Consumers slowly coming back
September 21, 2009
The August Monitor wraps up the summer and launches what has historically been the start of the winter booking season, when the priorities and focus change. It also comes at the anniversary of the start of the 2008 financial collapse, when Lehman Brothers tanked. That failure precipitated a crisis that spread into a deep recession and has fundamentally altered the way consumers feel and spend. As we mark the one year anniversary of the downturn, readers must take into consideration the dramatically different economic environment being measured – the proverbial “apples to oranges” circumstances from one year ago to today.
To better grasp the radically different situation, this month’s Feature Indicators includes benchmarks for August 08, February 09 and August 09, to illustrate market patterns over the past year. While national economic indicators continue to provide data that fosters cautious optimism for the coming season, mountain travel industry trends and performance are not as encouraging. There is also concern that since the travel industry decline lagged behind the overall economic downturn, we must consider that the upward swing in industry trends is also likely to lag behind overall recovery. What remains uncertain is the timing of consumers’ reaction to the greater economic recovery and how that timing will mesh with creative and strategic marketing and promotional practices.
Existing home sales leap higher
This month’s “news talker” is the sharp turnaround in sales of existing homes, as homebuyers flooded back to the marketplace, taking advantage of low interest rates, deflated property values, and an $8,000 first-time buyer’s tax credit. Existing home sales increased 7.2 percent in July from June and are up from July 2008 by 5.0 percent, the first year-over-year increase since November 2005. Thirty percent of existing homes purchased in July were short-sales or foreclosed properties. While the elimination of under-priced inventory from the available market is crucial to recovery, it is worth noting that foreclosures and delinquencies continue to rise amid growing unemployment figures. Analysis: Orange – the rising tide of new sales must overpower the waning tide of additional foreclosure inventory.
The Dow Jones Industrial Average: Aug 08: 11,543.55; Feb 09: 7,062.93; Aug 09: 9496.28. The DJIA continued patterns established in June and July of adding value, rising 3.5 percent between August 1 and August 31 (closing at 9,496.28) and 4.7 percent between August 1 and September 11 (closing at 9,605.41). Markets were buoyed by positive news in the housing sector, increased confidence and declining consumer prices. Negative unemployment news at the end of August had little impact on the DJIA. Analysis: Yellow/Green – Good news continues to outweigh bad, with a slowly increasing number of positive data points trending the market upward.
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Consumer Confidence Index: Aug 08: 56.9; Feb 09: 25.0; Aug 09: 54.1 The Consumer Confidence Index (CCI) returned to the positive in August, increasing by 14.1 percent from July to 54.1 points. This is the fourth increase in the Index in the past six months and is largely due to positive stock market data and the (brief) decline in unemployment in July. It is noteworthy that the CCI precedes unemployment figures and the Index remains volatile as long as earnings concerns and unemployment, which increased in August from 9.4 percent to 9.7 percent, remain unstable. Analysis: Yellow – outlook is improved but remains open to fluctuation.
Travel Price Index: Aug 08: 269.0; Feb 09: 234.5; Aug 09: 247.1 The Travel Price Index, the USTA’s index of costs associated with consumer and business travel, increased 1.0 percent in July to 247.1. This is the sixth consecutive monthly increase in the Index and is untimely as consumers continue to be pessimistic about spending, evidenced in the decline in consumer spending in July (-0.05 percent). Although travel prices are well below 2008 levels (-10.7 percent) and “deflationary,” it is worth noting that much of this decline is attributable to the record high cost of fuel during summer 2008. Analysis: Orange – Consumers are showing price sensitivity and may be reluctant to consider income ‘discretionary’ until other factors provide greater confidence.
What it means for mountain travel
A statistical “fruit punch” of apples to oranges – along with a few lemons – sets the stage for understanding the dramatic shifts in the data:
• Most economic and statistical tools, including those used by MTRIP, compare current year to last year metrics, then calculate the percentage change between the two.
• Last August, consumers were unaffected by the financial crisis and were shopping and spending in historically normal patterns. This year, shopping and spending patterns have changed, most significantly on discretionary purchases such as leisure travel and the mountain resort industry.
• So last year’s apples were more positive than this year’s oranges – making this year’s data look more negative. Add the fact that the 07-08 season was a record for most mountain resorts and the comparison becomes even greater.
Ironically, there is the potential for some good news statistically. Once we pass this anniversary, last year’s recessed market conditions will be more comparable to this year, and the resulting statistics more valid as a year-over-year indicator. While making a true “apples to apples” comparison won’t become clear for another month or so, the resulting picture will be of considerable interest and followed closely by the Monitor staff.
Business in August continued the pattern of recent months with low volume and less strength than last year.
• August occupancy was down sharply (-21.0 percent) compared to August ’08, and considerably lower than in July (-13.2 percent). August rates were down (-12.6 percent) over August ’08 and slightly lower than July (-11.1 percent), generally continuing the trends of the past several months.
• Reservations taken in August for arrivals in August-January were up (2.1 percent) on a year-over-year variance with notable increases in August bookings for September, November, and December arrivals. This is contrary to recent trends, where short-term bookings have dominated and may provide some optimism that bargain seekers are prepared to commit to (relatively) higher-yield dates during holidays.
• Short lead bookings, which were evident in MTRIP data for July, were noticeably absent in August, with in month/for-month bookings declining by -11.0 percent compared to August 2008.
Overall, summer business (May – October) continues to show significant declines from last summer to-date with no indication yet of an improving market or more optimistic consumers.
• For advance months, decreased rates continue to be the focus of marketers as an incentive for consumers. MTRiP data indicate rate discounts ranging from -3.7 percent to -17.5 percent, with the deeper discounts occurring during lower demand months as lodges attempt to hold rate during the peak holiday period. Overall, rates for the coming six months are down (-13.8 percent) from 2008/09, essentially flat with last month (-14 percent). However, contrary to last month, rate declines are showing modest improvements in occupancy for the coming six months (-19.5 percent from 2008/09 versus -24 percent last month). RevPAR on the books remains battered and is down dramatically (-31 percent) as of August 31.
• While short-lead time trends are not evident in August MTRiP data, it is apparent that bookings made in August for arrival September, November, and December have been positively impacted, with year over year bookings increasing by 28 percent, 26 percent and 6 percent respectively. While actual numbers are small, this is the first hint that consumers may be cautiously returning to the marketplace, although at dramatically reduced rates.
So, the anniversary of the “crash” is noteworthy in several ways, and will soon pave the way for a clearer assessment of the upcoming winter, and as we approach year two in a downturned economy, we advise extreme diligence. Mountain destinations and their marketers need to get and stay very clear about long term goals and objectives and stay very nimble about deploying appropriate strategies and tactics.