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A crisis in confidence: The encore

Ralf Garrison
Vail, CO, Colorado

October brought a barrage of discouraging economic news that overshadowed some signs of potential relief.

The bad news further damaged consumer confidence that has now become a self-fulfilling prophecy. This crisis in confidence is particularly bad timing for the 2008/09 winter booking season and appears to be causing some historically resilient guests to remain on the sidelines. Cautious consumers have curbed their spending. This dramatic downturn in spending as a result of the credit crunch, caution, or both represents a significant challenge to resort marketers.

– Consumer confidence dropped 36.5 percent in October to its lowest level since the measurement was established in 1985, and is the single best indicator of the cumulative effects of market forces.



-Financial markets have not yet responded to the dramatic steps being taken by the federal government, nor are consumers seeing any benefit. Stocks are reflecting the increasingly bad economic news with unparalleled volatility. The only thing most analysts agree on is that there is no semblance of rationality. These irrational markets defy conventional logic and do little to encourage a vacation, but cause many consumers to feel like they need one.

– Retail sales dropped 2.8 percent, surpassing the previous monthly record decrease set in November 2001. Evidence of easing credit is beginning to show in some indexes, but doesn’t appear to be proving any relief to consumers.



– The world economy now shares the same plight as that of the U.S. and it has become clear that the world’s major nations are economically co-dependent. Sinking world markets have contributed to an ironic spiking of the U.S. dollar abroad as the world economy devalues. International inbound travel is being negatively affected and outbound travel is more favorable, which will also negatively affect the coming winter travel season for North American destinations.

– Transportation costs are a bright spot due to rapidly dropping oil and gas costs, which have leveled to the $60 per barrel range and brought gas prices to a national average of $2.38 per gallon. Reduced oil prices have resulted in some relief to air carriers, which are also seeing drastic drops in demand. Evidence of airfare pricing decreases is becoming apparent, resulting in speculation that carriers are stepping back from higher prices. If this trends continues it bodes well for winter vacations, particularly ski vacations, and can be touted as a benefit to visitors who remain undecided and uncommitted about a winter ski vacation.

– Leadership: With the elections over, there is not yet been any significant “Obama bump.”



What does this mean for the mountain resort industry?

– In the face of these headwinds, winter reservations are down by 13 percent, and reservations taken in October are down 22.4 percent, both down from September levels. New reservation volume held up well but were offset by cancellations, particularly in early season, including both Thanksgiving and Christmas, when lodges have historically been able to command high occupancies, high rates and long stays.

– A significant number of past guests that typically stayed for five to seven nights have not made reservations for this season, and are unlikely to re-engage soon, at least until current conditions abate or resorts craft compelling offers to lure them back.

Lodging properties are faced with the prospect of a major shift in their usual game plan, and may be turning their focus to close-in markets and “one-tank guests” who are better able to take advantage of short term opportunities surrounding Thanksgiving and Christmas. This provides an important fill-in opportunity for those lodges who are willing and able to re-focus.

– With oil and gas prices dropping and transportation costs beginning to ease, the prices paid by guests for their vacations may drop to everyone’s benefit. Pressure on price is increasing and competitive destinations, led by the cruise and gaming industries, are already discounting prices despite the conventional wisdom that emphasizes value over discount. As competition increases, consumers are already beginning to expect a deal, which adds more pressure, particularly on lodging.

– Much has been said recently about the importance of snow, and its power to trump consumer confidence and recessionary forces. The historical data based on skier visits supports this theory but its positive impact may not apply equally to all segments of the market. A local season pass holder can jump into a foot of powder on literally a moment’s notice, without shelling out an extra dime. Destination guests must make significant expenditures and often book well in advance based on schedules, pricing, and are often much less responsive to snowfall.

A recent informal poll of destination guests who had yet to book, revealed they had significant economic-related considerations, especially from Northeast markets, but were giving little consideration to the snow.

So, the economy stinks, bookings are down and some guests are still on the sidelines. Snow may be a trump card but it is also a wild card. For resorts and lodges dependent on destination guests, it probably isn’t wise to depend on Mother Nature for fiscal security, viability, and stability. To attract and secure those guests, resorts and properties must now invest in careful, strategic thinking and create the best offers possible for multi-day destination guests as well as shorter stay regional guests. And, of course, every plan should include a serious snow dance boogie. If that combination doesn’t do the trick, nothing will.

Ralf Garrison is director of MTRiP, the Mountain Travel Research Program. The Mountain Travel Monitor is produced by MTRIP and is based on advanced reservation data submitted by lodging property subscribers in the western U.S. and Canada. For more information contact MTRIP at info@mtrip.org or 303-722-7346. All rights reserved.


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