Q&A: Will the Travel Industry Recover?

Henry Harteveldt is one of the world’s leading experts in the travel industry.?He’s been an analyst for decades and before that he worked in the airline and hotel industries.?Below are his thoughts on the state of the travel industry now and its recovery since 2020.?Reach Henry through LinkedIn, Twitter, or email at [email protected].

Henry, what is your background for anyone who doesn’t know you.?

HH: I am president and travel industry analyst at Atmosphere Research Group in San Francisco. ?I spent the first part of my career working at different airlines in commercial roles, including advertising, marketing, product distribution and network planning. You might think of it as route planning. In addition, I've worked as head of marketing for a luxury hotel chain, Fairmont Hotels, and I’ve worked for a branding agency, and an online travel company. I've been an analyst for more than 20 years. ?We conduct consumer research about travel in roughly a dozen countries. And we also do B2B industry research. Our research is focused on commercial topics, such as digital commerce, marketing loyalty and similar topics like that.

The big question about the travel industry is, what has the impact of COVID been on the travel industry?

HH: I've been in the travel industry and around the travel industry my entire career.?Never, never, outside of wartime, has the travel industry seen anything like COVID. In 2020 when COVID grounded the world, air travel demand fell by more than 95%. There was a point at one time where there were fewer people getting on airplanes at US airports than had been seen since the mid-1950s. So we saw roughly 70 or so years of demand destruction occur within a few weeks.

Since the worst part of COVID, the travel industry has begun to recover. I just returned from two trips and saw that flights are full. Airports are full. Hotels are full. People are out. We've got two years of pent-up demand that is now very, very present. Americans saved more than $4 trillion during the course of 2020 and 2021 because they weren't spending money on all the things they normally do. Our research shows almost 90% of Americans are looking forward to traveling again.

All of this is happening against the background of high inflation rates in many countries, high energy prices, which is affecting the cost of gasoline and jet fuel and diesel for cruise ships, and, and strong demand. I don't want to say that the travel industry is back, but we are certainly seeing a strong recovery in the US and in Europe. China domestic travel is recovering. South America is recovering. Business travel is beginning to recover. We are, depending on how you measure it, approximately 40 to 60% back, at least for US domestic business travel activity. Transatlantic and other long haul business travel and business travel in Europe are recovering at lower rates.

You went to New Orelans recently. Describe what you saw there.?

HH: I went to New Orleans recently because a high school friend of mine from New York was performing in a one person show there. I went to Tulane and I'm very proud of that. And as you can see, I've got a New Orleans poster in my home office. It’s a wonderful city to visit. I hadn't been there in several years, probably three or four years. So this was a great excuse to go back. The city was jammed. I heard from the folks at the hotel where I stayed that it was consistent with other larger trends we're seeing in the hotel industry. People are back, they are traveling. And one of the most interesting things is, people are paying higher rates than hotels may have initially expected. So that means [hotels] don't have to discount as much as they did. They're still doing promotions, but the hotel industry is certainly seeing a strong rate of recovery, at least in some markets.?

It sounds like the recovery in travel may actually be more with leisure travel versus business travel. I wonder about conferences. Are people going to return to conferences?

HH: Well, what we're seeing with business travel is that anything that is associated with revenue, for example, sales, account management, field work, those parts of business travel are among the strongest parts that are recovering. Internal staff travel, managers meeting just to meet, that's less likely to recover. We're actually doing some research for a client now to get a better handle on it. And what we've heard from interviews with a few dozen mid and large size corporations and universities and others have been, internal travel is likely to be 10 to 20% below where it had been even a few years from now. That just isn't going to recover.

The convention and meetings market is going to recover, but probably to somewhere between 85 and 90 or so percent of where it was before COVID. ?There are two reasons for this. First companies are going to be far more particular about which events they attend, where they sponsor, where they exhibit, and how many people they send to these conferences, whether it's working the trade show floor, speaking, or attending an event.

The other thing is that the conference industry is going to have to accept the fact that hybrid conferences, in-person coupled with online access, is going to be essential going forward. It's not a matter of, oh, we won't need it once COVID is over. You will. And the conference organizers will accept it because ultimately it means more revenue for them.

What has all of this done for loyalty? I don't know that I'm ever going to get back to executive platinum status.

HH: Our research shows that loyalty to airline travel in the US is around 16% or so right now [% of people who say they feel loyal to an airline]. That by the way is down. ?When I first started [as an analyst], and we asked about this, it was well north of 40%. So the airlines have done a great job of destroying customer loyalty. We actually saw loyalty decline during COVID because airlines, in some cases, didn't treat people very well with refunds. But also airlines were viewed as just taking advantage of the situation.

Even with higher gas prices, if consumers feel airfare is too expensive, they'll drive. They'll take a road trip. Consumers are not blindly loyal. We will consider different things where we need to, to stay within budget. Eighty-eight percent of leisure travelers have a budget that covers the baseline things like transportation, lodging, and meals.

And for that matter hotels have also seen loyalty decline. There is a group of airlines or hotel brands that consumers may consider, but people are much less likely to be blindly loyal to a brand where they do have a viable choice. If you live in a fortress hub city, for example, where one airline controls 70- 80% or more of your flights, you don't really have a choice there. You take that airline, whether you like it or not. If you're going to a city where one hotel group dominates the hotel market, you don't really have a choice. If you work at a company that says you have a choice of airlines A or B, and hotel groups one or two, your “loyalty” is decided for you. ?You may not be loyal. You're just being compliant with your company's travel policies.

Hotels are doing all sorts of changes to their loyalty programs that are designed to make their owners happy. But frankly, it's pissing off the customer. The guests don't like it. And what you're starting to see there is that the guests are saying, where I have a choice, I'm going to book based on factors, such as quality, convenience, rate, quality of service and so on. Some of the cuts that hotel brands are making in particular to their loyalty programs will come back to haunt them. I've seen this happen before and, and if you're a hotel owner [reading] this, you better think twice about some of the cuts you're making that may be good for your bottom line. Because I will tell you, they will not be as good as you think. Consumers are smarter, they are better informed and they are going to make decisions based on things far more than just brand now.

What are some of those changes that hotels are making?

HH: Well, hotels certainly have been hit by the challenge of hiring and by the way, so have airlines, cruise lines and other parts of the travel industry. Even though they may be raising wages and addressing ways to improve benefits, it's hard to hire people. That is a fact that's affecting all businesses in all industries, but we're seeing some hotels try to push through changes that are just unacceptable. There are hotels saying we won't do daily housekeeping and they're hiding behind COVID as an excuse. They are imposing or hiking the so-called resort or destination fees. They are changing the categories that they want to be classified in for award redemption, trying to push themselves into the higher, more expensive tiers. They are cutting back on their restaurants. I was just at a hotel that's part of Hyatt in New York. ?I was told it had a restaurant. We get there and find out not only do they not have a restaurant that's open, but they don't even have room service. You have to use a third party app. They're not refreshing the rooms. They're not taking care of anything but bare basics in terms of maintenance.

The hotel industry is going to try to find ways to save itself into profitability, and it's going to hurt the industry in a very, very substantial way. Corporate accounts won't stand for this. Leisure travelers won't stand for it.

Does this basically feed right into the Airbnbs of the world?

HH: In some cases it does. We are starting to see Airbnb modify its marketing and messaging slightly. The hosts are now saying, if you want to stay with us for just one or two nights, that's okay. Now there may be some restrictions in some cities and not all hosts are doing this and hosts do impose a cleaning fee on top of the daily rate, but we are starting to see Airbnb, VRBO and others gain market share at the expense of hotels for people who are staying three or more nights, and, and there are compelling reasons for that. You have more privacy. You have more space. You're in a residential neighborhood that may be more fun, more enjoyable, with more services nearby in certain cities. Hotels really have to be careful here. They keep looking at other hotels. If they take their eye off the alternative forms of accommodation, they're going to lose because Airbnb and VRBO are massive, smart, sophisticated marketing machines and hotels have starved their marketing departments of funds.

Let's talk about Delta. You had mentioned that that was a company that seems to be losing share.

HH: It seems that people feel Delta took advantage of them more than others. Their pricing now is often considerably more expensive than other airlines. Travelers will pay a premium for a more reliable and on-time airline, two areas where Delta, by the way, often far exceeds, most other airlines. But there's only so much more people will pay, whether they're a leisure traveler or a business traveler. In addition, Delta has cut back on cabin service which really annoys their frequent travelers and their premium travelers. Delta's flying some old airplanes. The plane that I flew home from New York to San Francisco on Sunday is a 30 year old airplane with a 12-plus year old cabin. If Delta wants to be a premium airline and it does, it's going to have to take steps to justify the premiums, but also to be cognizant of what the reality is that it can charge. Delta may think it's worth a princely sum, but the consumer is going to think otherwise.

Yeah, nobody wants Cheeto dust on their chair which may have a tear in it.

HH: I will say that that, that Delta has done a consistently good job in keeping its planes clean, better than many of the other larger US airlines. And I will also say it's not easy keeping airplanes clean. We're not the cleanest people when we’re on a plane. Somehow we revert to being three-year-olds and like you said, we end up with Cheez-Its all over the place. It is a very tough environment for airlines. The flight attendant work group has had to face enormous pressure, with unruly passengers and so on. These things are affecting consumers’ interest in travel.

What do you think is going to happen to the travel industry? Will it fully recover to 2019 levels?

HH: Business travelers, especially large corporate travel accounts, will be traveling less because technology allows them to travel less. Their CEOs and CFOs like the idea of spending less money on travel. I interviewed one company’s CFO for a report about business travel. And he said that one of his personal objectives is making sure no airline CEO earns his or her bonus. And he was joking, but he wasn't. And the reason is because that money often either drops to the bottom line or can be reallocated elsewhere to something that the company may feel is more useful than business travel.

But during COVID something interesting emerged, and this was something that actually I pointed out years ago: the premium leisure traveler. These are individuals who are traveling for personal reasons, spending their own money, but willing to pay for better products, whether it's extra leg room or an upgraded room at a four-star or five star hotel. There are a lot of people out there who have the money to spend. But our research shows they want that product to be tangibly better and that it needs to not only meet, but exceed, their expectations. A lot of those expectations are what we would call emotional expectations as opposed to rational ones. So it's not just cleanliness for example, or departing on time. It is having a really good restaurant at a hotel or really friendly and well-trained staff.

Have you seen consumer behavior change in any major way over the last couple of years?

HH: So there are a couple of things that we have found. First, as I mentioned is the emergence of the premium leisure traveler. Second, people are buying more flexible products now because we live in an uncertain world. ?Right now things look favorable regarding COVID and let's hope they continue to become even more favorable, but people are more willing to book ?airfares and hotel rates that offer flexibility. They are more likely to book fares that allow them to change flights or cancel a hotel if circumstances change, and the reason they're doing that, is things may look good now, but closer to departure, something may happen and you feel less comfortable traveling, or you're not able to travel and you don't want to give a travel company an interest free loan of your money.

The other thing that we've seen is a shift towards booking directly with supplier brands. So directly with an airline. Directly with the hotel. Directly with rental car company because frankly consumers feel that they have more choice, more selection, and if something goes wrong, there'll be treated better if circumstances require customer assistance.

So my last question is that what's going to happen to the cruise industry?

HH: The cruise industry is coming back, I don't want to say with a vengeance, but certainly coming back in a more robust manner then I believe a lot of people would have expected a year or two ago, especially at the beginning of the COVID pandemic when people were kept on ships and they were lead stories and on news websites, newspapers, TV news, broadcasts, and more. Cruising can be wonderful. There are river cruises, there are ocean cruises, there are educational cruises and more.?Consumers like cruising because it can be very relaxing. It can be very informative. It can be very fun. But that said, it's a product that's not for everyone.

This interview was edited for clarity.?It was conducted on April 4, 2022.