2011 Travel Costs Up, Japan Impact Uncertain


The negative effects of the recent global economic downturn have begun to fade for the U.S. travel industry. However this good news for battered hotel and airline companies is bad news for business and leisure travelers.

Airfares are expected to jump 20% by this summer driven by higher fuel costs, industry consolidation, smaller fleets, and a 3% jump in U.S. business travel. In January and February, CWRU airfares reached an average of $508 per trip, already a 16.5% increase from 2010.

After significant deflationary pressures in 2008-10, national hotel rates are averaging $147.30 per night in 2011. This is up 4.2% from last year and is expected to trend higher in 2012. Local Cleveland-area hotels report considerable occupancy and margin improvement for Q4 2010 with a strong 2011 expected.

One bright spot for consumers has been rental car pricing. After two years of increases spurred by shrinking fleets and industry consolidation, rates are expected to fall in 2011-12. Corporate CWRU contract rates for Enterprise Rent-a-Car and sister company National Car Rental range from $35-44/day versus a 2011 $52.60/day U.S. composite.

The great unknown is what Japan's troubles mean for the U.S. and global economies. Airlines already are seeing significant declines in passenger volume and revenue to Japan. Continental-United has reported shrinking traffic to its Tokyo-Narita hub, while Delta has suspended service to Tokyo-Haneda from Los Angeles and Detroit. American Airlines has seen a 25% drop of inbound Japan passenger volume.

Early estimates indicate a ripple effect from the Japanese disasters could shave .5 to 1% from 2011 U.S. GDP growth, dampening demand for business travel. Any decline combined with surging jet fuel costs (up 60% from summer 2010) could spark renewed airline capacity freezes and schedule reductions. The hotel industry will shadow any airline decline, especially business and conference segments that have only recently returned to profitability. For now, it's just a waiting game for travel consumers and providers before the true impact of Japan's difficulties becomes clear.


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