Travel Weekly Preview 2015

The travel industry is approaching a new year in better shape than at any time in recent memory.

In part, this reflects the industry's strong fundamentals. Simply put, through all the ups and downs of world economies, travel has retained its value and remains a desirable leisure product and a beneficial business expenditure, relatively unburdened by external barriers such as security threats or congestion.

Moreover, the U.S. economy is in full recovery mode. The leading indicators are not only pointing in the right direction, but many are accelerating because of the leveraging effect of falling fuel prices.

This bodes well for consumer demand, industry expansion and, maybe, a new cycle of prosperity.  

The U.S. Travel Association is basing its forecast for 2015 on the assumption that real growth in gross domestic product will come to 3.2%, at the high end of the Federal Reserve's predicted range of 2.1% to 3.2%.

Also, U.S. Travel pegs the predicted inflation rate at 1.9%, marginally higher than the estimated 1.8% rate for 2014.

On that foundation, U.S. Travel predicts a 1.6% increase in domestic person-trips, defined as one person making a one-way trip involving 50 miles or at least one overnight stay.

Though that increase is less than experienced in 2014, U.S. Travel is forecasting that expenditures by domestic travelers will rise 4.1%, to $805.7 billion.

International visitors are expected to number 75 million, a 4.1% increase, generating $158 billion in spending, a robust 6.7% increase.

But this forecast, updated in the fall, may turn out to be conservative, at least for domestic travel, as it assumes that unemployment will fall to 5.9%, a level that has already been reached. 

The Labor Department's Bureau of Labor Statistics pegged the November unemployment rate at 5.8% and noted that November job growth was 37% higher than average.

Fuel: How low can it go?

Also unaccounted for are the ripple effects of falling fuel prices, which are reducing the costs of other goods and services, including travel, and putting extra spending money directly into the hands of consumers.

By mid-December, benchmark crude oil prices had fallen below $60 a barrel, and the price of regular unleaded gasoline had fallen to a five-year low of about $2.50 a gallon, an enormous windfall to the economy.

Not only does it take cost pressure off transportation companies, such as airlines and cruise lines, it puts billions of extra dollars into American households.

Economists estimate that for every 1-cent decline in gas prices, consumers save $1 billion annually, which means the drop in prices since midyear has benefited the economy by over $100 billion.

Declining fuel prices are also one reason why airlines are forecasting continued growth next year, with some downward pressure on fares. Airlines for America anticipates a 2.2% increase in the number of seats available in domestic service in the first quarter of 2015, with a 3.8% increase to follow in the second.

IATA, similarly, is forecasting a 3.5% increase in capacity throughout North America in 2015 and an even bigger boost in other world markets, with a global average of 7.3% because of outsized gains in the Middle East and Asia.

As we report, the buoyancy in the airline industry is matched across all other sectors of travel: Hotels and resorts, cruise lines, tour operators and others are coming off a good year and projecting another.

For cruise lines, bright spots in 2015 will include a burgeoning market in China and a more stable Caribbean. The hotel industry is anticipating a year of record occupancy rates, even as the supply of new rooms continues to grow.

And traditional travel agents at long last are seeing not only increased sales but an increase in new clients from the millennial generation, putting the lie to the notion that agents are a dying breed serving an aging clientele.

In short, things are looking better than they did a year ago, but, as always, travel remains vulnerable to external threats.

Travel could be derailed by anything from political ineptitude at home to war, natural disasters or pandemics abroad.

If travel, and travelers, can dodge those arrows in 2015, we can put the word "recovery" back in the drawer for another cycle.