Travel industry begins its descent

The travel industry has been hit hard by the economic slowdown, particularly in the past few weeks.

Airlines reported sharp declines in passenger traffic for September. Hotel occupancy rates are down and cancellations are starting to rise even at four- and five-star hotels, which previously seemed immune to the economy's travails.

Months ago, the nation's airlines, which are grounding some older jets, announced plans to cut 8 to 10 percent of their domestic flights after Labor Day, so traffic was expected to be down. At the same time, the airlines planned to raise fares.

But passenger traffic is down beyond planned cuts or the normal fall seasonal slowdown among leisure travelers.

Until Thanksgiving, flights are dominated by business travelers. So the slower traffic reflects the effect that the business crisis is having on airlines. In September, the top seven airlines averaged a 9.47 percent drop in domestic passenger miles traveled compared with September 2007. Domestically and internationally, the major airlines carried 9.2 percent fewer passengers than in September 2007.

Fares are 15 to 25 percent higher on many routes than they were a year ago. But that portion of the strategy seems to have stalled.

"After 21 increases, almost one a week for the last year, we didn't see any after July 4," said Rick Seaney, whose booking site, Farecompare.com, closely tracks airfares. "There is a consensus in the industry that they pretty much have hit the end of the rope on fare increases."

Hotels are also feeling the slowdown. In September, domestic hotel occupancy was down 5 percent from the previous September, according to Smith Travel Research. And the higher-price segment of the hotel industry, which had been holding its own, now also seems to be feeling the pain.

"For the last two weeks, cancellations of existing reservations are running about 50 percent above normal" at full-service hotels, said Bjorn Hanson, an associate professor at the Tisch Center for Hospitality, Tourism and Sports Management at New York University.

That niche -- including five-star hotels and four-star hotels that do major business in conventions and meetings -- has been propped up by corporate deals negotiated last spring, when "the balance of power was still on the side of the sellers," Hanson said. While rates remain high, Hanson said, corporations locked into hotel contracts are intensely "negotiating for concessions -- free breakfasts, free use of fitness rooms, no charge for business center services, free late checkout."

Third-quarter profit fell 28 percent at Marriott International, which is considered an industry bellwether because of its big global presence and its wide range of hotel brands, from midlevel lodgings such as Courtyard by Marriott to five-star luxury hotels such as Ritz-Carlton.

"At the Ritz-Carlton Central Park [in New York City], normally filled with investment bankers and their clients, the entertainment industry and diplomats are filling rooms and restaurants now," said Arne Sorensen, Marriott's chief financial officer. Other full-service Marriott hotels are marketing more heavily to travel discount programs such as those of the AARP and AAA and to government travelers on per-diem allowances.

Fare sales are even proliferating in the most lucrative segment of the airline market, international premium travel, where the walk-up round-trip fare for a business-class seat between New York and London has been in the $9,000 range.

Seaney read off some recent business-class sales and promotions, all with various advance-purchase and other restrictions, from his site's premium-class section. (Some are no longer available, but airlines keep adding new ones.)

"Delta, business class to Europe, 50-day advance purchase, $1,700," he said. "Lufthansa on Sept. 16 had a business-class deal to England from New York and Chicago, a little over $1,000 each way."

British Airways, one of the major players on the intensely competitive transatlantic market, recently said that its full-year financial projections were at risk because long-haul premium traffic declined 8.6 percent in September from September 2007.