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The Tourism Time Bomb! It

International travel is no longer the exclusive province of the rich. Over the next several decades, hundreds of millions of new entrants to the middle class will want not only the things—but also the experiences—that money can buy.

But where, o where, in this world can those hundreds of millions go?  And with what consequences to the rest of us middle class or upper class folks, or the super rich,  who have the best of all worlds right now when it comes to travel?

The authors proclaim ”Indian call-center employees, Russian petrochemical engineers, Chinese middle managers, and Brazilian salespeople are already scouring the web for deals on trips. They want to see Paris from the Eiffel Tower, relax in the Maldives, and play blackjack in Las Vegas.”

According to the United Nations World Tourism Organization, international tourist visits are expected to double soon, from roughly 800 million in 2008 to 1.6 billion by 2020.

However, only so many people can visit a particular building or beach in a given year. Where will all the other tourists go? This skyrocketing demand for travel will lead to a “scarcity of place” and to several  market responses:

First, most tourism-related prices, such as hotel room rates in popular cities, will continue to escalate as demand outstrips supply.—big time! 
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Luxury Hotel Buzz At NYU Conference - Climate Looks Friendlier 'From the Top'

The NYU Hospitality Investment Conference in New York is a premier get-together for the hotel industry – and this year was no exception. While the climate for financing luxury resorts and hotels today is noticeably chilly, and the US outlook was clearly cautious, the overall  global picture seemed to us distinctly positive.  With a record 2400 delegates in attendance at the Waldorf Astoria, much of the buzz was less about the economy than about two executives who were not even on the agenda.

 

Those two were Ross Klein, who had headed up Starwood’s Luxury Hotel Group – including W, St. Regis and Luxury Collection; and colleague Amar Lalvani from Starwood Hotels – both leaping to Hilton as that company seeks to jump into the boutique segment of the industry. They will become Global Head of Luxury & Lifestyle Brands and Global Head of Luxury & Lifestyle Brand Development, respectively.

 

Hilton is clearly trying to make up for the head start that Starwood and other competitors have on the lifestyle front - knitting “lifestyle” and “luxury” under the same umbrella.  And the questions for luxury marketers seems to be: Can lifestyle be positioned as luxury? Can high design and a “cool” environment drive up rates? W Hotels seems to have done it – but that might have been a unique situation.

 

On that subject Barry Sternlicht, who created Starwood Hotels and who now runs (unrelated) Starwood Capital, said at the conference, “W Hotels was never meant to be a luxury product.” But because its lifestyle approach to lodging clicked with the right demographic, it enjoys rates right up there with much more lavish brands like Ritz-Carlton and Four Seasons.

 

Sternlicht cautioned , however,  that “one problem with being that ‘edgy’ is that really hip people are always changing hotels to stay in the hottest ones.” He said that in his tenure at Starwood, “Turning around Westin was more important financially than creating W.”

 

Here is a look at some of the buzz behind the buzz at NYU that will directly affect the luxury lodging marketplace.

  • The U.S. is quickly moving from being the center of the hospitality world. It’s not news, but the pace seems to be accelerating for all industry activity – especially at the higher end -- financing, development and even customers seem to be emerging from China, India, Russia, the Middle East and other markets.
  • Hoteliers are extremely concerned about the state of the U.S. airline industry – cutting capacity, alienating travelers, etc.  While lodging has held up in the face of the crisis, some worry about how long that can be sustained.

   

 
Cruising Along: Consumer Research Survey Shows Reassuring Outlook for Cruise Industry
Cruise Lines International Association, the association of major cruise lines, unveiled its annual consumer market research – and the news was surprisingly positive. The big headline was that in the next 12 months roughly the same number of people anticipate traveling more than less (17% vs. 18%) – but cruisers have more robust expectations of traveling more (19%) especially destination and luxury cruisers

Special Interest  highlights  for Luxury Cruise marketers -

  • The more expensive types of cruises tend to host more repeaters; for example, 77% of Destination, Luxury and Premium cruisers have sailed more than once. Contemporary lines attract the largest share of first timers (40 %.)
  • Cruisers agree that cruise vacations are a good way to sample destinations they may wish to visit again (80%). The more experienced/seasoned Destinations and Luxury cruisers are most likely to have returned to a port for a non-cruise vacation and are more likely to add on a couple of days (43% -- 2 days) in the embarkation/debarkation port city as well.
  • Cruisers spend considerably more (almost 50%) on vacations than non-cruise vacationers on their trips ($1,770 vs. $1,200).  By cruise type, passengers on Luxury Lines ($3,650) spend the most, followed by the Destination/Specialty/Niche ($2,940), Premium ($2,180), and Contemporary ($1,720).graph.jpg

 
Growth at Breakneck Pace-Global Spa Economy Reaches $255 Billion
The global spa economy is estimated to be over $255 billion, according to a major report unveiled at the 2008 Global Spa Summit in New York attended by more than 220 industry leaders in May.

Prepared by SRI International on behalf of The Global Spa Summit, the first-ever Global Spa Economy Report represents the most comprehensive effort yet to quantify the rapidly expanding global spa industry. According to study sponsor Pete Ellis, CEO of SpaFinder, the data shows investors, policymakers, and spa industry leaders the economic and business benefits of the spa industry.

The report's estimate, which looked at the year 2007, includes $60.3 billion in core spa industry revenues, such as spa facilities, capital investments, education, consulting, media, associations, and events, and $194 billion in spa-related hospitality, tourism, and real estate.

When broader spa-related industries such as beauty, nutrition, and fitness were factored into the equation, last year's global health and wellness market exceeded $1 trillion, according to the report. This one-year snapshot makes the spa sector one of the first industries to organize at a global level and analyze its own worldwide impact.

The report also found that 1.2 million workers were employed in more than 71,600 spas worldwide in 2007. During the same period, capital investment in spas approached $13 billion, with continued expansion on the horizon.
 
U.S. Travel Agency Outlook 2006-2009 - New PhoCusWright Study

pcwi_agency_table_3.4.jpgLast week we posted key highlights of PhoCusWright’s just released Travel Agency Distribution Landscape Report on our home page. Today, after a more in-depth review, we move on with selected insights and data that offer significant encouragement to all who have a stake in the upside of the agency channel.

(Please note that the Study does not cover the luxury travel market or luxury bookings. It does, however, provide a vital context for suppliers, agents, and  tourism authorities everywhere. I could not imagine any of us doubting  that the general health of the broader agency business has a big bearing on luxury distribution.)

  • Traditional travel agencies ( excluding online travel agencies) accounted for almost $110 billion in gross travel sales in the U.S, or 40% of the $273 billion travel market in 2006. Travel agents’  total sales volume is expected to decline incrementally to $104 billion by 2009, when agents will account for 33% of all travel sales –with air being the major culprit. At the same time, the research suggests that the migration of online travelers away from traditional retail agencies has largely stopped, and may even have reversed itself, however slightly.  -PhoCus Wright Consumer Trends Report
  • How many individual sellers of travel in the U.S.? See the chart below, while noting that the largest 65 mega-agencies account for a stunning 47% of all travel agency sales, which leaves another 23,000-plus agencies to carry the rest, resulting in a very fragmented mix of small, primarily leisure-focused agencies?
  • “Facing significant upheaval in the industry, many in the agency community have responded strategically, tactically, and –most of all—aggressively to adapt, survive, and succeed” -Report editor Douglas Quinby
  • While 72% of all agent sales are booked via GDSs, agents are increasingly booking more on the Web at the expense of the GDS.  Bookings by travel agents on a web site or electronic platform that does not involve one of the four major GDS companies will grow from 16% of all agency bookings in 2006 to 21% in 2009.
 
Researching The Rich - But Who Really Measures UP?

   kurtz.jpg Ron Kurtz, a principal with The American Affluence Research Center and a veteran of the luxury cruise industry, has some assertive things to say about all this measuring. He also shares the results of his latest survey of how the affluent plan to behave in the next year.

 

Who’s Affluent Anyway?

   “People have different agendas for why they push certain definitions of the affluent,” says Kurtz. “Some want to define on the basis of income, others on net worth and still others on investable assets.”

    Kurtz comes down squarely in the camp of net worth, believing “it’s a reflection of cumulative years of income and spending.” He notes that, “Income can be subject to substantial swings. We are now seeing the problems with defining affluence on the basis of income as some people on the fringes are really getting hurt; people with solid net worth are weathering the storm better.”

     “I believe that affluence is by definition a small segment of the population, asserts Kurtz; “I don’t believe in the concept of mass affluence and think that we should be selective. That’s why I chose the top 10 percent as being reasonably selective – and that is where you find the largest concentration of wealth. People earning $100,000 to $150,000 a year are not affluent.”

 

How the Downturn Is Affecting the Outlook of the Affluent on Travel

    Kurtz recently completed his  spring 2008 survey . As always, he asked 467 subjects what their outlook is for the next 12 months as far as business conditions, the stock market, their own household income. 

 

 

Overview of Top 10 Percentile of U.S. Households

 

99 to 100 percentile

95 to 99 percentile

90 to 95 percentile

Number of Households (millions)

1.1

4.5

5.6

Minimum Net Worth  (millions)

$6.00

$1.39

$0.83

Average Net Worth  (millions)

$15.3

$2.7

$1.1

Average Annual Income (thousands)

$982

$248

$120

 

 

 
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From the Editor

We began our recent report on ‘Family Travel Rising’ with the following:

“All the evidence -- whether you are looking at the Amex-Harrison Group study we reviewed in our last issue, or the Ipsos Mendelsohn Affluence Report completed in September, -- shows Family First when it comes to disposable dollars.
 
We believe family focus is going to be front of mind for a long time to come, long after the punishing economic climate has subsided.  Provider brands will be hard pressed to provide much more than kiddie or junior, or young adult activities. Smart travel agents will have to rise to higher levels of creativity and  performance on the family front to sustain customer loyalty and earn the benefits of word of mouth in the neighborhood.”

And last week we caught our favorite global traveler-editor-writer-commentator during a quiet moment at home in England, the home of The Gostelow Report. She shared these thoughts:

•  The hotel industry has been very slow to realize that this big expansion in family travel was going to happen. We’ve had “connecting rooms and you can put the kids next door”. They moved on to two swimming pools rather than one. One was kid friendly and one was not.  But we really haven’t had anything more than that.

•  We are seeing more and more bigger family groups. Operators are having a real challenge coping with such groups because it’s not a group per se, but they form their own groups. They want to be private. They want their own thing. .They tend to do their own excursions. They suddenly want a bus to take them all out. So it’s a real, real challenge. And so far the hotel industry has not realized this is happening. Now, it’s not only families. We’re also seeing more and more groups of friends traveling. And the hotel industry is not incentivizing enough – say a pair of DINKs come- Double-Income-No-Kids.  There’s no incentive to them at the moment to bring along two other friends or even four other friends. And there’s big potential on the marketing side there.

Everybody knows her, but her bio is worth repeating.


Mary Gostelow, president of Gostelow Travel: Hottest Hospitality News Worldwide, is an inveterate traveler on the road more than 300 days a year. She owns and publishes the definitive Gostelow Reports, monthly market intelligence briefings to the top levels of the hospitality industry.  She is the editor of KIWI's online Wow! Magazine, and also sends out a monthly update to top travel professionals worldwide.

At the same time, she is contributing editor to such publications as Elite Traveler, enRoute, Hotels and Le Magazine.

Voices & Views

But Lux 360 Found a Brighter -and we think, Sensible Side-

 

From Harvey Chipkin’s report in the British online Hotel Report-a paid service from William Reed Business Media- http://www.wr-bi.co.uk/ - Reproduced here with publisher permission

At the first industry wide meeting following the fall financial meltdown and the recent presidential election, the consensus seemed to be that, yes, the industry faces a historically challenging situation that will last for awhile. But there was also a feeling that lodging is in a better position than other industries – and, happily, a few silver linings were perceived as well.
   

We’ve all heard the bad news over and over: global liquidity drought, drops in rate and occupancy, a dismal outlook for employment, and a possibly extended recession. But some leaders managed to find ways to take – if not a positive view -- at least a more nuanced one. Following are a few comments about why weeping and gnashing may not be the only appropriate attitudes.
   
Steve Joyce, who recently became CEO of Choice Hotels International, said he has been “the only optimistic person in the room at a number of events over the last few weeks.”  I strongly believe,” said Joyce, “that there is a paralysis factor and that you can’t base projections on two weeks of hysteria.”
   

“Forecasts in this environment,” he continued, “are entertaining but not much use.”

Other ‘smart marketer’ insights from Joyce, Mark Lomanno of Smith Travel Research; Peter Yesawich, CEO of The Y Partnership; Michael Kaufman, Chairman of National Restaurant Association; Patrick Ford, CEO of Lodging Econometrics; and Roger Thomas, Steve Wynn’s design guru for many years.

Market Research

Nat Ives, in Ad Age Online Sept 6, cites new data from Ipsos MMR which assures that well-off readers read print publications just as much now as they did 5 years ago.
Also, survey respondents making more than $100,000 annually said their average hours online had grown to 22.1 each week from 10.7, while the time they said they spent watching TV sunk to 18.6 hours from 23.7 in the 2003 survey.  Read the full Ives story at http://adage.com/mediaworks/article?article_id=130685. Lux 360 attended the client briefing this week and will provide additional perspective in our Sept. 30 issue, interviewing Ipsos MMR President Bob Shullman.

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