Alf's Articles

Tourism's On The March Again!

by Alf Nucifora

Recently I talked with Chris McGinnis, nationally-recognized business travel writer and commentator, and editor of the popular on-line travel newsletter, The Ticket. From his unique perch as an observer of and confidante to the people who make the business travel spending decisions, McGinnis provides the inside scoop on some of the forthcoming trends in the industry.

NUCIFORA: Pre and post 9/11, the floor fell out of the business travel market. What's happening now?

MCGINNIS: It's actually sputtered back to life. I say sputtered because it was a long time coming. Most of the latest statistics show that business travel volume is at or above the level that it was back in the heydays of 1999 and 2000. The statistics bear it out, especially for hotels, which are now reporting healthy profits. Unfortunately, the airlines are not…and that's because there is way too much capacity and competition in the airline industry.

NUCIFORA: The numbers are showing a proclivity on the part of business travelers to get on the plane, are they not?

MCGINNIS: People are definitely back out there. Fares are low, the economy is warming up, and the businessman/woman is ready to renew the relationships that suffered when times were bad. People are going back out on sales calls; meetings and conventions travel is up again.

NUCIFORA: Anecdotally, are you hearing any business or industry segments coming back faster than others?

MCGINNIS: The sector that seems to be coming back the fastest is hotels. They're full to the gills, especially with summer bookings in places like New York, Boston and Miami. Because the hotels are full, they're very profitable and rates are rising. The good news for travelers is that hotel chains are using a lot of that money to renovate the properties that had gotten tatty during the slow times. We're seeing a big increase in upgrading of hotel rooms, particularly upgrades to beds.

NUCIFORA: Let's discuss the legacy air carriers…Delta, United, American, etc. What do you think will ultimately happen to them?

MCGINNIS: Like many of the analysts out there, I feel that there is no longer room for six major carriers and what we're looking at with the U.S. Airways and American West merger is probably what we're going to see happen with the other major U.S. carriers. They are either going to merge or disappear.

NUCIFORA: Are you predicting bankruptcy for Delta?

MCGINNIS: It's hard to say because so much of it depends on the price of oil. But I think they will probably avoid it. The important thing to remember is that bankruptcy does not mean a shut-down. If they do go into bankruptcy, Delta will continue to operate just like U.S. Airways and United. Its frequent flyer program will essentially remain the same. What Delta should do is convert its whole domestic network to Song and keep its international network under the Delta flag. Song has done very well-people seem to like it as much as they like JetBlue.

NUCIFORA: The new pricing model that Delta has enacted, SimpliFares, will it work or destroy the airline? What's the scuttlebutt on the street?

MCGINNIS: A few weeks ago their CFO said that SimpliFares had not produced the results they were hoping for. It hasn't really resulted in a big up-tick in volume. When you hear that, it makes you wonder if they are re-thinking the whole concept. I hope that they stick with changes like the elimination of the Saturday night stay over, or the reduction of change fees to just $50 (down from $100) because they're a move in the right direction. Despite its name, SimpliFares could still use some simplifying.

NUCIFORA: What are the cities and markets that are hot right now for both leisure and business travelers?

MCGINNIS: Obviously Las Vegas and Orlando. The fastest growing markets right now are those that are attractive to Europeans. The power of their currency is making it attractive to visit the US. New York, Washington, Orlando and Miami are the biggest because they're the closest. Europeans are also very interested in the Wild West, so you'll frequently see them wanting to go to Texas or Phoenix. Southern California is also a very big draw for them.

NUCIFORA: If you were an entrepreneur wanting to get into the travel-tourism business, where would you see the low hanging fruit?

MCGINNIS: The luxury travel market is where the money is going to be made in the next few years, assuming the economy continues to warm up and disposable income remains high. Travelers are very much interested in having an "experience" when they take a vacation and they're willing to pay quite a lot for a luxury experience.

NUCIFORA: What does that mean?

MCGINNIS: A great location, a modicum of privacy, a spa, fine dining, etc. What's happening right now is that people are saving so much money on their airfare that they're willing to splurge when they get to their destination. They'll book a suite instead of a regular room, get a hot stone massage at the spa, and they'll order a bottle of Dom Perignon at the restaurant instead of cheap wine.

NUCIFORA: Returning to the business traveler, do you see some flex now with corporate travel spending?

MCGINNIS: A lot of the lessons business travelers learned about saving money during the downturn haven't been forgotten. For example, they've discovered that limited service hotels like Hampton Inn or Holiday Inn Express are good value. You get free breakfast, free high-speed Internet access, etc. As such, people will continue to go there.

NUCIFORA: What are the biggest complaints you hear about these days with respect to travel in general?

MCGINNIS: Among frequent travelers, it's the inability to redeem frequent flyer miles for the place they want to go to, and the dates when they want to travel.

NUCIFORA: Are you of the opinion that frequent flyer miles will lessen in value over time?

MCGINNIS: Yes, we will see a continued dwindling in the value of the miles-for many top destinations, it's now impossible to book a seat unless you are willing to redeem twice as many miles. And if the major carriers do shrink their route coverage, you're going to start running out of available destinations as well.

NUCIFORA: Who are the best performers in the travel space?

MCGINNIS: In terms of a major hotel chain, I think Starwood has done the best with their frequent stay program…promoting it and making it just lucrative enough to attract incremental travelers. The biggest selling point and differentiator for JetBlue, Song, Frontier and AirTran are their live seatback entertainment systems that offer satellite TV or radio programming. If you're on a long flight and you can have a television screen in front of you with 20-30 channels, you put on the headphones and tune out. You don't care how good or bad the flight attendant is, what the food is like, how cramped you feel…you're in your own cocoon.