Impact of Airline Capacity Cuts on the Hospitality Industry

Implications: All key metrics are still up (occupancy, demand, supply, average daily room rate), but what impact  will the economic downturn and reduction in airline supply have on the hospitality industry? Air travel represents less than 12% of all travel in the US today by Americans, yet all tools in the industry are air-traveler centric. Hospitality executives cite reduction in weekend demand and softening of business travel midweek.  They do not look at tools (other than online itself) at playing a role in driving traffic to their brands.

Analysis: Speakers at the 30th Anniversary NYU International Hospitality Industry Investment Conference discussed the challenges facing the industry.  The focus was the current economic downturn and the impact on travel in general.  There was mention that demand is down on weekend travel, as well as transient business travel.

What they do not discuss is that the industry currently only has booking tools for the traveler that are focused on the air traveler, so as air travel demand declines, so does the potential occupancy rate. 

According to the Travel Industry Association, over 88% of all travel in the US is done by car/vehicle, versus just 12% by air.  Total spending by US travelers is $1.4 trillion.  Just $137b is spent online with online travel agencies and suppliers and $129b is spent with traditional travel agencies.  That leaves $1.1 trillion in spending that is not managed electronically.  How are these transactions handled?

As an example, if you are flying from New York to Tampa, it is easy to book your hotel for that trip.  Simply go to your favorite online travel agent or hotel site or even to an offline travel agency and tell them your arrival date and that you want a hotel in Tampa.  But try that same trip if you are driving.  How far will you get each day?  How far off your route are you willing to stay?  And what do you want to do along the way?  
The technology for the travel industry has its roots in the airline industry.  The Global Distribution Systems that power travel agencies, both online and offline (Sabre, Amadeus, Galileo and Worldspan) were originally founded by the airlines.  They each use a buying metaphor of where are you going and when.  This metaphor does not work with the road traveler.

I liken the change needed to the restaurant industry’s changes over the last 30 years.   When time was more plentiful, people were served sitting down in a restaurant by servers.  As the restaurant industry recognized that there were people that were either in a hurry, or wanting prepared food but wanting to eat it at home, carry out and fast food emerged as a trend.  The food was the same, but the method of presentation had to change.  Carry out containers, counters, cash registers all had to change.  Then as the drive through market emerged, restaurants had to “punch a hole in the wall” and further add technology (remote ordering systems) and rearrange their product for more efficient window service. 

The travel industry is at this crossroads as well.  The product is there, but the tools are old and outmoded and do not serve the mass market traveler, but instead have been tooled to focus on the niche (air) traveler.  Since September 11th air travel has grown to be more of a hassle with each passing month.  With the cuts in capacity, it is not expected to improve.  So it is not surprising that people continue to choose to travel by car.

As airline capacity continues to decline, it is time for the hospitality industry to look at how to attract the road traveler.  Rather than turn to discounting, I think it is time to "knock out the wall".