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Vail Valley: Economic slump’s fallout not fully felt yet

The financial crisis and its related pressure on the resort marketplace in the Vail Valley and the region has not abated despite either the October bailout or prospects of the next one. The recession is deepening and the fallout is becoming clearer at both the consumer and business levels.

As governments and multinational corporations take action to protect their assets, the consequences may begin a cyclic downturn that would be challenging to reverse. Businesses are swiftly changing their practices and focusing on cutting costs after apparently giving up on making their margins through revenue growth, which has been the pattern in recent years. These strategies lead to layoffs, job loss, and reduced consumer spending which deepens and increases impact of fallout.

Economic indicators



The $785 billion economic stimulus package signed into law Tuesday can be seen as the launch of “Obamanomics” (harder to pronounce and likely more difficult to implement than Reaganomics). The package, which offers strong support for homeowner debt relief, was able to stabilize strong negative activity on financial markets. However, expectations for meaningful relief haven’t generated any positive economic results yet.

– Unemployment rate: After nearly 600,000 jobs were lost in January, thenation’s unemployment rate stands at 7.6 percent, the highest rate since 1983.

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– Consumer confidence index: Consumers remain wary of the markets and are limiting their spending. Consumer confidence dropped to a new all-time low in January and is down an average of 54 percent over the past four months from the same period a year ago.

– Transportation and fuel costs: Sagging demand for air travel has resulted in a windfall of spring discounts for consumers, but pundits warn that this trend will not continue. They predict that airlines will reduce supply by cutting service until the supply/demand equation works in their favor.

– Consumer Price Index: While the continued low price of crude oil is contributing to lower consumer prices, retailers are reacting by rolling back prices in recent weeks to move inventory. The Consumer price index is currently at 210.2, a mere 0.1 percent higher than in January 2008 which means a flat inflationary rate.



– Travel Price Index: Driven by lower fuel prices and decreased consumerism, this index was down 5.5 percent in December 2008 from December 2007, reflecting a deflationary travel market. The silver lining of this trend is lower travel costs for hesitant consumers.

What this means

The winter season has reached halftime as of Jan. 31 bookings, the basis of this summary, and is tracking significantly behind last year’s pace. But uncharacteristically strong short-lead bookings have helped make the final results less bad. Here is both a look back and forward to season’s end:

Season to date: Looking back, January occupancy across all destinations surveyed by the Mountain Travel Research Project was at 50 percent compared with 60 percent last year and was compounded by a decrease of 7.9 percent in the average daily rate.

Bookings taken in January were down 18.9 percent from last year and were much softer than December’s pace. Reservations taken in January for arrival in January were up incrementally 10 percent, stronger than January 2007, but nothing like last month when last minute bookings in December for December arrivals made a significant contribution to a “less-bad” outcome.

Snow has been plentiful in most western destinations but the impact may be fading as the season matures and consumers become less influenced by the amount of snowfall. Additionally, the influence and impact of strong snowfall appears more pronounced for local and nearby skiers and may boost lift ticket sales more than destination lodging.

The fallout to date has included more layoffs and business closures. Tough lessons are being learned and there are likely more are on the horizon.

Slowing sales and lodging tax revenues are becoming apparent and additional rounds of public sector budget cuts are imminent at city, county and state levels. These cuts are setting up pressure on tourism marketing budgets that are often funded by these tax-based revenues. Resorts that can maintain their funding will be able to stay in the market and others will not as the principles survival of the fittest come into play.

Looking ahead: The entire winter season continues to lag behind last season with occupancy down 18 percent and lodging rates down percent based on reservations as of Jan. 31. Moreover, it suggests that last minute bookings may not be strong enough to significantly improve February and March business.

While the fallout is apparent, the depth an impact cannot be predicted. Our reservation activity report accurately tracks the reservations on the books, but does not make forecasts of what’s yet to come. Even so we look hard for indicators and offer guidance where we can, and with two wild cards ” the economy and snow ” already on the table, we recommend adding unpredictable short-term booking to the list of forces that will impact the fallout yet to come.

Ralf Garrison is the director and co-founder of the Mountain Travel Research Project. For more information, e-mail info@mtrip.org or call 303-722-7346. All rights reserved.


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