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Mountain travel still looking flat

by Ralf Garrison
Mountain Travel Market Monitor

The latest release from the Federal Reserve indicates that the “economy is leveling off” and presumably flattening from the steeper declines experienced over the past year. However, neither the national economic indicators shown on this first page, nor the mountain travel indicators support their claim. At best, national signals are mixed, encouraging us to continue the stoplight metaphor from last month. Mindful of the likelihood of a similar pattern for the next several months, we are introducing MTRiP’s “Econometer” (right) to help track the situation and illustrate our recommendations.

Dow Jones Industrial Average

The DJIA continued the trend begun in June of finding traction and increased throughout July and into August, rising 7.8 percent between July 1 and July 31 (closing at 9171.6) and 10.5 percent between July 1 and August 13 (closing at 9398.19). There has been negligible fallout on the DJIA from the budget deficit figures noted. In fact, the Dow has been somewhat buoyed by unexpectedly stronger unemployment figures, positive news from the auto sector, and strong earnings reports from major banks. While the latter news can be attributed to increased efficiencies rather than increased income, the news is nonetheless indicative of a more stable banking system that shows signs of reorganization and future resiliency. Analysis: Yellow/Green – clearer evidence of anticipated recovery in the next 3 – 5 months is having more influence than short term knee-jerk reactions.

National Deficit Tops $1.1 Trillion: This month’s “news talker” was the new record for the national deficit – now in excess of $1.1 trillion, a figure that has accumulated over the 10 month term since the adoption of the 2008/09 federal budget in October, 2008. The greatest contributor to the rising deficit is federal efforts to buoy the failing economy. The news seems to be no surprise to anyone and is being taken in stride by consumers. However, the long-term consequences of this short-term trend have yet to be quantified or taken into account. The risk of serious fallout is significant as the government is forced to choose between debt servicing and federal programs, which may suffer as the new budget cycle approaches in October. Analysis: Orange – limited short-term, potential could result in serious long-term social impact.

The Consumer Confidence Index, which had consecutive increases in March, April, and May, declined 5.5 percent in July for the second consecutive month to 46.6. The drop is largely due to the ongoing crisis in the job market, short- and long-term business conditions and July unemployment figures that were widely expected to increase above June’s level of 9.5 percent. However, the surprising dip to 9.4 percent that occurred after the monthly report is causing some analysts to anticipate a reactionary increase in consumer confidence in August. Analysis: Yellow – overall outlook is pessimistic but focused almost exclusively on business conditions.

The Travel Price Index, the USTA’s index of costs associated with consumer and business travel that includes fuel prices, room rates, insurance costs, ticket purchases and the Consumer Price Index, increased 2.0 percent in June to 244.7. This is the fifth consecutive monthly increase in the Index and is untimely as consumers continue to feel pessimistic about spending as evidenced in the recent decline in consumer spending in July (-0.7 percent). Although travel prices are well below 2008 levels (9.5 percent) and “deflationary,” it is worth noting that consumers have historically shown little regard for year-over-year variance in price as can be seen when analyzing several years of consistent and concurrent increases in both occupancy and the TPI. Analysis: Orange – Consumer behavior is tied closely to the CCI, further amplifying the need for sustained positive news in the job sector of the economy.

What does this mean to the mountain travel industry? In short, the leveling off suggested by the Federal Reserve would be welcome news in mountain towns this summer. However, all travel and market indicators as of July 31 show a continuation of the same distinctly negative trends as previous months and the outlook has yet to show tangible signs of improvement. From this point, getting “up” to a flat comparison of year-over-year performance looks to be an admirable objective. While mountain towns report lots of activity, especially on holidays and weekends, a closer look reveals busy campgrounds, but quiet lodging properties – lots of strollers on sidewalks but not many at cash registers; filled parking lots at trail heads but empty conference rooms. Like last winter’s business, the local and regional guest is around but the longer-stay destination guests, and their money, are under represented. MTRiP mountain market indicators as of July 31 remain all red and consistent with national trends.

July’s business followed the winter pattern with low volume and less strength than last year.

• July occupancy was down (-13.3 percent) compared to July ’08, slightly better than in June (-14.0 percent). July rates were down (-11.3 percent) over July ’08 and slightly more than June (-10.3 percent), generally continuing the trends of last winter.

• Reservations taken in July for arrivals in July-December were flat (0.0 percent) on a year-over-year variance, where downward trends for the long-lead advance bookings in November and December were offset by strong upward July fill.

• Short lead bookings, which were less evident in MTRIP data for June, were clearly apparent in July, with in-month / for-month bookings up 30 percent over July 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, destinations continue to work with decreased rate as an incentive for consumers, discounting over ’08 by as little as 3 percent on shoulder season bookings and as much as 21 percent in December. Overall rates for the coming 6 months are down (-14 percent) from 2008/09, just slightly better than last month (-15 percent) and resulting in no significant gains in occupancy which is also down (-24 percent) from 2008/09, about the same as last month (-24 percent). As a result, RevPAR on the books is down dramatically (-35 percent) as of July 31.

• With four of the five advance months’ bookings pacing behind last year in contrast to the short-lead fill evidenced in July (+30 percent in month for month), it becomes apparent that some ground is being made up with the new short lead-time trends. Whether those trends are driven by events such as the 4th of July holiday, discounted rates, or a combination remains to be seen, but little doubt remains that RevPAR recovery based solely on short-lead fill at “fire sale” prices is not a predictable formula for success.

Because this report is an aggregation of western mountain destinations, it does not describe the considerable variances among and between mountain resort communities and the variances are considerable and noteworthy. Recent travel trends continue unabated as illustrated by occasion and special events (reunions, weddings, etc.) holding best, while business group and conference business is off most. Bargain lodging, campgrounds, and roadside motels are relative busy while destination condominiums, especially when perceived as luxury, are weakest. Late August is being negatively impacted by the school calendar, creating a premature end to the summer holidays.

So, we hope the Federal Reserve is right and the recession is leveling off. Getting up to flat would be an important first step to a recovery-preferably in time for the all important winter booking season.

There you have it.


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