Latest resort travel data has a few bright spots
Vail, CO, Colorado
Economic activity and travel news during July remained negative on most fronts but includes the first positive note in some time.
– Energy: Oil, having approached $150 per barrel, has fallen back significantly from its July 3 peak. While oil prices are still up significantly this year, the decline has been swift and vicious enough to give both investors and consumers a bit of good news.
– The dollar: Not unexpectedly the dollar, which has sagged along with the economy, rebounded at about the same time as oil dropped, reaching its highest level against the Euro since February and in the process sending a wave of confidence through the stock market, further bolstering consumer confidence.
– Consumer confidence: So, with oil down and both the dollar and stocks up, consumers, desperate for good news, responded positively. The Consumer Confidence Index increased slightly (1.8 percent) in July from June to 51.9, the first increase in some time.
According to the Conference Board, the government agency that compiles consumer confidence data: “While consumers remain extremely grim about short-term prospects, the modest improvement in expectations, often a harbinger of economic times to come, bears careful watching over the next few months.”
When consumers are confident, they are more likely to spend their money on discretionary activities like vacations, and with the start of the winter booking season just around the corner, this is a good thing.
However, the underlying economic forces remain negative.
– Financial markets continue to be burdened by effects of loan defaults and the Fed intervention into Fannie May and Freddie Mac are the most recent example. What started out as a sub-prime credit crunch, has grown to impact financial markets world-wide.
– Inflation and its effects are moving to the forefront and is now at 5.6 percent, the largest increase since 1991, again driven by energy and food costs (both of which are components of a vacation).
Most recently, the Federal Reserve Board suspended its rate cuts, saying, in essence, they fear the effects of inflation more than the consequences of further financial weakness. This means that the dollar buys 5.6 percent less than it did last year at this time, which means consumers will have to buy less. Logic says non-essential or discretionary spending items, which include the leisure travel category, will be among the sacrifices consumers make .
– Consumer prices: Inflation is directly linked to what consumers pay for primary goods and services and is measured by the Consumer Price Index, which spiked in July, (up .5 percent, more than twice what was expected).
“For the average American, these inflation numbers are very bad news, It means that their purchasing power has been cut and their wages aren’t going very far”, said Mark Zandi, chief economist at Moody’s Economy.com.
– Air travel is continuing its revolutionary shift and the recent price drop in oil will do little to abate this fundamentally broken economic equation. As summer draws to an end, carriers are further reducing schedules and counting on economic fundamentals ” less supply will create more demand and drive higher prices. Some airline analysts are predicting price increases as much as 100 percen t to some destinations once the add-ons from ski gear are included. While this is good for carriers who need a sustainable business model, it is not for destination guests, especially to the more remote destinations that are transportation-dependent.
So, how is this all impacting the mountain resort industry? Here are the key mountain travel-metrics from MTRIP’s August report of July 31 bookings.
– July occupancy was down 6.1 percent but offset by a rate increase of almost the same amount ” 6 percent.
– Summer-to-date (May-July) occupancy is down 5.1 percent. Room rates are up 3.2 percen t for the same period.
– Rooms booked during July 2008 for the balance of the summer (through Oct. 2008) are down considerably ” 10.4 percent ” from last year’s pace, but less than last month, where rooms booked in June were off 13.6 percent.
– Total advance reservations for the next six months are trending behind last year’s pace by 4.1 percent. Again, rates are up, by 3.7 percvent.
Overall, the mountain resort industry continues to demonstrate its resiliency, but results vary considerably so check results at your own destination (there are MTRIP ” hubs” at most resort destinations that track individual resort performance) and then proceed accordingly. With Labor Day past, we are starting the transition to the winter booking season, which continues to be the primary economic engine for us all, so the stakes are going up measurably. We’ll have another update for you next month.
Ralf Garrison is director of MTRiP, the Mountain Travel Research Project. Learn more at http://www.mtrip.org.