Time to press the panic button. In a market economy, what really hurts big corporates is the stock value. The travel industry was already reeling under a blitz of airline failures, rising fuel costs and more people preferring to stay at home instead of taking their seasonal vacations. But the recent sharp drop in stock markets worldwide seems to have pushed travel industry stocks onto dangerously thin ice with corporate travelers bailing out of confirmed bookings.

Thing is, the period between Labor Day and Thanksgiving is usually a time when liesure travel goes down a bit, and business travel has an uptick to compensate for it. But due to the uncertain climate in the business world, even 4 and 5 star luxury hotels are experiencing a spate of cancellations and re-negotiations as businesses cut back on their budgets.

But leisure travel isn’t going up to compensate for the lack of corporate travel. That would be because Airlines have cut routes by 8-10% on domestic flights, and increased fares on the remaining routes. Air traffic in September was down nearly 10% as compared to last year, and hotel occupancy down 5%.

Marriott International Inc. (MAR) is now down 29% for the year and Starwood Hotels & Resorts Worldwide Inc. (HOT) is down 41%. Shares in the Walt Disney Co. dropped 4% on Monday to $28.26 , the lowest since January. Orient-Express Hotels Ltd. lost 40% in the third quarter alone. And the revenue per room (revpar) for upscale hotels in 2009 is going to be even worse, with an expected drop of 3-5%. Anaylsts are downgrading hotel industry stocks due to the long-term implications of cutbacks in the travel budgets of the financial sector.

The worst hit is probably being taken by New York, where 20% of the state’s revenue is directly tied to the stock market.  In an interview, NY Gov. David Paterson says that unless the bailout cash starts seeping into the New York based financial companies soon, there’s going to be big trouble. People are lining up at New York hotels to work the midnight to 8.00 shift.

And this is not just about the US. Bloomberg News reports that Vienna hotels are facing a 20% drop in US visitors. And the Pacific Asia Travel Association is reporting that the next 12 months could be very dire for them. In a press statement, John Koldowski, director – Strategic Intelligence Center for PATA said that “Wall Street is having an impact as well on the travel industry. As the Dow Jones slid drastically last week, a number of tourism-related stocks – particularly publicly-listed airlines and hotels - followed suit. The last few weeks show how the fortunes of the travel and tourism industry are tightly connected to overall business sentiment.”

The only thing that can now save the travel industry is a reversal in the fortunes of Wall Street and an associated upswing in corporate travel. Unless the stocks start picking up soon, the travel industry will have lost one of the poles supporting the tent. Which could very well bring the roof down. 

Posted on October 7th, 2008 by PLing
Filed under: Travel News