Travel Sector Eager to Leave 2001 Behind

30th Dec 2001

For the travel industry, 2001 was a year to remember—and one to forget.

The upcoming year will look better by comparison, analysts say. But that doesn`t mean it will be good.

“Hopefully, it won`t be what they call a sequel,” said airline analyst Ray Neidl of ABN Amro Securities LLC. “But I`m afraid in the first half of the year, it`s largely going to be that way.”

This year was already shaping up as mediocre for airlines and hotels that cater to the higher-profit business traveler, as a flagging economy made businesspeople travel more frugally or not at all.

But the Sept. 11 terrorist attacks put the travel business into a miserable spiral as almost everyone—from road warriors to the once-a-year vacationer—thought twice about leaving home. A lot of them didn`t.


The result was empty seats and an industry in shambles. Airlines saw business drop by at least half immediately after Sept. 11, and traffic remains down about 15 percent to 20 percent going into 2002. Revenue is down even more as a result of constant fare sales.

“Let`s say this about the year 2001 for the airline industry: I`ll call it the year from hell,” said airline analyst James Parker of Raymond James & Associates.

The rest of the tourism industry also was hit hard. Hotels cut staff, travel agencies put staff on commission and cut back their hours, rental car agencies reduced their fleets and raised their rates.

Now everybody is trying to get back to normal for 2002. But before that will happen industrywide, even more shake-ups are likely.

“I`m worried about the rest of the industry,” said Richard Copland, president and chief executive of the American Society of Travel Agents. “There will be consolidations; there will be mergers.”

Many companies have already announced such plans, and others may be in the works.

For instance:

—Aloha Air Group Inc. and Hawaiian Airlines Inc., the two major inter-island carriers in Hawaii, announced Dec. 18 that they plan to merge.

—P&O Princess Cruises Ltd. agreed to a merger with Royal Caribbean Cruises Ltd. but now has opened the door for an offer from Carnival Corp.

—London-based Six Continents PLC, the world`s second-biggest hotel company, is working toward expanding its holdings.

“It has a war chest as big as all outdoors, and they`re still looking. Now they`re looking at Hilton,” said John Keeling, senior vice president with PKF Consulting in Houston.

As for the airline industry, Mr. Neidl said a shake-up is unlikely unless the economy worsens significantly or more terrorist attacks shake confidence in flying.

“Airlines are too busy right now trying to get their own houses in order to do any consolidation or mergers,” he said. “They just don`t have the money. With the government loan programs, at least with the big carriers, they`ll be able to squeak through the next 12 months.”

It would be difficult to persuade unions to accept a merger if their members are on furlough, as is the case now at most carriers, said Robert W. Baker, chairman and chief executive officer of TWA Airlines LLC and vice chairman of American Airlines parent AMR Corp.

Today, American probably wouldn`t be able to buy TWA, as it did in January, Mr. Baker said, because it wouldn`t be able to raise the money and currently has employees on furlough.

“That`s one of the real interesting quandaries going forward in the industry,” he said. “People say, `Well, there`s going to be consolidation, we`ll have mergers.` There really aren`t going to be mergers and consolidation if the industry continues to have people on furlough.”

But Brian Harris, airline equity analyst at Salomon Smith Barney Inc., says the current crisis will provoke more consolidation through mergers or failures.

“I`m not predicting any particular airline going out of business,” Mr. Harris said. “I would say that the forces for consolidation in the industry are going to be even more evident over 2002. Trends ... are likely to be magnified and accelerated in this environment.”

Midway Airlines Corp., which had filed for reorganization in August, stopped operating Sept. 12. A federal bailout of the industry allowed the carrier to resume flying this month.

Fitch Ratings airline analyst Bill Warlick said he sees only America West Airlines Inc. as a potential bankruptcy candidate.

Even so, he doesn`t see that carrier closing down: “I don`t see really major airlines shutting down. There are some that probably should shut down, but the government won`t let them.”

Bankruptcies have increased throughout the rest of the tourism industry, including several well-known companies that depend on travel.

Shortly after Sept. 11, Florida-based Renaissance Cruises filed for bankruptcy, saying it was a victim of the terrorism fallout. Also, the Florida owner of Alamo Rent-A-Car and National Car Rental has filed for reorganization.

For 2002, the travel industry is hoping that the economy bounces back.

For the airlines, leisure traffic will recover only when people aren`t too fearful to fly, Mr. Neidl said.

“It`s going to have an effect on leisure traffic for a long time,” he said. “For some people, it`ll be years. Other people, once they start flying, will start feeling comfortable.”

Boeing Co. chairman Phil Condit predicted in November that it would take 2 1/2 to 3 1/2 years for the industry`s traffic to return to pre-Sept. 11 levels. TWA`s Mr. Baker said he doesn`t agree that it will take that long, “and I hope he`s wrong. This industry`s going to be out of business if that`s the case.”



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