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. Both the United Nations and the World Travel & Tourism Council (WTTC), estimate that more than 1.1 billion tourists traveled the world during 2014. WTTC found that the global travel and tourism industry supported 105 million jobs on a direct basis in 2014. The industry generated $2.4 trillion in direct global contribution to GDP (gross domestic product).
Hotels and resorts have been enjoying good to excellent 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 keeping a tight rein on costs at the same time.
Hotel investment has been growing at a fast clip. For example, global firm AccorHotels announced 49,000 new rooms planned for Asia over the next few years. The big question, however, is whether or not the late 2015 economic slowdown in China, Brazil and other key markets will cause hotel firms to defer investments in these emerging markets.
A survey by analysts at PwC forecast that 2015 U.S. hotel industry occupancy rates would be higher than at any time since 1981. ADR, average daily room rate, has also been seeing superior growth. For 2016, the study forecast an average daily revenue per available room (RevPAR) increase of 5.9%.
The plunge in oil prices beginning in late 2014 is anticipated to boost airline profits in 2015. According to the International Air Transport Association, a 47% rise is expected in collective net profit among airlines, reaching a record $29.3 billion for 2015, compared to $19.9 billion in 2014 and $11 billion in 2013. Passengers are unlikely to see much in the way of cuts in fares, due to high demand, low competition on many routes and planned investments in new aircraft and flight network expansion.
In the U.S., over a period of several years, major airlines 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. By 2015, business was so good that many airlines were adding to the number of available seats.
U.S. airlines are also operating with much smaller staff counts recently than they were in previous years. For example, the number of employees in the U.S. scheduled airline industry plummeted from 485,000 in 2003 to 410,600 in 2013. To a large extent, airlines were able to renegotiate union contracts in recent years in order to reduce wage costs. By 2015 however, unions were being much more demanding, as they could see the very high profits that airlines were generating. It is also vital to note one additional shift in airline strategy: today, they rely heavily on fees for services such as checked baggage, seats with extra legroom and on-board food.
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 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. American soon emerged from bankruptcy and merged with U.S. Airways; the newly combined companies use the American Airlines brand.
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 giant Boeing 747 and Airbus’ massive A380, it enables airlines to efficiently open up many new, direct routes.
A relatively modest number of Airbus A380s have been delivered, typically set up to carry about 550 passengers in great comfort from one global capital to another. Airbus enjoys a backlog of orders for this aircraft, particularly from airlines based in Middle Eastern nations, but sales are nonetheless disappointing overall.
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 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 A320neo model with a new engine option. Enormous 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. Etihad is another Middle Eastern carrier that is getting rave reviews for its first class suites.
Discount airlines remain very important players in the U.S. as well as in Europe and the rest of the world. Outside the U.S., 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 programs for managing frequent traveler rewards.
The cruise line business has enjoyed solid growth. Consumers see cruises as high-value package deals, and cruise ships are nearly full at all times. Some of the newest ships, such as Royal Caribbean’s “Allure of the Seas” are among the largest passenger ships ever built. Approximately 12.1 million passengers sailed on cruises originating in North America during 2014, up from 11.79 million in 2013. Plunkett Research forecasted that 12.3 million would sail in 2015. The cruise industry is expanding into niche markets, including ships operated specifically for Chinese passengers, as well as more river cruises and adventure cruises.
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