Tight Travel Budgets for 2010

During any other year, that might signal a business boom. But few things seem normal in a year when the travel industry has been turned upside down by companies severely cutting back.

Bush’s double-digit increase will follow a 50% cut in his original 2009 budget. In 2010, he plans to log about 15 trips, up from nine this year.

“There is a fundamental reset of what ‘normal’ looks like,” Bush says. “And it’s less than what we were used to.”

A similar refrain is echoing throughout the travel industry, which hopes for anything but a repeat of this year. With U.S. unemployment near 10%, the prospect of a sustainable growth level seems far off — perhaps not until late 2010 or 2011, executives and business travelers say.

Even then, “Improvement in business travel is going to be small,” says Hervé Sedky of American Express Business Travel. “There’s a lasting effect of the recession going forward.”

A survey of members by the Association of Corporate Travel Executives underscores the caution prevalent in the industry. Only a quarter of respondents said they will spend more on corporate travel next year, while about half will operate at 2009 levels. The outlook:

Airlines

Airlines, with their ability to quickly add or remove seats, could be on the cusp of a slow recovery. American Express Travel estimates domestic fares in North America will grow 2% to 7% next year. Business-class fares will grow 1% to 6%.

Low-cost carriers already are seeing more travelers. JetBlue’s September traffic was up 10% from a year earlier as it, unlike other airlines, added capacity. Southwest’s traffic rose 9% in September, and the percentage of seats filled reached nearly 75% vs. 63.4% a year ago.

US Airways President Scott Kirby said the company continues to see “positive revenue trends,” though the airline reported a decline in September traffic.

Rising fares and fewer deals also point to demand ticking up, says Tom Parsons of BestFares.com. He alerted his readers recently that Southwest raised the floor on fares for certain routes. Coast-to-coast sale fares that traditionally were $99 one way and $198 round trip are now $149 and $298, respectively.

Frequent business traveler Mohan David of Canyon Country, Calif., plans to travel just as much in 2010 even though his business is down 50%. “There are lots of new customers on the horizon who can more than make up for the losses sustained this year.”

Hotels

It’s been an ugly year for hotels. In the second quarter, revenue per available room, the industry benchmark of measuring performance, fell 19.5% from a year ago, says Smith Travel Research.

The decline will continue for much of 2010, analysts say. Room rates will fall 1% to 6% in North American hotels, and upscale properties will offer deeper price cuts, American Express says.

Mark Woodworth of PKF Consulting expects year-over-year declines to continue until the fourth quarter of 2010. But they will be “much less pronounced” next year, he predicts.

Adding to the problem is a bountiful supply of rooms. The industry is still absorbing rooms that it broke ground on just as signs of a travel downturn started to emerge in early 2008.

Meetings and conventions

Large convention cities can’t wait for the year to end. Convention visitors to Las Vegas fell 26% in the first seven months of this year to 2.93 million. In Orlando, total visits are down about 9%.

Convention executives still aren’t convinced that visits will return to 2008 levels. But calls from customers canceling large meetings and conventions “pretty much subsided starting in late March and April,” says Chris Meyer, vice president of sales for Las Vegas Convention and Visitors Authority.

Mark Liberman, CEO of LA Inc., the Los Angeles Convention and Visitors Bureau, is similarly optimistic that “the worst is behind us.”

But Joan Eisenstodt, a meetings industry consultant, says, “As long as unemployment remains high and companies cut their internal training budgets, we’re not going to see a pickup.”