TOURISM EXECUTIVE BRIEF
February - 2006
CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)
OVERVIEW It’s time to take an early look at how some of our trend predictions are holding up half-way through the first quarter. At first blush, it appears quite well, although we said back then that trying to forecast where the price of crude oil may be heading is a fool’s game and certainly the international turmoil in several key oil-producing nations in January is stark confirmation of that truism. However, the performances our most important market economies are continuing to chug along at a satisfactory rate and consumers are continuing to spend even as their confidence levels in recent polls appear to be somewhat shaky. We also take a look at Germany on the eve of yet another ITB and some of the recent travel trends in Europe’s largest marketplace. There’s more on changes in distribution channels and developments in technology while this month’s postscript focuses on the passing of legendary airline pioneer, Sir Freddie Laker, whom some of us knew and who was both admired and vilified during the course of his long career in commercial aviation which did so much to create today’s low-cost carrier environment around the globe.
USA The U.S. economy continues moderately strong even as fears of inflation appear to be gaining some momentum after the Federal Reserve, now under new chairman Ben Bernanke, issued minutes of its January 31 meeting suggesting that the current level of inflation was too high. The Fed’s statement supports the likelihood that short-term interest rates will continue to head higher, perhaps from 4.5% to 5% in the near future. However, the markets appear to have shrugged this off along with other bad news on energy costs as business confidence is still high and the Dow Jones soared back above the 11,000 level to its highest point in nearly five years. Other markets in North America and Europe have risen in tandem with the Dow. The Conference Board also released its latest figures showing the US Leading Index of Economic Indicators rising sharply in January. That index has now risen for five of the last six months suggesting that economic growth in the US is likely to pick up more steam in the months ahead. Consumers don’t seem so sure as business leaders and the University of Michigan’s preliminary findings in their February index of consumer sentiment showed an unexpected drop from January’s reading. The index fell for both current conditions and the expectations gauge. Most analysts believe, as do we, that this drop is largely related to concerns over the cost of fuel. Another factor could well be unease about the deteriorating situation in Iraq and Iran. However, the past connection between consumer confidence and spending appears to be more tenuous of late as retail sales have grown solidly while confidence levels have gone up and down.
Thus far Americans are spending briskly in 2006 including on discretionary travel purchases and our monthly check on leading wholesalers, retail chains and airline executives finds most of them holding their breath that the good sales they are experiencing now to most destinations in the Caribbean will continue into the spring and summer. It’s just too early to tell.
THE UK The British economy is in for a period of growth and stability for at least the next two years according to a just-released report from the Bank of England. The Bank projects that GDP in Britain will be rising by an average of 3% a year by the end of 2006, considerably higher than most analysts’ predictions, and consumer price inflation should stay close to the government’s target of 2% a year. The Bank is betting
1 that last year’s slowdown in consumer spending is a thing of the past and expects that British household spending will quickly return to its long-term average over the last three years. There is considerable empirical evidence that British travelers to the Caribbean are back in force and spending more than ever, particularly in high-end hotels and on expensive cruises. As in other markets, there have been big changes in booking patterns as many Britons are researching and booking travel via the Internet, either directly or with online travel agencies like Expedia and Travelocity (which bought Lastminute.com in 2005.) Tour operators are fighting back by moving more and more of their inventory separately onto the Internet and relying less on all-inclusive package sales. Many high-street travel agents are also learning to adjust to the new reality by helping clients book complicated itineraries researched online and charging service fees when net rates are involved.
GERMANY The German Economy, which accounts for nearly a third of the 12-nation Eurozone’s economic activity had zero growth in the last quarter and grew by only 1.3% for all of last year. The sky-high optimism and big profits seen lately among Germany’s big exporting manufacturers suggests that a revival in the economy for 2005/2006 is likely. Unfortunately, the benefits of a stronger industrial performance have not trickled down thus far to the consumer as firms cut corners and hold wages down and household spending in Germany remains at a low level. A trend survey conducted by FVW in mid January found that holiday bookings for this winter season have been very slow with only long-haul travel and cruises sales performing well. The main reason given by the tour operators is the sharply higher cost of package tours as a direct result of rising oil prices. The impact of natural disasters in vacation areas in 2005 is also said to be holding back demand. The major operators are still hoping for a late-season pickup in sales prior to the Easter holidays.
It’s also clear to us that a good part of the tour operator dilemma in Germany, as in other markets which we have pointed our before, comes from a change in demand from traditional all-inclusive packages towards more flexible constructions based on consumers combining various components of their trips often purchased through different channels. It must be noted, however, that German sales for Caribbean vacations are still dominated by package tours due mainly to the lack of availability of direct scheduled air service into the region from Germany such as exists in France, the UK and Holland. This trend was somewhat puzzling at first blush as opposite results and good sales were concurrently reported for early 2006 by German retail agents. According to the TATS organization which surveys 2,750 agency locations every month, tourism related sales grew by 6% in January and are up by 3.6% for the three-month period since November. However, a significant component of this increase occurred in airline ticket sales, up 7.1% which supports the switch theory away from all-inclusives. The big operators have taken notice of this trend and are taking defensive action as in the UK market. For example TUI and Neckerman are expanding their long-haul holiday business by focusing on modular bookings and individual component offers. TUI has transferred its own long-haul program for the Americas to Airtours which it considers better designed for this type of business.
In other news from Germany, there is a continuing growth of e-commerce. 47.4 million Germans are now regular Internet users which cross virtually all age groups. Germans are also heavy online shoppers (58%) and forecasts call for online annual spending in the neighborhood of $108 billion within two years. As a consequence, TUI plans to double its online sales by 30% over the same time period. The TUI Group which includes seven airlines already generates 25% of its sales online across all its markets. While the UK and Scandinavia lead in the percentage of online sales, Germany is catching up fast according to TUI chairman Michael Frenzel.
2 We can’t leave Germany without noting that the new Chancellor Angela Merkel has been making an excellent impression both at home and around the world after a very difficult election process and early problems in forming a coalition government. A recent German opinion poll gave Ms. Merkel an 80% favorable rating, the highest ever recorded by a German Chancellor. While it can’t be expected to stay at that exalted level, it’s a great start. But it is in foreign policy that she has been making the largest and most positive impact. We hope that Ms. Merkel’s early successes can breathe new life into Europe’s largest but somewhat moribund economy. Together with Germany’s stirling performance in the Winter Olympics and the prospect of hosting this year’s World Football Cup, it should provide an optimistic and exciting background atmosphere for ITB.
KEY ISSUES 1. Energy In the last Brief, we asked where the price of oil may be heading as the number one issue likely to affect our industry in 2006. Crude was then trading below $60 a barrel in New York and it was expected to remain in a narrow range for the near-term with supplies plentiful and demand moderating, even apparently in China which claims its oil demand actually declined by 0.2% in 2005. Troubles came quickly, however, starting early in January. Political turmoil in two major oil-exporting countries, Nigeria and Iran, combined with the Bush administration’s determination to halt Teheran’s nuclear-program aspirations sent oil prices soaring back toward the post-Katrina highs of over $70 a barrel in September. The only good news was the unexpectedly warm weather in most of the Northern US for the whole month of January which helped to bring prices back down again. In early February, traders were once again spooked by a report out of Mexico which suggested that the huge state-owned oil industry there may be hit by a large and possibly irreversible decline in oil output due to water and gas encroachment into Mexico’s largest oil field. Once again prices soared. OPEC held an extraordinary meeting in Vienna on January 31st and once again decided not to cut production quotas in spite of diminishing demand. The situation in Nigeria has worsened with increased rebel attacks on pipelines and production facilities and Iran’s position seems to be increasingly intransigent with strong support from the Arab world. Still another threat developed with an unsuccessful terrorist attack on Saudi Arabia’s principal refinery. By late February, oil prices had dropped back to the low $60s a barrel but where they go from here is anyone’s guess. Airline stocks have been rising and falling on the same rollercoaster and survival of several key carriers for the region remains a troubling issue.
We note that Belize has recently joined the short-list of CTO member countries that are crude-oil producers. Although production is comparatively small, it is apparently enough for Belize to start exporting to the US. and hopefully for Belize to become energy independent.
2. Currency The US currency had a weak start to the year with a substantial two-day drop against the euro in the first week of January. However, it has quickly recovered in line with the Fed’s continued raises in the short-term interest rate. A number of major concerns remain which may further affect the dollar. There is a good possibility that China may diversify its huge foreign exchange reserves away from dollar holdings and America’s enormous current-account deficit remains a big problem.
For now, the dollar continues in the forecast range of just under $1.20 to the euro and $1.75 to sterling and we stick with our prediction that no swings are likely to be significant enough this year to have much impact on discretionary travel on either side of the Atlantis.
3 3. Airlines There is little to add here beyond the general concerns expressed before on the impact of energy costs on the internal and external carriers serving our region and there have actually been a number of new flights added by several airlines this winter. However, one cannot help being particularly troubled by American’s performance as it remains the single largest provider of seats. In spite of considerable cost cutting exercises through employee reductions and reduced levels of service, American had a fourth quarter loss of over $600 million, more than double the loss of a year before, and that’s scary.
On the other side of the coin, we see that Air France is about to report its best year ever for fiscal 2005/2006 which ends in March. First semester results show a 46% rise in gross income and a passenger load factor approaching 80%. Much of this success is attributed to the merger with KLM which is drawing new traffic from Asia, Africa, the Middle East and the US over their two major hubs at Schiphol and Paris CDG. We keep referring to it because of our strong belief in this kind of merger which provides efficiency without loss of national identity.
4. Technology We pick up where our last report left off with still more confirmation that travel websites of every kind are booming everywhere. The online travel sector reached its highest-ever peak in the U.S. market during the week ended January 14. It was up by 13% over the same week in 2005 and accounted for nearly 6% of all online visits for the period according to Hitwise research. The same report attributes 38% of visits to all travel websites to search engines led by Google. However, numbers alone are not the whole story as there are other far-reaching changes that need to be recognized and adjusted to by online marketers. Foremost among these are the changing demographics of online users. While younger individuals were long thought to be the most likely users of IT and more comfortable with the Internet; a number of recent surveys in the US and the UK reveal that the over-50 market has adapted well to going online and is actually now more likely to consummate bookings online that their younger counterparts. UK research by Neilsen/Net Rating has described the over-50 market as a “wide and varied audience hungry for travel experiences and adept at using the Internet to get the best deals…what screams out is the staggering percentage of over-50s who go online to book their travel.”
Still another report from Burst!Media in the US market says online users age 55 and over are spending more time online and less time in traditional media including TV. Burst estimates that the number of adults in America 55 and older going online has grown by 20% in the past year to over 27 million unique visitors. This new information undoubtedly explains much about the huge increases in online booking activity in the U.S. and U.K. that we detailed in the last report. Developments in technology have also led to the increased consumer-centric approach to tourism marketing that we have noted elsewhere. The technology now allows consumer to easily search for exactly the products and services that they really want while forcing suppliers to take a long step further in understanding consumer needs and desires.
Is there a threat to the Internet domain system? A recent story in the Wall Street Journal called our attention to a powerful movement that is growing rapidly around the world and challenges the universality and global interconnectivity of the Internet as the needs of developing nations change and anti-American sentiment proliferates. The Internet was developed originally by US government agencies in the 1960s. It uses a domain-naming system called the “root” that consists of 264 suffix possibilities including the most widely used: .com, .net, .org and various country codes like .UK. The root is coordinated by a non-profit organization based in California known as ICANN, the Internet Corporation for Assigned Names and Numbers. Although nominally a private sector group ICANN
4 works under the auspices and direction of the US Department of Commerce. Many people outside the US are bothered that a US-based organization has sole power over the use, assignment and control of each name while others are concerned that the needs of developing nations using different alphabets are not being addressed quickly enough.
The Wall Street Journal story notes several competing developments including German computer engineers who are building a root alternative to the Internet for political reasons and a Dutch company that has already built one for commercial profit. China has created three suffixes in Chinese characters to substitute for .com etc. resulting in websites and e-mail that can only be accessed in China while the 22-nation Arab League has begun a similar system to the Chinese using Arabic suffixes. In the past, developing nations had neither the expertise nor the infrastructure necessary to build their own networks and the need for alternative systems had not yet been demonstrated by sufficient international users, all that has now changed with huge numbers of users coming online in nations that don’t utilize Roman letters. Having a single root has always been central to preserving the universal appeal and power of the Internet. Alternative roots are becoming a clear threat to the Internet and a challenge to the dominance of the US. For more on this fascinating and important story you can go online at the Wall Street Journal site and members may also ask CTO for additional details if they do not have the means of access. It is a development that we will be following closely and reporting on in future editions.
New competitive portals are appearing in key markets.
A program is in full swing between CTO and CHA to redesign and upgrade both organizations’ websites in a cooperative process. Part of that process is to analyze competitive websites globally and seek out their best features. Here are two regional organizations’ sites that bear watching. The European Travel Commission (ETC) will be launching a brand new portal in late March initially in three markets, the US, Canada and Brazil. It will carry information in English, French and Portuguese. A preview of the new site suggests that it will be a vastly-improved and effective trip planning tool. The site contains flight-search capabilities, lifestyle content, linkages to booking engines and comprehensive coverage of major events throughout Europe. By 2007, the ETC expects that it will have expanded to a truly global portal in several more languages. The Travel Industry of America (TIA) also recently unveiled a new portal for the UK market which some members may have seen. It can be viewed at www.seeamerica.org.uk. The site links British visitors to several thousand websites in the US including state and city tourism departments, hotel, car rentals, attractions and selected tour operators. It encourages stickiness by featuring a destination of the month and an online newsletter offering special deals and promotions.
POSTSCRIPT Sir Freddie Laker died on February 9th at the age of 83 and while obituaries have been published everywhere in trade and consumer media, we wanted to observe his passing and we celebrate his life at this desk with a mixture of sadness and great respect for his legacy. Some of us knew Sir Freddie personally and encountered him over the years, sometimes in an adversarial role wearing different hats, but he was always exciting to be with or listen to – brash, irascible, amusing and full of life. He spent a lifetime tied to a passion for flying of all kinds while creating a revolution in commercial air transportation that persists to this day. From his personal participation throughout the long and dangerous months of the 1948/49 Berlin Airlift at the controls of one of his small fleet of aging military aircraft that he had acquired after WWII to his development of Laker Airways and Skytrain in the late 1970s, there was never anyone else quite like him in the aviation industry. Using loopholes he
5 discovered and exploited in British law, Sir Freddy became the first to challenge the virtual monopoly and high fares of the big airlines like Pan Am and BOAC that flew the profitable North Atlantic route between London and New York.
Skytrain was the first no-frills, low-fare carrier to fly long haul, offering fares which were as low as ₤118 on the New York route and showing the way for his friend and other great entrepreneur Richard Branson who issued a personal tribute to the media. Sir Freddie must have felt justified at the end of his life to see similar level fares still prevailing in 2006 on North Atlantic routes.. Skytrain worked well for more than five years until a combination of problems with the DC10, his workhorse aircraft, the introduction of very low fares by Pan Am designed primarily to kill off Skytrain and the recession of the early 80s sent Laker into bankruptcy from which Sir Freddie never fully recovered.
His last venture took him to The Bahamas which he loved, where he briefly operated a different kind of international service to Skytrain using aircraft with leather seats, fine wine and food and great service. That, too, failed but Sir Freddie will long be remembered as the man who was most responsible for bringing the possibility of flying to distant places at rates the ordinary citizen could afford. That’s quite a legacy.
BARBADOS NEW YORK LONDON CANADA One Financial Place 80 Broad Street, 32nd Floor 22 The Quadrant 130 Bloor Street West Collymore Rock New York, NY 10004 Richmond Suite 301 St. Michael,Barbados USA Surrey, TW9 1BP Toronto, Ontario Tel: 246-427-5242 Tel: 212-635-9530 England Canada M5S 1N5 Fax: 246:429-3065 Fax: 212-635-9511 Tel: +44-208-948-0057 Tel: 416-935-1896 [email protected] [email protected] Fax +44-208-948-0067 Fax: 416-935-0939 [email protected] [email protected]
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TOURISM EXECUTIVE BRIEF
March - 2006
CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)
INTRODUCTION
The last few months have been a trying time for the cruise industry as several leading cruise lines have been hit with a series of well-documented disasters from a fire at sea to several health scares, murder mysteries, and even an attack by pirate ships. They have all been played out on network TV, in leading newspapers across North America and in the trade press. As a result, questions have been raised in the media including a major piece in the Wall Street Journal recently questioning the success of this year’s wave season and the near-to- mid-term outlook for continued growth. We decided to get a first-hand account of the state of the cruise industry from CLIA’s President and CEO, Terry Dale and we thought it important enough to devote most of this month’s pages to the interview.
OVERVIEW
The first quarter ended with a typically good news/bad news scenario for more than just the cruise industry as the price of oil has started to climb again on continuing problems in the Middle East, Nigeria and most recently Venezuela. The energy crunch plus serious labor problems at several carriers and the new, tougher entry restrictions into the US are all conspiring to threaten the resurgence promised by IATA for international airlines. While major market economies appear to be reasonably strong going into April, there are some soft spots and inflation fears creating investor concerns in a fickle marketplace.
GLOBAL ECONOMY
A survey of first-quarter stock-market performance from the Dow Jones World Stock Index shows that international stocks continued their climb in virtually every market of interest to the Caribbean, in spite of high energy prices and raised interest rates by Central Banks in the World’s three largest economies. Both the US Federal Reserve and the European Central Bank raised rates in the first quarter and the Bank of Japan is expected to follow shortly. The Federal Reserve under new chairman Ben Bernanke pushed up interest rates another quarter point in late March and made it clear that the tight credit policy associated with his predecessor Alan Greenspan would continue. The Fed emphasized that the economy is slowing from its unusually strong growth in the first quarter to what it described as a “more sustainable pace.” Despite investor concerns about the ripple effect that tighter monetary policy could have on global markets, benchmark indexes hit record levels in the quarter. The Dow Jones Industrial Average rebounded from a full year loss in 2005 to its first first- quarter gain in four years, up by 3.6% to 11,109.
European stocks continued their strong performance in 2005 with an overall increase of 7.9% for the quarter. Individual countries of particular interest to the Caribbean include the UK up 7.3%, France up 14.4%, Germany up 14.5% and Spain up 12.5%. Analysts remain upbeat about prospects for European stocks as the pace of money moving into Western European shares increased in the quarter. Germany was particularly positive and stronger retail sales reported there raised hopes that consumer spending is finally on the rebound.
On this side of the Atlantic, Brazil, Canada and Mexico all outperformed the US percentage-wise with increases of 7.9%, 21.2% and 4.7% respectively.
1
Finally, in Asia, the best performer in the first quarter was India where the benchmark Sensex Index topped 11,000 for the first time which should bolster the growing interest in this developing market shown by some Caribbean tourism leaders.
The shadow of inflation remains the biggest concern and it is inextricably linked to the price of oil which has topped $67 a barrel once again. In early March, the Organization of Economic Cooperation and Development OECD released figures that showed that energy prices had driven inflation to an average of 3% among its 30 members. Although this was considered a manageable level at the time, it almost certainly won’t remain so if energy prices continue rising as they are now.
THE DOLLAR
The US dollar suffered a sharp sell-off in the middle of March falling to a several-week low against the Euro. The principal reasons were continuing concerns over the massive current-account deficit and the diversification of currency reserves out of the dollar by overseas central banks. The quarter ended with the dollar at $1.212 against the Euro and $1.736 against the British pound and it continues to trade within a narrow range around those figures.
OUTLOOK FOR TRAVEL
We have been plagued by conflicting reports of both results and forecasts of late but it seems fairly clear to us that the rest of 2006 may not be as strong as we had once hoped in the US market in spite of a resurgence in consumer confidence released at the end of March. Our monthly survey of the largest US wholesalers for the Caribbean and several key agency chains matched with six-months-out advance bookings from American Airlines shows that business has flattened out considerably. Caribbean business is showing a slight increase overall excluding the Mexican coastal resorts which are still sharply down. There are exceptions, most notably the Dominican Republic, which probably benefited the most from Katrina’s ravages. US domestic business is off also and Canada’s tourism has been hurt by the new curbs on cross-border traffic.
Visitor traffic from the US to Europe continued its virtually flat-growth trend that began last November with less than 1% growth in January and February and the outlook is not good for the spring according to the Trans- Atlantic Travel Market report from Donald N. Martin Company in New York. The latest riots in France, growing bird flu scares on the continent and in the UK, and a mounting anti-US feeling among publics in much of Europe are all bound to further slow demand while Trans Atlantic airfares for the summer are on the rise as capacity is cut by several airlines.
All in all, with so many key competitive regions in trouble, the Caribbean should be doing better than it is with the only real cloud on the horizon the coming hurricane season. Governments and private sector tourism marketers in the Caribbean should be asking why.
AIRLINE UPDATE
• The big question of the moment is whether Delta will make it through the summer. Our best guess is yes and that the company and its principal lenders will not accept liquidation. However, the threat is very real since Delta pilots voted overwhelmingly for a strike should the bankrupt carrier void their labor contract with the pilots. Delta, the third largest US carrier which has recently increased levels of service to the Caribbean and other international markets, is seeking court approval to scrap the current contract and impose new
2 terms unless their pilots agree to harsh new pay cuts and benefits reductions. The latest deadline comes just prior to the Easter weekend after which the arbitration panel can let Delta void the contract if no agreement is reached. The dispute is already causing cancellations and future booking away from Delta. A strike would almost certainly result in Delta going under and we hope that will not happen to this once- proud airline.
• On a happier note, Air Canada, recently reported an excellent performance for the start of 2006 with the highest January load factor in the carrier’s history together with increased capacity for both Air Canada and its regional subsidiary, Jazz.
• The merger between US Airways and American West is already showing signs of strain which historically has been true for almost all airline mergers in the past including the earlier absorption of Piedmont by US Air. As could be expected, there are both cultural and work rule differences between the two carriers which have resulted in arguments among staff and even violence. Unfortunately, these differences appear to be having a negative result on performance as US Airways received the worse scores for on-time performance and mishandled baggage out of 14 airlines covered in the just-released 16th Annual Airline Quality Rating figures.
INTERVIEW
A verbatim interview follows between the Tourism Executive Brief Editor, Michael J. Youngman (MJY) and Terry L. Dale (TLD), President and CEO of the Cruise Line International Association at CLIA’s headquarters in New York in late March.
MJY: Thanks Terry for giving me your time today. It’s been good to see the new spirit of cooperation prevailing these days between virtually all key elements of the Caribbean tourism industry including the cruise lines and hospitality industry working together with governments. On behalf of our members, I’d like to get caught up with what CLIA is doing, particularly for some in the Caribbean who may be more familiar with FCCA than your marketing organization. Let’s start with an update on your travel agent program since I know that agent education is at the core of your activities.
TLD: We are all about education. Today, we have over 13,000 agents who CLIA has certified and that means they have reached accredited cruise counselor, master cruise counselor or elite cruise counselor certification levels. You know we think that it’s so important to engage the agent and keep them up to date on what’s going on with our cruise line members and to motivate them. This is a national sales force that we need to keep constantly informed on behalf of the cruise industry. While there have been other agency associations that have suffered over the past decade and there was certainly a period of time where CLIA saw some erosion in its membership, today and for the past two years, we have been in a growth mode and, in fact, we are now the largest travel association in North America with other 17,000 dues-paying members.
I think that because of this relationship, a stronger partnership has been established between the agents and the cruise lines, and Michael, what is so important for our partners in the Caribbean to understand about this natural sales force is that our research shows that while 48% of leisure sales of the mix for our agents is cruise, the other 52% is resort and land-based business, so this is a sales force which should be mobilized, obviously for the cruise industry, but also for the Caribbean at large. These travel agents are smart enough business people to
3 understand that they have to have a diverse portfolio of products to sell and, while we want them, of course, to think of a cruise vacation first, they are advisors on leisure travel and that’s what they are trained for by CLIA. So this is a sales force that I want to make available to the Caribbean.
MJY: I think that’s a fantastic opportunity which must be exploited, but I also realize that most of the cruise lines help to keep travel agents motivated to sell their product by making sure that their best rates are always available through selected travel agent counselors and not direct. The cruise lines make it easy and profitable for agents and the consumer and earn loyalty because of that.
TLD: I think what the consumer has to keep in mind is that a cruise isn’t a commodity. So while there is a certain comfort level to go online to purchase say a Marriott hotel room in San Diego or San Juan, you know, because brand Marriott tells you so, that they’re going to be consistent and that one room in one location is going to be similar in quality to the other, so that’s the comfort level and its similar with the airline industry. But when you think about a cruise vacation, we have over 150 ships in our fleet right now and they range from a 140-passenger sailing yacht to a 3,600 passenger mega-ship. Very few consumers have the luxury of being able to make a mistake in spending their vacation dollars or time and if you’re not dealing with someone who is a trained professional with knowledge of those ships and their itineraries and ports, you’re going to run the risk of getting the wrong product for you and we’re so confident that if you get it done right, you will return for another cruise vacation again and again.
NJY: That’s true, but isn’t it very important to get the right agency, even within your membership, because they don’t all know the full range of ships and itineraries or how to match the client with the right ship and when you drill down you find that some cruise lines, particularly at the luxury level, have identified certain agencies who are familiar with virtually every cabin and facility on each of their ships. From personal experience, I can tell you that I’ve changed agencies several times before getting proper satisfaction for the same cruise booking.
TLD: Absolutely. While on the topic of education, I want to stress that this year, we’re introducing two new on-line training programs including tours of ports. My background is all about destinations from the Convention and Visitors Bureau industry and I feel that we have a responsibility to educate and train our agents on what to do when passengers get off that ship so that they have a base of knowledge on the attractions and history of the country they’re visiting. We feel that training like this will go far towards building the important relationship with the Caribbean at this crucial time for the travel industry.
MJY: By the way, Terry, do you have any recent research to share with us. I know that the cruise industry continually takes the pulse of consumers and both governments and private sector interests in the Caribbean always want to hear about what percentage of cruise visitors return for a land-based stay.
TLD: We will be releasing our 2006 Consumer Profile within a couple of weeks and we will be able to share the executive summary and any specific topic like that in detail shortly. The preliminary report suggests that most people are still satisfied with their cruise experience and that some 30 million Americans plan to take a cruise within the next three years so it’s still a big positive.
4 MJY: One of the questions that I wanted to ask is perhaps a silly one in view of your position but here goes anyway. Do you think that the Caribbean has in any way peaked out for cruising because of all these huge ships that have come on line and keep coming?. How many more can small destinations take? I’m sure that you’re aware of mounting criticism of the cruise industry of late on the impact of over-capacity on communities and the environment in places like Belize and the BVI,for example. I’m wondering where the limit is since the Caribbean is already the biggest cruise playground in the world.
TLD: I think there’s still room for growth. Particularly when you see the kind of port development that’s going on in the region like Carnival’s big investment in Grand Turk. I don’t think they would be investing those kinds of dollars in infrastructural development if they weren’t very confident that there was still room to grow. No, I don’t think that we’ve hit the peak in the Caribbean yet.
MJY: What are the hottest growth areas for the cruise industry at the moment?
TLD: Alaska and Europe have been selling particularly well this year and what’s interesting for 2007 is that almost all of our members with luxury lines are doing world cruises next year. There appears to be an increasing demand for what we characterize as wanderlust and there is a desire to get out and see exotic locations on board a ship. Carnival is also going into Asia through its Costa subsidiary.
MJY: On the subject of sales, while I have no intention of dwelling on the recent run of problems and attendant bad publicity, as I’m sure it’s temporary, I have to probe a little on possible impact. Some of the large wholesalers and agency chain management tell me that their cruise sales have diminished somewhat during this wave season and this has been duly reported in Travel Weekly and elsewhere in the media. Has there been a slowdown?
TLD: It’s been characterized as a mixed bag to use that old cliché, depending on the travel agency or the cruise line you speak to. Obviously, there have been several factors leading into the wave season this year that I think have impacted it. First, we had an extensive pre-wave season in mid-November and early-December that was very strong so we entered the traditional wave season with a lot of unexpected business on our books. When you remove that inventory you obviously don’t have the same capacity available to sell. So we had a strong pre-wave booking period plus a very warm January in the Northeast that immediately followed and cut into sales.
MJY: I’m sure this crazy weather particularly hit the last-minute impulse buyers that have been such a feature of the market in recent years for cruise and land-based vacations alike. They certainly had little incentive to escape the winter that wasn’t!
TLD: Right, so all of those factors made the wave season solid but not spectacular compared to the last couple of years. A couple of other things we have seen on our surveys of key agents this winter is that almost 50% of them report that their advance booking period has been extended to six months or more. Consumers are booking further and further out and are not waiting for the last minute bargains which is good for us, while 70% of the agents surveyed said the wave season was as good if not slightly better for them than last year. As an industry, we’re optimistic that it’s going to another very strong year.
5 MJY: There is another big concern which may impact the cruise industry in the Caribbean this Summer/Fall although not as much as for fixed-base operators and that, of course, is the forecast for yet another bad hurricane season. We speak monthly with the bellwether wholesalers and agency groups and they are naturally concerned and are hedging their bets by avoiding large commitments to the region for this period which stretched into six months last year;
TLD: Exactly, and we feel a responsibility to educate the consumer through our travel agents that while we appear to be in a period of ferocious storms, the beauty of a cruise vacation is the ability to adjust an itinerary quickly to adverse weather patterns and to still offer a great experience. We have to do an even better job in communicating that.
MJY: I have a few more minor topics to cover. For instance, I’ve noticed lately that a number of cruise lines including Royal Caribbean have been paying a lot of attention to opportunities created by this year’s World Football Cup in Germany by providing packages which include broadcasts of all matches onboard ships with European itineraries. Next year, it’s the Caribbean’s turn with the World Cricket Cup taking place in many different countries in the region. Do you know if we can expect a similar level of interest by the cruise lines in promoting alternative accommodation and coverage of the matches?
TLD: I don’t know anything specific but I’m sure that it’s strictly a business proposition which makes good sense to partner with Caribbean destinations to provide accommodations and coverage of the events. It’s not surprising to me to hear what they’re doing in Germany as they did something similar last year when the Super Bowl was in Jacksonville because when cruise ships pull into a destination hosting a high-profile event, its not only good business, it’s excellent exposure.
MJY: One other small item: my wife and I were on a WindStar cruise this February in the Eastern Caribbean and we noticed Easy Cruise ships in various ports – you could hardly miss their bright orange paint job! From conversations we had with local residents and articles in local media, I gather that the Easy Cruise expansion from Europe to the Caribbean has had some impact, at least on local demand for a flexible, low cost cruise product within the Caribbean. Do you think this could be a trend with further expansion possibilities or is it just filling a small niche?
TLD: I don’t know what the market potential could be but it’s certainly a unique business model and something that it will be interesting to watch.
MJY: Any thoughts about Cuba as a cruise destination with big potential when it finally opens up? Is it going to be a hot spot as most in the business predict?
TLD: Absolutely, the interest is there to experience Cuba and see it first hand. I’ve never been but I look forward to the day when I can. The day it does open up, you’ll see the cruise industry there in full force.
MJY: The Caribbean is looking to widen it’s identity by creating a new-look logo which it will use on all it’s communications from the regional tourism organizations like CTO and CHA and encourage appropriate industry members to do the same. Would CLIA have any interest in helping us with this endeavor?
6
TLD: Absolutely, I would personally recommend that our cruise line members where appropriate (i.e. members serving the Caribbean) adopt the logo and I think that an extension just as important would be to our 17,000 travel agency members as another way for them to communicate to consumers that the Caribbean is important and that they are knowledgeable about the Caribbean as a destination. So we would really encourage both cruise lines and travel agents to use it.
MJY: We could hardly ask for a stronger endorsement than that and I hope that it will help to energize others to use the logo. Do you have anything else to add that we haven’t already covered?
TLD: Yes, there are some items I want to be sure to cover. First, new builds. There are 29 ships that will be introduced into the market between 2006 and 2009. They represent over 14.5 billion dollars in new ship development so obviously there’s lot of confidence in the future market.
MJY: That gets us back to the issue of whether the Caribbean has peaked out or whether there’s still room to grow.
TLD: It certainly tells us that the industry believes the growth potential is there. We’re forecasting an increase of 500,000 passengers worldwide. We’re also anticipating that the industry will again exceed 100% occupancy and so you know we’re really confident.
MJY: How do you do that? It sounds like one of those hotels I knew at the Nandi airport in Fiji when I was working for American Airlines years ago. Those hotels had over a 120% occupancy year round turning over sometimes twice a night but how does it happen in the cruise industry?
TLD: (laughing) Our occupancy numbers are based on two berths to a cabin so anything over that like a pullout couch or extra beds for children gets us above 100%.
MJY: Thanks again, Terry. It’s been fun and informative. I know that CTO’s Director of Marketing, Hugh Riley, will be following up with you shortly and we look forward to continued cooperation with CLIA.
7
TOURISM EXECUTIVE BRIEF
May - 2006
CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)
INTRODUCTION Last summer, we responded to a World Bank report on Caribbean development in the 21st century, which called on countries in the region to move beyond “decades of reliance on traditional markets and preferences,” by offering snapshots of markets of opportunity from Asia to Latin America. One of them was India and we turn our sights back on India with an expanded market profile in this edition. Cricket is by far the most popular sport in India which shares a passion for the game with the West Indies and we are now less than ten months away from the opening match of the 2007 Cricket World Cup when teams from 16 nations, including India and Pakistan, will be hosted by the West Indies from March 11 to April 28. Add in long-time Commonwealth ties and a sizeable VFR market and it seems timely for at least the English- speaking Caribbean to make its move for a share of India’s rapidly expanding outbound tourism market. But first, a quick look at what remains a hard-to-read global picture.
ECONOMIC OUTLOOK 1 United States Volatility continues to be the watchword as the US economy surged in the first quarter at a 4.8% growth rate, the fastest pace since the summer of 2004. Consumer spending increased by an annualized rate of 5.5% over the first quarter of last year and business investment had its largest quarterly increase in nearly six years. These numbers were clearly unsustainable and consumer confidence has already been shaken by a combination of soaring gas prices at the pump, higher interest rates and some cooling in sectors of the housing market. The University of Michigan reported in May that its consumer confidence index fell for a second straight month to its lowest level since the impact of last summer’s hurricanes in the Gulf which last sent gas prices through the roof.
Investors were also disappointed by the new Federal Reserve Chairman’s perceived lack of clarity about the Fed’s future intentions on interest rates as it raised its key rate for the 16th consecutive time. Inflation fears sent stocks and bond prices tumbling after it seemed likely that the Dow Jones would challenge its all-time high earlier in the month. The big question remains what the impact will be on overall spending this summer. Consumers appear rattled enough to change some of their lifestyle habits, but will their spending merely be redistributed and medium to long-haul travel remain unaffected? That’s the big question.
2. Canada The new conservative government of Prime Minister Stephen Harper presented its first budget to parliament on May 2nd with an announcement of $20 billion in tax cuts over two years reflecting a huge federal budget surplus and a surging economy. The Canadian dollar surpassed US 90 cents for the first time in 28 years, helped by increasing world prices for Canada’s exports of oil, gold and other commodities.
The rising value of the loonie, new tax breaks, lower gasoline prices and only modest inflation should all encourage a rise in consumer spending, including for more Caribbean vacations.
EURO ZONE The Euro zone doubled its rate of economic growth in the first quarter in spite of a weaker than expected performance in Germany. The 12-nation bloc grew 0.6% during the quarter, in line with the European Central Bank (ECB) forecast for the year of 2.1% growth. Spain enjoyed the fastest growing economy, while Italy and France also showed relatively strong expansion.
However, in Germany, Europe’s biggest economy, GDP expanded by only 0.4% falling short of most economists’ forecasts while industrial production fell by 2.4% in March – the steepest monthly decline in six years. Retail sales in Germany were also weak in the first quarter as consumers were still hit by high energy costs and unemployment. The ECB is expected to raise interest rates next month (as is the Bank of England) and it is apparently committed to a strong Euro even though that policy held back the zone’s last economic recovery in 2004.
THE BELEAGUERED DOLLAR For the second time this year, the dollar has suffered a major sell off. In mid-March, the dollar value fell for four consecutive trading days for the first time in 12 months after the release of soft US economic data and speculation that the Fed was about to pause in its long string of interest rate increases. That hasn’t happened, but the dollar has been falling again in May against other major currencies including the Euro.
After a week’s slide, the psychologically important $1.30 to the Euro level was nearly breached before falling back slightly on profit-taking. The trade deficit and anticipated interest rate increases by the European Central Bank, Japan’s Central Bank and the Bank of England remain the biggest problem. There is also a suspicion in financial circles and media that the US Treasury actually wants a weaker dollar, an issue that is highly controversial. For the moment, at least, current exchange rates tend to favor the Caribbean in the dollar-tied areas which prevail through most of the region.
OUTLOOK FOR TRAVEL United States All indications now suggest that the Caribbean will be flat at best for most destinations with the hurricane season only days away and gloomy predictions from the US Weather Bureau (although they have been focused more on the US East Coast in early forecasts than the Caribbean.) Advance bookings for six months out from May through October from our monthly survey of bellwether airlines and wholesalers show an increase of nearly 7% but that is almost entirely due to the movement of all-inclusive bookings from Mexico to all-inclusives in the Dominican Republic and Jamaica which are still recording double-digit increases. We are about to see a major sea-change occurring in the distribution system which will affect the Caribbean and the way we do business. Suppliers, particularly the airlines which are struggling to adjust to higher oil prices that are likely to be with us indefinitely, are cutting costs everywhere and wholesaler contracts at low net fares are on the chopping block. We are reliably told that such contracts at American have been cut by more than 60% and US Airways is in a similar mode. We will be reporting more on these developments in the months to come.
Cruise bookings are also down for the Caribbean while bookings to Alaska and Europe and up and bargain- basement cruise prices for our region are easy to find. Carnival Cruiselines issued a profit warning statement blaming a combination of increased fuel costs and soft second-half bookings for the Caribbean.
CANADA Summer business to the Caribbean looks good out of Canada. 59% of Canadians expect to take a summer vacation trip away from home, up from last year, and 27% of those plan an international trip with the Caribbean gaining in outbound share according to the Conference Board of Canada.
Traffic to the US is already taking a hit with the new passport initiative on the way in spite of opposition by US border state governors.
More consolidation in the travel trade continues to be a major issue as Transat completed its purchase of the Thomas Cook agencies making it the largest retail agency in Canada.
UK/EUROPE The UK market this summer is forecast to be very strong as British travelers continue to spend more money on vacations and go away more often that their Continental European counterparts. However, a survey by Europe Assistance (EA) of 3,535 Europeans found that British holiday makers are more likely to be changing their summer travel plans because of the World Football Cup in Germany than in any other European nation. This could affect travel to the Caribbean at least marginally. The same survey found that the British spend an average of $3,900 on their holidays against an average of 3,500 for the rest of Europe. Overall growth from Western Europe to the Caribbean is declining as airline capacity development in the Euro Zone is shifting to Eastern Europe, the Middle East, Asia/Pacific and South America.
AIRLINE UPDATE • The good news is that the potential disaster at Delta has been averted with a tentative agreement reached between the company and its pilots. While a final vote has yet to be notified, the 11th hour agreement by the union has been overwhelmingly supported by its executive committee and seems certain to be accepted by the rank-and-file members. Delta still sees Latin America and the Caribbean as crucial to its international growth and it is expanding fast from Atlanta to the region on routes where there has been limited competition. New service from Atlanta includes Kingston,Jamaica and Aguadilla and Ponce in Puerto Rico. Delta is now tied with US Airways for the number 2 spot in service to the Caribbean. We also note that Delta, together with United, has signed a full content deal for published fares and inventory with SABRE Travel Network that will expand their distribution options.
• More good news came from another struggling carrier, US Airways, which reported a first quarter profit of $65 million on one-time gains and a double-digit increase in passenger revenue. However, the improved results could complicate upcoming negotiations with its pilots for a new contract. US Airways Chairman, Doug Parker, said he expects the carrier to be profitable for the rest of the year, even with continued high fuel cots.
• The traditional carriers like American, Delta, United and US Airways are being helped by capacity-cuts in some markets and rising fares from the discount airlines AirTran, JetBlue, Southwest and Spirit which have all been boosting fares in recent months to the point where the legacy carriers are competitive or even occasionally cheaper.
TECHNOLOGY/INTERNET AND DISTRIBUTION • In the UK, a new report by Mintel, “Holidays on the Internet” reveals that the large traditional tour operators which have more control of product have streamlined their internet operations and are successfully challenging companies like Expedia and Travelocity. Despite the overall growth of internet travel bookings Expedia reported a poor first quarter with net income of $23.3 million compared to $48 million a year ago. • In Canada, online travel buying has lagged behind that of the US and the UK although Canadians are on a par for shopping and searching. Some 58% of Canadians are now online with a clear majority connected to high speed lines. Canada is about two years ahead of the US in broadband penetration. Usage of the internet measured in time spent per week and pages viewed also exceeds that of the US. The youth market dominates in Canada with 90% of Canadians aged 18 to 24 online and we can expect the rate of online buying to increase over the years as we have noted before that the willingness to buy increases among older segments of the population in other markets like the US and UK. • Canada lags the US in internet advertising where industry giants among packaged goods companies like General Mills, Kraft and Unilever are spending more aggressively online and increasing the range of products promoted on the Web. This is a big change from the past when online advertising had been largely driven by financial services, insurance and personal computer companies. The explosion of online video has also contributed heavily to this shift and we found it interesting that Anheuser-Busch is sponsoring World Cup soccer content online, including video highlights on Univision Communication’s site among over 25 sites from sports to arts and culture.
INDIA: MARKET PROFILE Background India has a population exceeding one billion which is growing and aging. Currently more than half of its citizens are under 25 but that is changing rapidly and the 25-44 age segment is considered to be the principal target for international outbound travel including for the Caribbean. India currently has the world’s 9th largest economy and it is expected to grow by around 7% this year. Forecast continued growth will put it in the number three position among global economies by 2040 according to Global Insight. The population is ethnically and culturally diverse with at least 16 languages spoken, although Hindi is the national language and English is widely taught and spoken especially among middle and upper class households. Indians enjoy an average of 30 days annual vacation, which is comparable to much of Europe. As we noted last year, India is poised to realize its potential as one of Asia’s leading outbound travel markets and is in process to become one of the most powerful consumer forces in the world.
A Burgeoning Middle-Class The Indian middle-class is now estimated between 250 and 300 million people, more than the size of the entire US population and growing by around 30 million each year. This massive block has a spending power estimated at around $420 billion over the next four years and disposable income of middle-class families has risen more than 20% per year. Concurrently there has been a huge demand for new horizons and international travel. Last year, Indian outbound traffic was well over four million with an increasingly high percentage of FIT travelers who are highly educated, English-speaking and open to Western cultures and influences. Most have their own credit cards and do not wish to travel in the group tours that typify many other Asian vacation markets. 2006 numbers are expected to be much stronger with rising incomes and many new airline services that have come with increased aviation liberalization and reductions in travel taxes and exercise duties.
The booming economy has meant an incredible transformation and generational shift from a culture prizing saving and frugality to one more of self-indulgence and living well. Indian travelers to the UK, for example, spend more than twice the world average on purchases in Britain with business-related visitors spending even more according to the BTA.
Aviation Access India’s ongoing civic aviation reforms have included open skies agreements and more US and European carriers are now flying long haul operations into a variety of metro areas including Delhi, Mumbai, Bangalore and Kolkata. BA alone serves five metro airports in India.
Air India is reported to be purchasing 50 new aircraft from Boeing to be phased in over the next 10 years which would more than double its present fleet of long-haul-capability aircraft. With India’s cultural ties to several Caribbean nations, it is entirely possible that direct service will one day be provided by Air India into the region, perhaps on an interchange basis with a local carrier.
Market Share The most recent statistics available show that the US was in fourth position for Indian outbound travel and the UK eighth; the other top ten countries were in Asia with Singapore at number one. Aspirational destinations chosen by Indians in a 2005 Brand Index study for leisure travel if price were no object include Switzerland, Canada, Australia, New Zealand, Japan and France. Switzerland topped the list for its “natural scenic beauty.”
The Caribbean Product Fit Key aspects in choosing a destination for Indian travelers include the following: safety, ease of getting a visa, value for money, scenic beauty and friendly people. High standards of hygiene and cleanliness are also important to this market.
However, the Caribbean’s main attraction for Indians may well be a shared passion for sport as noted in the introduction. The Indian middle classes, especially men, are sports mad with cricket dominating all. Other sports such as golf, racing and tennis offer lesser opportunities. According to the Guardian Unlimited, when India bats against Pakistan, the TV audience in India exceeds the entire population of Europe! Need we say more? We note that the Australia Tourism Commission appointed retired cricket team captain, Steve Waugh, as Australia’s Tourism Ambassador to India. He is participating in a range of marketing initiatives as well as charity and fund raising events in India. Perhaps this is a lead the West Indies might follow with one of its own remarkable ambassadors from the cricket world.
Some Indian Cultural Dynamics ¾ The Indian visitor wants verbal reassurance and it is important to be courteous at all times even when being firm on an issue. ¾ Young people tend to wear western clothes, more women are working and the trend is away from the traditional family structure. ¾ Indian consumers want value for money and are likely to save on hotel accommodations and spend more on shopping. ¾ Food is important and the availability of a good vegetarian cuisine is particularly apropos together with plentiful fresh water and large portions of bread and rice with gravy-based dishes. Many West Indian restaurants will fit these needs. ¾ Indians do not feel confident driving overseas and are unlikely to rent cars. They tend to be spectators rather than participants.
Reaching Indian Consumers Bookings for outbound travel mostly still go through traditional travel agents – up to 95% of the total, although the internet is becoming more important.
Customers expect an extremely high level of service from their travel agents and can be very demanding. Indians have a comparatively short lead-time for booking holidays, considering their long-haul nature, ranging from three to six weeks on average. They will usually comparison-shop and bargain with agents.
Media Sources There are three major travel trade magazines, several consumer travel magazines and all the major newspapers have extensive travel sections. Among the most important newspapers reaching the target audience are the Times of India for Delhi and Mumbai; Hindustan Times in Delhi; The Statesman in Kolkata; the Deccan Herald for Bangalore and Hyderabad markets. TV, both national and cable and local radio are widely used media, particularly for sporting events coverage.
The Bollywood Effect The Indian film industry is among the largest in the world producing more than 800 movies a year. The earning potential of Bollywood is enormous for destinations which are used for location shooting through the free publicity and interest generated when millions of viewers are treated to a virtual trip of their homeland or region. It is indirect advertising on a scale unaffordable for most national tourist offices and virtually every NTO is wooing this multi-billion dollar industry to shoot movies, TV spots and documentaries at their home destinations. The Caribbean should not be left behind and this is a segment which deserves special attention by regional marketers.
The Internet India is well-advanced in information and communications technology which is part of the boom fuelling the Indian travel industry. Although Internet access in India stands at only 4.5% of the population, a small proportion until you consider that represents 35 million users, the number of Indian internet users has grown 269% in the past four years and around 40% of those users are broadband connected.
US venture capitalists quickly recognized the potential in online travel portals in India and have invested millions of dollars in travel portals which feature the US-Indian market. Consumers are more comfortable using the internet for searches and planning but not yet for booking which is still heavily slanted towards travel agents. That is certain to change soon as in other markets.
The Travel Trade The retail travel trade in India is largely reactive and last-minute oriented. Most agents are only ticketing for the lower end of the market. The top five agency producers in India are Kuoni India, Thomas Cook, Cox & Kings, Raj Travels, and Orbit. Other agencies with significant overseas travel volume are SOTC, Kesari, Club 7, Dewan Travels, Narula Travels, Faraway Places and Xpress Holidays. All of these agencies produce printed brochures which are still important in the Indian marketplace. There are approximately 150 key agencies in the 5 major cities of Delhi, Mumbai, Chennai, Bangalore and Kolkata with thousands of smaller IATA and non-IATA agents elsewhere throughout the country.
October to March is the best period for undertaking a sales mission and Delhi, Mumbai and Bangalore are the must-visit cities. There are many trade shows to consider in India and other Asian locations like SATTE held every spring. Many important Indian travel agency representatives also travel to London in November for the annual WTM and they are all looking for new product.
Conclusion Indian is a huge and difficult market to target but one we believe is likely to repay the time and effort needed to prospect there many times over.
Certainly, competitive markets around the globe are doing just that now and the Caribbean should set up a public/private sector taskforce to develop a workable game plan which will meet the challenge. The upcoming meetings during Caribbean Week in New York could perhaps provide the venue.
Acknowledgement is due to VisitBritain for the use of some of their material in this report.
PERFORMANCE IN 2006 A summary of the latest available statistics on tourist and cruise passenger arrivals is given in the Table below. Note that the sharp decline in visitation to Cancun and the above average increases to the Cayman Islands and Grenada reflect the impact of hurricane activity in 2005 (Cancun) and recovery from hurricane activity in 2004 in the case of Grenada and Cayman Islands.
TOURIST (Stop-Over) ARRIVALS AND CRUISE PASSENGER VISITS IN 2006
Tourist Arrivals Cruise Passenger Visits
Destination % Ch. Cruise % Ch. Period Tourist Period 2006/05 Passengers 2006/05
Anguilla Jan-Mar 20,441 9.7 - - - Antigua Jan-Mar 73,500 2.1 - - - Aruba - - - Jan-Mar 209,450 9.9 Bahamas Jan-Feb 238,556 3.9 Jan-Feb 536,839 -8.3 Barbados Jan-Apr 207,391 4.5 Jan-Apr 241,639 -19.1 Bermuda P Jan-Mar 38,896 -1.3 - - - Bonaire Jan-Feb 10,918 -12.7 - - - British Virgin Islands Jan only 29,849 -0.5 Jan only 68,315 0.6 Cancun (Mexico) ** Jan only 84,748 -62.8 - - - Cayman Islands Jan-Mar 76,660 84.2 Jan-Mar 645,477 3.2 Curacao Jan-Mar 61,428 -0.2 Jan-Mar 130,126 15.9 Dominican Republic* Jan-Apr 1,488,912 11.4 Jan-Mar 157,017 -0.1 Grenada Jan-Apr 44,071 30.5 Jan-Feb 81,580 -14.9 Guyana Jan-Apr 39,047 19.6 - - - Jamaica Jan-Apr 599,834 15.7 Jan-Apr 515,376 8.8 Martinique Jan-Feb 92,641 -0.6 Jan-Mar 45,653 -2.1 Montserrat Jan-Feb 1,206 -7.8 - - - Puerto Rico - - - Jan-Mar 445,128 -8.2 St. Lucia Jan-Mar 79,445 -4.9 Jan-Mar 165,528 -8.0 US Virgin Islands Jan-Mar 205,248 -2.8 Jan-Apr 795,737 -11.1
* Non-Resident Air Arrivals **Non-Resident Hotel registrations P Preliminary figures - No Cruise figures reported n.a. Figures not available Source – Statistics supplied by member countries as at June 7, 2006; subject to revision
BARBADOS NEW YORK LONDON CANADA One Financial Place 80 Broad Street, 32nd Floor 22 The Quadrant 130 Bloor Street West Collymore Rock New York, NY 10004,USA Richmond Suite 301 St. Michael,Barbados Tel: 212-635-9530 Surrey, TW9 1BP, England Toronto, Ontario, Canada M5S 1N5 Tel: 246-427-5242 Fax: 212-635-9511 Tel: +44-208-948-0057 Tel: 416-935-1896 Fax: 246:429-3065 [email protected] Fax +44-208-948-0067 Fax: 416-935-0939 [email protected] [email protected] [email protected]
TOURISM EXECUTIVE BRIEF July - 2006
CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)
THE ECONOMY AND GENERAL OUTLOOK
Fate in the form of a sudden and unexpected escalation of Middle East conflict has once again conspired to stall a promising recovery in travel and tourism.
For the airlines, in particular, the impact of the renewed fighting between Israel and the Hezbollah in Jordan has sent their fuel bills soaring once again, interrupting the industry’s slow but steady climb back to health this year. IATA’s Secretary General, Giovanni Bisignani recently forecast that the world’s airline industry fuel bill for 2006 would grow by $21 billion to $112 billion to account for 26% of operating expenses assuming an average price of $26 a barrel for London benchmark Brent crude. That prediction now seems overly optimistic and IATA’s forecast for a net annual loss of $3 Billion is almost certain to be much higher. More carriers around the globe are likely to be facing bankruptcy or shutdown.
Consumer confidence is another early victim of these developments. The Conference Board’s Index for June showed modest improvement in consumer expectations but the University of Michigan poll in July quickly reversed that trend and the outlook is decidedly pessimistic for the balance of the year. Inflation continued to top consumer concerns. Even before the latest spike in energy prices, the core consumer price index which excludes energy and food jumped by 0.3% in June, an increase of 2.6% over a year ago. US Federal Reserve chairman Ben Bernanke, in his semi-annual report to Congress on July 19th, seemed to soft-pedal on inflation even though his testimony confirmed that it was well above the Fed’s target ceiling. Analysts concluded that a pause in the long cycle of uninterrupted increases in short-term interest rates could be expected from the Fed’s next meeting. Wall Street and international markets reacted positively but further reading of support documentation suggested otherwise and stocks and bonds fell again. Wall Street was set for another wild roller- coaster ride with daily three-figure losses and gains following each other. Adding to the inflation fears, was a number of poor earnings reports, particularly in the technology sector, and bad news from the Middle East and North Korea.
UNITED KINGDOM/EUROPE The inflation rate in the UK grew by 2.5% in June after a 2.2% increase in May. The increase in consumer prices was well beyond Bank of England forecasts and raised the possibility of an interest rate hike in early August, even though the Bank’s monetary policy committee voted unanimously at their last meeting to keep interest rates at current levels. While inflation was up in Britain, so were wages as average earnings increased by 4.1% in the 3- month period March-May. However, unemployment also soared to a five and a half year high of 5.4%. High prices for fuel, gas and heating oil kept inflation in the Eurozone at 2.5% in June, also well above the European Central Bank’s target ceiling of 2%.
Where are Oil Prices Headed? The extreme volatility in the oil markets makes this a question without any clear answers, only indications. Light sweet crude prices on the New York Mercantile Exchange traded up to nearly $80 a barrel immediately after Israel’s massive retaliation against the Hezbollah. London’s Brent benchmark was virtually in tandem. Prices have since fallen back to around $75 a barrel but most energy analysts expect them to resume their climb in the days and weeks ahead as demand is still growing and there appears to be more elasticity in the market than most had predicted. Eyes remain focused on Iran which continues its threat of using oil as a weapon in its dispute with the West over its nuclear ambitions. Continued rebel action in Nigeria has also cut that nation’s production by more than 500,000 barrels a day. If there is any good news to be found in this mess, it is that spare capacity and stockpiles have increased marginally while further production is coming on board as new oilfields are being developed in other parts of the world. Supply and demand should gradually become more balanced. At least one internationally prominent energy expert in France believes that current oil prices are over- valued by as much as 50%
THE DOLLAR Little has changed in the value of the dollar against the euro and sterling since the last edition of the Brief reported on currency issues. The dollar’s slide, which occurred over several months earlier this year, seems to have halted at a more sustainable level and the dollar is currently trading around $1.29 to the euro and $1.91 to the pound. The European Central Bank’s decision not to raise interest rates appears to have been a factor in slowing the dollar’s fall. These levels remain favorable to the Caribbean in attracting visitors from both sides of the Atlantic.
OUTLOOK FOR TRAVEL United States of America • Our monthly survey of key players in the supply chain continues to show marginal increases for most of the Caribbean, with some destinations like Jamaica, the Dominican Republic and Bermuda doing better than average. Cruise business to the region is flat and revenues are down due to extensive discounting. It remains to be seen whether the widespread publicity given to the unfortunate incident involving the new mega-ship Crown Princess will have any wider impact on this class of vessel. The cruise lines report very few cancellations to date and the ship has sailed again from New York after receiving a clean bill of health from the coast guard. Elsewhere major leisure destinations in the US, including Hawaii, are showing only modest gains in occupancy but sharply rising revenues from increases in room rates. Las Vegas and Hawaii for instance have both increased REVPAR (Revenue per Available Room) by nearly 14% this year. Increased yields for the hotel and airline industries have not only come from higher prices: reductions in transaction costs were major contributors including doing more business online, lowering commissions and over-rides, and eliminating or reducing allocations of low fare seats or discounted room rates to third parties.
Europe • Travel to Europe this summer is doing much better than expected in spite of the weak dollar and big increases in airfares and room rates in major European cities. The European Travel Commission (ETC) has increased its forecast for the year and expects US visitors to surpass the record 13.1 million that traveled to Europe in 2000. Much of this success is due to a big jump in the number of flights being offered nonstop from a record number of US cities. According to US Today, foreign and US airlines are offering 386 nonstop flights a day between various continental US cities and Europe with Amsterdam, Frankfurt and Rome getting the most new services. Struggling US carriers like Delta and Continental have switched significant inventory to international flights and fares on trans-Atlantic routes are at a 3-year high.
Latin America • Latin America routes are also performing well in load factors and high revenues for both US based and regional carriers. Continental reported its best quarterly results for the second quarter since 2001 with Latin America accounting for the highest percentage growth in revenue for the system with an increase of 30.6%.
OTHER AIRLINE NEWS • American Airlines remains the only major US airline that has never filed for bankruptcy protection and CEO Gerard Arpey is planning to keep it that way. In an extensive interview with the New York Times, Arpey discussed his program that has a ‘’relentless focus on efficiently’’ combined with open dialogue with the employees, collaboration with their unions and re-instilling a spirit of teamwork that seems to have been lost at the nation’s largest carrier. Arpey says ‘Our fundamental objective is to make organised labor and our frontline employees our business partners.’’ He is clearly making progress but he has a long row to hoe. American’s biggest problem right now is in the cockpits and cabins of its fleet. Productivity talks with pilots and flight attendants are at a standstill after earlier negotiations broke down when it disclosed that it was paying bonuses of more than $1 million to several top executives (Arpey himself not included). Union leaders and employees were livid and the talks have yet to resume. We all hope that reason will prevail and Arpey’s philosophy will pay off for American and its customers.
• British Airways and several of its competitors are currently under investigation by American and British authorities for anti-trust activities involving trans-Atlantic routes. This followed an earlier investigation announced by the European Commission and US Justice Department into possible collusion in the air-cargo market by a number of carriers including BA. Two of BA’s executives including the head of communications and commercial director have been given leaves of absence and the news sent BA’s shares lower wiping out most of its year-to-date gains. It later transpired that two US citizens have filed a price-fixing lawsuit in New York Federal Court charging that BA together with American, Virgin Atlantic and United have conspired to use fuel surcharges unlawfully to artificially inflate ticket prices in the closed market between London’s Heathrow and the US. The latter three carriers say they are cooperating with investigators. In view of the huge increases in the airlines’ fuel bills and the long-standing practice of using fuel surcharges to recover added costs, it seems unlikely that this action can succeed as a class-action suit. However, it is something else that the airlines didn’t need at this time. Stay tuned.
TECHNOLOGY AND COMMUNICATIONS New Media New advertising models based on Internet technology are rapidly replacing traditional media and the old approach to advertising based on scattershot messages to huge audiences in the hope that something will stick. The standard 30-second TV commercial is the prime example which may soon go the way of the dinosaur. An in- depth article in the Economist titled The Ultimate Marketing Machine makes a strong case for new tools to reduce advertising waste now offered by a host of entrepreneurial companies from giant Google to tiny Silicon Valley specialists. All of them have the same major objective to provide a scenario in which advertisers pay only for real and measurable actions by consumers by clicking on a web-site, printing out a coupon, sharing a video or making a purchase. The largest category of Internet ads is search advertising according to the Interactive Advertising Bureau. Businesses and service providers of all sizes and types including travel and tourism are discovering that advertising on Web search engines can be a strong booster for their sales. However, to be effective it requires skill and savvy from dedicated staffers because consumer search patterns are constantly changing. Google has two systems for search advertising. Adwords which puts advertising links adjacent to relevant search results and charges only for clicks (plus an option to bid for keywords in an online auction).
The average cost to an advertiser is 50 cents which corresponds to a CPM of $500. This compares to an average CPM of $20. in traditional exposure media. In other words, a consumer’s action is 25 times as valuable as his exposure. Need we say more? Google’s second system is AdSense which goes beyond search-results pages and places sponsored links on the web pages of newspapers and other partner publishers. Adrienne and Adworks together produced $6.1 billion in revenues for Google in 2005.
Other major companies, including Yahoo, Microsoft’s MSN and EBay, offer similar systems. Most businesses profess to be very satisfied with the results from Search engine advertising. One familiar to us, Wyndham Hotels and Resorts, calculates that it generates $14 in revenue for every dollar spent. Two-thirds of its online ad budget and close to 15% of its overall marketing budget now goes to search ads with keywords such as ‘Bahamas Hotel’ and ‘Phoenix Golf’. Still other companies like ZiXXo near San Francisco allows advertisers to issue coupons on-line and places them in on-line maps and similar sites, charging advertisers only when a consumer prints one out. Another West Coast firm Ingenio places toll free telephone numbers on local search pages (it’s largest partner is AOL) and charges advertisers only when they receive a call from a customer.
The same article in the Economist quotes Greg Stuart – head of the Interactive Advertising Bureau, that advertisers waste an estimated $220 billion worldwide or more than half their total spending on messages that never reach their target audience. Consumers are becoming increasingly immune to the cliches of broadcast media advertising and more likely to tune out or click off. Online, they will accept advertising if it is relevant and unobtrusive and best of all it takes some consumer action to find the ad in the first place.
ONLINE BOOKINGS CLIMB A survey of airline IT trends by communications and technology solutions provider SITA concludes that the number of people booking flights online has increased by 40% this year. An estimated 560 million or 28% of today’s two billion airline passengers now use the Internet to make their bookings. SITA’s first passenger self- service survey was carried out in May at three of the world’s busiest airports, Atlanta, Heathrow and Hong Kong. INDUSTRY PERFORMANCE The latest statistics of tourist and cruise passenger visitation to our member countries are given in Table 1 overleaf. The unusually high growth rates for the Cayman Islands (+81.1% through June) and Grenada (+30.5 percent through April) reflect in part their robust recovery from the impact of hurricane activity in 2004, while the sharp decline for Cancun (-45.9% Jan-May) is directly due to the fall-off in business following Hurricane Wilma in 2005. Needless-to-say, these figures skew the overall regional picture, especially in the case of Cancun, which is the third largest tourist destination (after Puerto Rico and the Dominican Republic) in the Caribbean.
However, if we exclude the figures for these three destinations to obtain a more realistic picture of the underlying trend, CTO estimates that tourist visitation to the region during January-May 2006 grew by approximately 5 percent when compared with the same period in 2005. Cruise passenger arrivals, on the other hand, declined by an estimated 2.6 percent during this period.
POSTSCRIPT Now that the FIFA World Cup is behind us and the 2007 Cricket World Cup only 9 months away, it is interesting to look at some of the extraordinary statistics that came out of the FIFA matches in Germany, pre-tournament estimates of 30 billion for the cumulative worldwide TV viewing audience, were easily exceeded topping the last FIFA World Cup audience by more than fifty percent. An average of 21.9 million viewers watched each live broadcast compared to 14.5 million in 2002. Viewership in the United States where soccer is not a major sport, except among the young, surpassed all expectations and surprised the TV station, ESPN, which carried the matches.
There was a marked increase in the number of women watching the matches, with a female audience rising 40% over 2002. One of the most interesting aspects involved both visitors and local fans without tickets. All twelve cities in Germany organized FAN FESTS in 15 venues with the help of FIFA who provided the concept, giant screens, stages and other installations. Some 17,000 employees looked after millions of visitors plus 5500 journalists from around the world who reported on these fan-friendly street parties. The additional revenues from food and beer sales and the publicity generated were enormous. It is estimated than an additional 12 million viewers watched the Germany-Ecuador match alone on giant screens outside the stadium. While cricket does not have the same global reach that football enjoys, it is clear that the impact of the 2007 Cricket World Cup on the Caribbean will be extraordinary, and the opportunities for promotion endless.
Table 1: TOURIST (stop-over) ARRIVALS AND CRUISE PASSENGER VISITS IN 2006
Tourist Arrivals Cruise Passenger Visits
% Change Destination % Change Cruise (Stop-Over) Period Tourists 2006/05 Period Passengers 2006/05 Anguilla Jan-May 35,299 16.3 - - - Antigua & Barbuda * Jan-Jun 137,157 1.8 Jan-Jun 278,691 -1.9 Aruba Jan-Apr 237,744 -11.4 Jan-Apr 266,852 4.0 Bahamas * Jan-Apr 569,481 5.4 Jan-Apr 1,169,164 -5.7 Barbados Jan-Jun 287,948 4.6 Jan-Jun 287,032 -17.0 Belize P Jan-May 119,743 4.4 Jan-Jul 406,509 -22.4 Bermuda Jan-Jun 140,029 6.5 Jan-Jun 102,249 34.9 Bonaire Jan-Apr 22,998 10.9 - - - British Virgin Islands P Jan-Apr 143,792 3.3 Jan-Apr 261,168 12.9 Cancun (Mexico) ** Jan-May 623,737 -45.9 - - - Cayman Islands Jan-Jun 150,486 81.1 Jan-Jun 1,052,831 2.3 Cuba P Jan-May 1,128,261 4.3 - - - Curacao Jan-Jun 116,528 4.9 Jan-Jun 174,527 15.3 Dominican Republic * Jan-Jun 2,106,388 11.4 Jan-Mar 157,017 -0.1 Grenada Jan-Apr 44,071 30.5 Jan-Feb 81,580 -14.9 Guyana Jan-Jul 67,193 2.8 - - - Jamaica Jan-Jun 892,161 17.1 Jan-Jun 686,774 10.5 Martinique P Jan-May 224,817 1.6 Jan-May 56,922 -3.8 Montserrat Jan-May 3,293 -10.4 - - - Puerto Rico ** Jan-Apr 591,675 7.6 Jan-Mar 445,128 -8.2 Saba Jan-May 5,273 -3.4 - - - St. Eustatius Jan-Jun 5,236 -1.2 - - - St. Lucia Jan-Jun 160,505 -6.5 Jan-Jun 221,413 -10.6 St. Maarten * Jan-May 215,380 -3.0 Jan-Apr 640,263 -5.1 St. Vincent & the G’dines Jan-Mar 24,692 -2.2 Jan-Mar 49,636 66.7 Trinidad & Tobago Jan-Mar 121,406 -7.8 - - - US Virgin Islands Jan-May 338,166 0.4 Jan-Jun 1,022,383 -8.1
* Non-Resident Air Arrivals **Non-Resident Hotel registrations only - No Cruise Figures are Reported P Preliminary figures n.a. Figures not available N.B: Figures are subject to revision by reporting countries SOURCE - Data supplied by member countries and available as at August 16, 2006
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