Categorized | OP/ED

The Economy and Travel…

Posted on 19 August 2010

August 19, 2010. Southlake, Texas; The current economic environment can and does have a very large impact on the Travel Industry. From the road warriors to the clients who buy meeting, events, and incentive programs…they all are facing declining revenues and sometimes bulging inventories. In this OP/ED we will examine four key elements which have an indirect impact. They are;

 

Consumer Confidence;

Consumer confidence and spending are at an all time low. As consumer buying power evaporates…businesses have no option but to cut inventory and production. As inventory and production decrease, businesses need less workers. Thus joblessness can only be impacted and will rise.

With less capital available, retail activity will be impacted which in turn could prompt more store closings. New credit card and bank fees/interest rates will cause consumers to use available cash. Currently, consumers are saving more and spending less. Cash is KING.

As housing values drop, and with more than 11 million mortgages underwater, and several million more within a few percentage points of being negative, consumers will have no cushion as the economy deteriorates.

 

Housing;

Housing improved for a very short period of time due to the government subsidized lending program. This program ended in April 2010, and there is little hope a similar program will being introduced. Housing foreclosures have not subsided in the areas most hurt during the 2008/2009 economic downturn (read here recession). Although the U.S. Federal Reserve (FOMC) has maintained low interest rates, (i.e. interest it charges banks), this has translated into lower interest rates for home buyers and those seeking to refinance. Still with unemployment high and tighter loan qualification parameters, new and existing home sales are down.

Weak sales mean fewer jobs in the construction industry, which normally powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to a builders’ trade group. The impact is felt across multiple industries.

 

Interest rates;

In implementing its current policies, the Federal Reserve has only drawn concern on the part of the investing community. To those with investments, the recent action by the Federal Reserve indicates the US economy is not growing as fast as it had hoped and there could be another economic downturn in 2011. This translated in a 200 + drop in the DOW the day after the Federal Reserve made its announcement.

 

Unemployment;

The current national average of those unemployed is 9.5%. Some states and specific areas are seeing 14-16% unemployment. Without a doubt, small and medium enterprises/businesses (SME’s) are the engine of growth. The lack of consumer confidence and spending, along with the inability to obtain credit/loans, will cause many SME’s to consider closing shop. Unfortunately, this will drive unemployment even further into the abyss.

The unemployment rolls are now more than 8 million, and perhaps more gravely, over 1.4 million people have been out of work for over 99 weeks…which means they are no longer eligible to receive unemployment insurance benefits.

 

 

Summary:

What does this all mean to the Travel Industry. Company’s who buy travel programs will be forced to do one of two things. Retrench as they did in 2008/09 where they look to “downsize” once again. Or, think strategic and increase their value equation to those whom they serve. It will be incumbent on those in the Travel Industry to develop creative solutions for their clients in the area of increasing sales, increase market share, and decreasing cost of sales and distribution. This approach will require a paradigm shift for some in our Industry.

 

The above OP/ED was prepared by;

 

Doyle J. Girouard

CEO and Senior Managing Partner

The Cypress Group

email; doyle@thecypressgroup.com

Phone: 817-421-4774

Cell: 817-307-7577

Fax: 817-421-4774              

© 2008 The Cypress Group – All Rights Reserved

NOTICE – PROPRIETARY INFORMATION ALL RIGHTS RESERVED

This article and its contents are the property of The Cypress Group. Because it contains confidential information proprietary to The Cypress Group, no copies may be made whatsoever of the content herein, nor any part thereof, nor should the contents be shared with any party without the express written consent of The Cypress Group. This copy must be returned to The Cypress Group upon request. The Cypress Group reserves all rights to ownership, use, reproduction, distribution, and publication of this document and the intellectual property therein. Some parts of the document are reprinted from other sources

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