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Industry Outlook 1999 -- SERVICES
Although the travel industry has long been vulnerable to economic storms, airlines, hotels, and travel agents have been able to shrug off the warnings from Asia. Now, however, they face some homegrown problems.
Hotel chains, for example, spent 1998 building and acquiring properties like mad, driven by the low cost of financing. That could lead to a dip in prices in early 1999 for low and moderately priced rooms. As this building boom peaks in 2000 or 2001, analysts are expecting price wars, with even the best hotels lowering rates by as much as 10%.
The major airline carriers have a slightly different problem. With full planes and flat ticket prices, they have to find new ways to feed profits. David A. Swierenga, chief economist for the Air Transport Assn., says airlines are ready for a slowdown: Traffic is expected to grow 2.8% in 1999, but carriers have upped capacity by only 3%. "We've set ourselves up for the coming cycle to weather it," says Swierenga.
The airlines have more problems than slowing demand, though. Major carriers will likely face a regulatory assault and discontent from business travelers angered over the high fares they pay. That could benefit low-fare airlines. "We may very well pick up market share as people shop harder for low fares," says Gary C. Kelly, chief financial officer of Dallas-based Southwest Airlines Co.BIG BLOCS. To keep costs low, the airlines are increasingly turning to international alliances. Carriers in 1998 broke into four camps: the Wings group, led by Northwest and KLM; United's Star Alliance; oneworld, led by American Airlines and British Airways; and a Delta partnership with European carriers. This year will tell whether the teams can go beyond marketing agreements.
Alliance partners will begin by sharing ticket counters and expanding their powerful purchasing blocs. Look next for consolidation at terminals, where Wings agents, for example, will replace employees from Northwest Airlines Inc. and KLM Royal Dutch Airlines.
Electronic ticketing will help the bottom line by saving the airlines millions of dollars in distribution costs. About 40% of domestic airline passengers already fly on E-tickets, and some analysts say E-ticketing could be universal in the U.S. by yearend.
Travel agents are coping with the rush to E-ticketing by offering new services, such as charging $10 to $20 to find clients the lowest ticket price. Full-service shops will offer their clients everything from a car-and-driver in Kuala Lumpur to a cellular phone in Pakistan. And look for a lot more specialization. "You've got some very narrow categories like golf tours, culinary tours, and occult tours," says Steven D. Loucks, a spokesman for the American Society of Travel Agents. Maybe even some cheap tours to Asia?By Lorraine Woellert in Washington, with Wendy Zellner in DallasReturn to top
Positives and Negatives
-- Carriers in smaller communities could benefit from proposed federal rules against predatory pricing
-- The hotel industry will continue to snap up new properties, thanks to low financing costsNEGATIVES
-- Commission caps will change the way travel agencies operate and could drive many smaller shops out of business
-- High aviation labor costs will mean prodigious cost-cutting elsewhereReturn to top