The Travel Business Still Has An Altitude Problem

As the guns fell silent in the Persian Gulf, a welcome noise jarred U. S. travel agencies and airline reservations offices. "Phones have been ringing off the hook," says a relieved Dexter Koehl of CarlsonTravel Network, one of the nation's largest travel agencies. But while peace has given a much-needed jolt to the ailing travel business, few expect a speedy recovery in more than a few isolated cases.

Pummeled by recession and fears of terrorism, the travel biz saw bookings plummet as much as 50% in recent weeks. Even with business coming back, the damage is severe. Hardest hit are the airlines. Lee R. Howard of Airline Economics Inc., a Washington-based consulting firm, estimates that the industry will lose $2 billion in the current quarter, matching the record operating loss in the final quarter of 1990. Says Howard: "We expect gradual recovery by midyear."

Overseas travel, growing at a double-digit clip before Iraq's Aug. 2 invasion of Kuwait, faces the toughest rebound. International traffic for all U. S. airlines dropped 3.3% in January, while domestic travel fell at less than half that rate. Although some corporations quickly lifted travel bans with the war's end, major employers such as Procter & Gamble Co. and Exxon Corp. remain wary of terrorist threats and are still restricting foreign travel.

FARE WARS. Even without those worries, recessionary cost-cutting is squeezing travel budgets. Morton Ehrlich is president of Lifeco Services Corp., which deals mainly with corporate clients. He says overseas travel booked by Lifeco still is off by nearly a third, after falling 45% when the war began. "Easing of gulf tensions will support a recovery," he says, "but it will be very slow."

Vacationers may get the travel bug more quickly. "We've seen a real strength in the leisure marketplace," says Michael A. Ribero, Hilton Hotels Corp.'s senior vice-president for marketing. Business from foreign vacationers at Hilton's U. S. hotels fell nearly 50% during the war. Ribero doesn't expect a full recovery until midyear, unless the airlines resort to super discounts.

But fare wars are surely no panacea. British Airways PLC, which has cutsome fares by a third and recently reduced the cost of its vacation packages, says bookings from the U. S. are still down by as much as 15%. "It's not normal yet by a long shot," says a British Air spokesman. With some of its discounts on transatlantic fares set to expire on Mar. 15, Northwest Airlines Inc. says the number of calls to its international desk on a recent Sunday soared 85% beyond the level on the comparable Sunday a year ago. Still, the airline's business is running slightly below year-ago levels.

BRIGHT SPOTS. Herbert D. Kelleher, CEO of Southwest Airlines Co., says bookings for March at his no-frills airline are "extremely strong" and could fill nearly 75% of the seats on his planes, up from 62% in February. But he credits heavy promotions and discounts in Western and Southwestern markets for much of the gain. At best, Southwest will post a tiny profit this quarter.

The industry isn't hurting everywhere. Privately held Budget Rent a Car Corp. says January was one of its best months ever on top of record revenues in 1990. Discounts in Hawaii and Florida on minivans, luxury cars, and convertibles boosted market share. La Quinta Motor Inns Inc. chief Sam Barshop says his no-frills motel chain has lured business travelers who are "trading down" to cut costs.

But such bright spots clearly remain exceptions. Until the economy surges anew, the travel biz won't get its long-awaited vacation from bad news.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE