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6 Oct, 2008

Travel & Tourism Braces for Impact of Financial Crisis

The global travel & tourism industry is bracing for yet another crisis as the fallout from the turmoil in financial markets begins to make itself felt.

In the U.S., both the Travel Industry Association (TIA) and the Air Transport Association (ATA) early last week urged Congress and the Bush administration to take action to shore up the credit markets.

“The small- and medium-sized businesses that make up the vast majority of America’s $1.6 trillion travel economy, which employs one out of every eight American workers, depend on ready access to credit to meet their daily operating needs and to grow their companies,” TIA said.

“The U.S. travel community is extremely concerned about the ongoing uncertainty in America’s credit markets and its long-term effect on the economy. The longer this uncertainty is left unresolved, the greater the potential negative economic impact for workers, employers and all American taxpayers.”

ATA President and CEO James May added, “We strongly support Congress acting in a bipartisan manner, passing comprehensive, balanced legislation. The consequences of inaction are unacceptable.”

The International Air Transport Association (IATA) released international traffic data for August that confirmed a continuing downturn, with September expected to be worse.

International passenger demand growth slowed to 1.3% in August, following disappointing growth of 1.9% in July. Passenger load factors fell to 79.2% a sharp drop-off from the 81% recorded during the same period last year as capacity growth outpaced demand.

“Passenger traffic grew by 5.4% in the first half of the year. That slowed to 1.9% in July and 1.3% in August. The contrast between the first half of the year and the last two months is stark,” said Giovanni Bisignani, IATA’s Director General and CEO.

“The slowdown has been so sudden that airlines can’t adjust capacity quickly enough. While the drop in the oil price is welcome relief on the cost side, fuel remains 30% higher than a year ago. And with traffic growth continuing to decline, the industry is still heading for a US$5.2 billion loss this year.”

Air freight is also declining steadily, led by Asia Pacific carriers that posted a 6.5% decline in July and a 6.8% decline in August. “Airlines carry 35% by value of the goods traded internationally. The three-month decline – led by weakness in Asia-Pacific markets – is a clear indication that global trade is slowing down. This shows that the impact of the financial crisis is broad geographically and will worsen before it gets better,” said Bisignani.

Asia Pacific carriers reported a 3.1% contraction in passenger demand, following a 0.5% decline in July. The Olympics in China and a weakening Japanese economic outlook also contributed to the decline.

“The industry crisis is deepening and no region is immune. Urgent measures are needed. From taxation to charges and operational efficiencies, all areas impacting the business must be examined for ways to reduce costs and drive efficiencies. It’s a matter of survival,” said Bisignani.

The International Congress and Convention Association (ICCA) seemed to have a more mixed perception of the scenario. A survey of its global membership in the light of the turmoil in financial markets generated a response from over a quarter of its 850 member companies and organisations of how the meetings industry is coping.

Fewer than 6% of respondents reported suffering a significant downturn as a result of the economic environment, whilst 60% report no impact. However, ICCA members are more negative about the prospects for the rest of the year.

Only 12% of respondents are planning to cut their marketing budgets during the rest of 2008, whilst over three-quarters indicate that they will definitely not be making cuts. ICCA said this is good news for trade show organisers, and is in marked contrast to the big cuts which were seen in previous economic downturns.

Asked what impact the current financial crisis will have on the meetings industry in general, only 6% felt there would be no significant impact at all.

Just over half felt there will be significant negative impact but restricted to certain regions, over one third felt there would be significant short-term global impact, whilst 7% felt there is likely to be significant global impact lasting longer than 18 months.

ICCA CEO Martin Sirk was quoted as saying: “It would seem that optimism about personal business performance is balanced by a far more pessimistic perception of how others in the industry are likely to be affected. There is still a great deal of uncertainty in the marketplace, but it is clear that the financial turmoil has not yet been translated into any noticeable cutbacks amongst clients.

“This reinforces other anecdotal feedback we are obtaining from meeting planners which indicates that international meetings are becoming ever more important to companies and associations alike, and they are more reluctant to cut events which have become ‘mission critical’ to achieve their business objectives. If this is so, it will help our industry to weather any future economic downturn.”

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