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Summer Travel Season Preview

May 31, 2004 at 12:00 AM EDT

RAY SUAREZ: As gas prices hover around $2 a gallon and federal officials warn of new terror threats, millions of Americans are preparing for their annual summer vacation. For a look at the season ahead and how it may be affected by some of these changes we’re joined by Darryl Jenkins, visiting professor at Embry-Riddle Aeronautical University, and Betsy O’Rourke, vice president of marketing at the Travel Industry Association of America.

Betsy O’Rourke, what are you projecting for this coming summer?

BETSY O’ROURKE: It’s going to be up, up, and away. We are projecting a record summer for travel, up 3.2 percent. So while that number sounds modest, it’s 334 million person trips, people who will be traveling June, July, and August, this summer.

RAY SUAREZ: What do you think is feeding an increase like that?

BETSY O’ROURKE: Well, I think people are very comfortable with the economy now; I think they’re confident in the security measures that have been taken. I think that people have a pent up demand for travel.

We’ve seen since 9/11 some significant shifts in how people are traveling and where they’re going, and there was a need to reconnect with the country, reconnect with family, reconnect with friends. So we’re seeing that happen. Eighty-six percent of these trips are going to be taken by car, 14 percent will be in the air, and we’re seeing that people really want to get out.

RAY SUAREZ: Well, economists are talking about inflation pressures. People know themselves when they fill up that it’s more expensive to fill up a tank of gas. How do these factors play into the kind of plans people make?

BETSY O’ROURKE: Well, it’s interesting that you talk about the gas prices because a lot has been made lately of this increase, but when you really figure it out in auto travel trip perspective, your average trip is about 800 miles, your average car gets about 20 miles to the gallon, so that’s 40 gallons of gas times the incremental 50 cent increase in gas prices that we’ve seen in the last 30 days, that’s 20 bucks. That’s two pizzas; that’s four Starbucks.

So while I’m not discounting the impact of gas on a day-to-day basis for those of us who are commuters, when you think about planning your vacation and factoring in the cost, that $20 is not going to make the difference about whether you go or not go. It may make a difference in terms of where you go. You may choose a destination that’s a little closer to home, that requires just a little less gas, or you may choose a more economy hotel, or you may stay with friends, instead of spending the money on a hotel, but we don’t believe – we certainly didn’t see it last time – and we don’t believe this time that it’s going to have an impact.

And, in fact, we’re actually projecting that there’s going to be a 4 ½ percent increase in spending this summer, so I think consumers, travelers are expecting to pay a little bit more this year.

RAY SUAREZ: Then I guess, Darryl Jenkins, if you’re fooling around with spreadsheets at an airline headquarters, it may be giving you some heartburn.

DARRYL JENKINS: Well, right now it is. We see — bookings right now are very, very strong for the summer; at the same time prices are pretty much at an all time low, so there will be more people at lower prices; the airlines are going to lose more and more money.

RAY SUAREZ: So how does a full plane, at a time when people actually want to travel, result in what could be a bad business quarter?

DARRYL JENKINS: Well, it’s really very simple. The average fare that people are paying right now is not high enough to cover your full allocated cost. As long as this continues, the airlines will continue to lose money as well.

What we’ve seen happen in the last five or six years is the encroachment of the low-cost carriers, the low fare carriers, into turfs where the major carriers, American, United, and Delta and others, used to rule. These guys have a lot lower operating cost, as much as 40 or 50 percent in some cases. So when they charge the very low fares, the other carriers, like American and United, have to match that; their costs are much lower; they’re able to make money at the low fares; the big carriers, American and these others — the only thing they can do is match and lose a lot of money.

RAY SUAREZ: Let’s talk about security. Are the lines going to be longer at American airports?

DARRYL JENKINS: At some airports there’s no doubt about it, lines will be longer. Now, we know here at Washington Dulles that TSA is going to hire quite a few more security screeners, but you can’t do this at every airport. There will be some airports like Boston which will continue to have increased delays. I know we’ve had some problems with BWI as well, so it’s going to be distributed definitely throughout the country.

If you’re currently at an airport where you have a lot of delays, the delays will increase over the summer. If right now you’re living in a community where you have an airport that has maybe ten to fifteen minute delays through security lines, it’s not likely to increase much more.

RAY SUAREZ: Betsy O’Rourke, how do people factor the news into the plans they make? We hear at New Year’s Eve time about special precautions in New York City, this just past weekend about precautions in Washington, national parks, theme parks. Do people just sort of bake it into the cake, let it be ambient in the back of their minds, or do they choose some places and just not choose others?

BETSY O’ROURKE: Well, it’s changing. I think there’s sort of this new reality and there’s somewhat of an acceptance of the new reality, but when you see a terror alert, for example, go up, in the past we’ve seen an immediate 10 percent decline in airline travel and an increase in car travel; people will opt to take a car instead of an airline, but it rebounds very quickly; it’s a very short-term attitude; as soon as the news moves on to the next story, quite frankly, and people are reassured that it’s really okay.

In terms of actually selecting destinations, you know, we saw a shift. We saw a major shift after 9/11 away from cities, away from major stadium type events, but that has begun to soften, and now we see, in fact, cities are the number three choice this summer. I mean, beaches are number one, small towns and rural areas are number two, and cities are number three, followed by state and national parks in the mountains and then in fifth place, theme parks. So people are clearly shifting back to those kinds of destinations.

RAY SUAREZ: So where does it look like we may see bottlenecks in the transportation system this coming summer of travel.

DARRYL JENKINS: Always on the East Coast. We’re coming up to June, which is thunderstorm season. Any time we have a thunderstorm, the East Coast is going to back up. When the East Coast backs up, it backs up all the way to Chicago and when Chicago backs up, guess what, the West Coast slows down as well. So our air traffic system is really a very large network; all the pieces are connected. So if you have a bottleneck at any one point in it, the whole system is bottlenecked as well.

RAY SUAREZ: Does that have people in large numbers, in measurable numbers, opting to stay away from the air system altogether?

BETSY O’ROURKE: No, actually we’re projecting the largest increase since 9/11 in air travel this summer, a 5 percent increase, so we think travelers have regained confidence in the security. The air fares, as Darryl said, have never been better. There’s a lot of availability; the airlines have actually put more capacity into the air, so while we see an overall increase in summer travel, we see some of that going into the airlines.

Eighty-six percent of people will be in their cars and trucks and RVs. I mean the biggest segment of growth has been the RV industry since 9/11. One in five Americans are going to be in an RV this summer, which is quite extraordinary.

RAY SUAREZ: Are there types, styles of vacation that are increasing in popularity, growth segments that the industry is trying to soak up some of those dollars?

BETSY O’ROURKE: Well, I think one of the more interesting trends is inter-generational travel. You know, in 2002, about 9 percent of family vacations included three generations. That doubled in 2003, so one out of six family vacations included three generations: the grandmother or the grandparents, parents, and grandchildren. And we think that’s a big growth opportunity from a tourism point of view, and we see a lot of families. Again, it gets back to this whole theme of reconnecting and doing things together.

We also see people repeating vacations that they did with their parents, so I’m now taking my children to the national park that I went to when I was, you know, a young tot, or I’m taking my child to Disney World or I’m taking my child to Universal. I mean, it’s that kind of experience that they want to — or they’re going back to see hometown, the very first house where grandma grew up, that kind of thing.

RAY SUAREZ: Now Darryl, over the past year, some of the big carriers have come in with low-cost carriers. Betsy O’Rourke has been talking about how people are more willing to spend and are projecting larger spending. Doesn’t that create a price atmosphere where the airlines may be able to raise a little ticket prices without fear of losing volume?

DARRYL JENKINS: The last six months the major airlines have tried to raise their fares three times. Each time the price increase was rescinded. I assume that will continue through the end of the year, so I think we will have very low fares to the end of the year.

I do not see very much in terms of upper price pressures at all. The airlines are expanding capacity. It is very difficult to increase fares when you’re expanding capacity at the same time. So in the short run, probably up to a year or so, I see no upward pressure on air fares. Even after that, I see very little in a medium term or long-term environment that would tell me that the airlines like American, United, and Delta and others are going to be able to get any significant air fare increases whatsoever.

RAY SUAREZ: Darryl Jenkins, Betsy O’Rourke, thank you both.