used on the originally intended flight. Generally, customers have a year's grace period in which to rebook their flights. But Kevin P. Mitchell, the chairman of the Business Travel Coalition, which is based in Radnor, Pa., and represents business travelers and corporate travel departments, doubted that the gesture would assuage many passengers. "They knew it was bad," Mr. Mitchell said of the airlines, speaking by phone from his vacation home in Annapolis, Md., this week. "They knew their best customers were angry, but they thought it would all be forgotten when travel came back and business surged." "But it did nothing to address other problems in the system," he added, namely, that business fares remain too high in relation to those offered by low-fare airlines. As a result, the low-fare airlines like Southwest Airlines and JetBlue Airways now account for 25 percent of domestic air travel, a figure that Mr. Mitchell said he expected to climb. The situation has driven customers "into the open arms of the low-fare carriers," he said. Mr. Mann said, "Travel managers are now incentivized to continue the trend to low-fare carriers." There is a silver lining of sorts for some in the travel industry. Mr. Koch at Hertz said low-fare airlines were helping his company pick up business that has been lost because of the drop in travel on major airlines. A decision by one of the low-fare alternatives to start service to a new market, or to expand service to an existing destination, has an almost instant impact on Hertz's business in that city, he said. Car-rental companies can respond almost overnight, by ferrying more cars to those locations. The problem is, it is hard to tell where consumers will go and what they will book when they arrive because so many are putting off trips until the last minute. In any case, Mr. Mann cautions against betting on a burst of spending. "The consumer who carried us through the economic downturn is totally tapped, both on consumer credit and home equity line extensions, and interest rates are headed back up," he said. That leaves the industry particularly vulnerable if concern about terrorism causes people to stay home. Mr. Mitchell said he was especially concerned about the impact on the jittery corporate travel market, should an attack take place at home. "If there were another incident on a commercial airliner in the United States, it's game over, lights out," he said. "It's beyond a disastrous fall. It's over." http://www.nytimes.com/2003/08/29/business/29TRAV.html?ex=1063163278&ei=1&en=f4c8929682f2fee6 --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! Click here: http://www.nytimes.com/ads/nytcirc/index.html HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2003 The New York Times Company