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Introduction to the Travel Industry

¹ Video Tip
For our brief video introduction to the Travel industry, see www.plunkettresearch.com/video/travel.
 
The global travel industry is comprised of a wide variety of businesses, from hotels and inns to casino resorts, trains, buses, airplanes, cruise ships, tour operators and travel bookers, both online and physical. According to the World Travel & Tourism Council (WTTC), one billion tourists traveled the world during 2012, a new record high.
WTTC found that the global travel and tourism industry supported 101 million jobs on a direct basis in 2012, which they forecast to grow to 120.4 million in 2022. The industry generated $2.057 trillion in direct global contribution to GDP (gross domestic product) during 2012, which is forecast to grow to $3.0 trillion in 2022. 
The industry’s impact on GDP grew by 3% in 2012. Over the longer term, WTTC expects this growth to average 4.4% yearly from 2012 to 2022.
According to the WTTC’s figures, in the U.S. travel and tourism accounted for $438.6 billion in direct impact on GDP during 2012, which is expected to grow to $628.5 billion in 2023. Asian nations produced strong results from travel in 2012, and WTTC expects South Asian travel markets to grow from $48.5 billion in 2012 to $104.0 billion in 2023, a 7.3% annual growth rate.
The International Air Transport Association (IATA), the international association that represents most of the world’s major airlines, estimated a global airline industry net profit of $7.6 billion for 2012, growing to $10.6 billion in 2013 due to improved business strategies, increased fee income and high seat occupancy levels. Global airline revenues for 2012 were estimated at $631 billion.
The U.S. Travel Association (USTA), which measures travel in a broader manner, estimated total U.S. travel expenditures at $865.4 billion for 2012. This was up significantly from $813.0 billion in 2011 and $758.7 billion in 2010.
International passenger travel is a bright spot. For example, the U.S. International Trade Administration expects international arrivals in the U.S. to grow from 66.97 million visitors in 2012 to 76.6 million in 2016. Hotel occupancy and airline traffic have been strong in emerging nations including India, China and the surrounding Asian region, as well as in Brazil. However, an economic slowdown in these nations during mid 2013 will have a negative effect on travel, at least for the near term.
Hotels and resorts have been enjoying good occupancy rates, which enabled them to raise prices, while many new properties have been built or are under construction in promising markets. Business travel has rebounded considerably over the dismal recession years of 2008-09, while leisure travel has been generally strong worldwide. Nonetheless, when members of the European or American middle class do take a vacation, it is generally on a reduced budget. Businesses are sending more employees on trips, but are keeping a tight reign on costs at the same time.
In the U.S., major airlines have cut routes and reduced the total number of seats available, partly by removing older, fuel-guzzling aircraft from service. This put the airline industry in a much more efficient operating condition. U.S. airlines are operating with much smaller staff counts, and to a large extent they were able to renegotiate union contracts in recent years in order to reduce wage costs. All of these steps, combined with a shift in strategy that relies on fees for services such as checked baggage, has resulted in a much healthier airline industry in America, and improved profits. The number of employees in the U.S. scheduled airline industry plummeted from 485,000 in 2003 to 416,700 in 2012.
The 2008-09 recession was an ugly time for airlines. Many took bankruptcy protection in 2008, including Frontier, and some, such as Aloha Airlines and ATA, once major airlines in Hawaii and elsewhere, were forced to discontinue operations altogether. Several specialty and business-class-only airlines ceased operations also, including MAXjet, Eos and Skybus. Government-controlled Alitalia, in Italy, took bankruptcy in August 2008.  Japan Airlines took bankruptcy in 2010, stating it would cut more than 15,000 employees.  More recently, in 2011, American Airlines filed for bankruptcy. It was unique among the major airlines in that it had not been able to get unions to cut wages. As a result, its labor costs were very high compared to the rest of the industry. (As of mid 2013, American hoped to exit bankruptcy by merging with US Airways, but antitrust regulators have stopped the merger, at least for now.)
For the near future, advanced new aircraft will bring significant changes in the global airline industry. Boeing’s 787, with the first delivery made to Japan’s ANA airline in September 2011, enables international airlines to offer great enhancements to passenger comfort with extremely long intercontinental range, while the airlines will benefit from a fuel efficiency boost of about 20%. Boeing enjoys a massive backlog of orders for this advanced aircraft, despite recent technical problems that were painful to solve. Although this mid-size aircraft carries fewer passengers than the massive Boeing 747 and Airbus’ giant A380, it enables airlines to open up many new, direct routes. For example, new flights from Europe directly to growing markets in Africa and Southeast Asia will be introduced. Likewise, new routes from markets in the U.S. such as Denver or Minneapolis, that historically have not been major jumping off points for direct flights to Europe or Asia, will likely be tried.
A modest number of the giant Airbus A380 had been delivered by mid-2013, typically set up to carry about 550 passengers in great comfort from one global capital to another. Airbus enjoys a good backlog of orders for this aircraft.
Perhaps more important is the spectacular demand from global airlines for smaller, single aisle planes to replace older models that are not particularly fuel-efficient. Boeing has announced that it will build a new high-efficiency version of its exceptionally popular 737, to be called the 737 MAX, which will compete with a similar offering from Airbus, an A320 NEO model with a new engine option. Massive numbers of both of these aircraft will be sold over the long term.
Among international carriers, the upstart Emirates has carved out a place for itself as a major long-haul airline. It offers routes spanning the entire world with a major hub in the Middle East.
Discount airlines remain very important players in the U.S. as well as in Europe and the rest of the world. Southwest Airlines is one of America’s top carriers by number of passengers, and JetBlue has enjoyed very rapid growth. Outside the U.S., many carriers have carefully studied Southwest’s methods and strategies, and have enjoyed strong growth. Good examples include Dragonair in China and Ryanair in Europe.
E-commerce continues to play an extremely important role in the travel sector, making booking convenient for consumers and more cost-effective for travel providers. However, online travel booking sites like Orbitz and Expedia face tough competition. Airlines and hotel chains operate their own powerful online reservation systems, with rich features, multiple levels of photos and descriptions, and features for managing frequent traveler rewards. Consumers often find the lowest prices on sites operated directly by airlines and hotels.
The cruise line business has enjoyed solid growth, despite the recent financial crisis. Consumers see cruises as high-value package deals, and cruise ships are nearly full. Cruise companies are hopeful that their “all-inclusive” fare model will continue to attract cost-conscious travelers in addition to luxury cruisers. Some of the newest ships, such as Royal Caribbean’s “Allure of the Seas” are among the largest passenger ships ever built. The Cruise Lines International Association estimates that North American passenger numbers have been growing at a 7.2% average yearly rate since 1980. An estimated 17.2 million passengers were carried on North American cruises lines during 2012, forecast to grow to 17.6 million in 2013.