Friday, July 2, 2010

That Herbert Hoover Feeling

The news comes these days in twos, with good news on one hand and bad news on the other - and major implications for travelers and the travel industry.

Consider:

The American Automobile Association predicts that 34.9 million Americans will take a car trip at least 50 miles from home over this U.S. Fourth of July holiday weekend. That's a leap of 17.1 percent from the 29.8 million who took car trips over the same holiday last year.

The International Air Transport Association, the airline trade group based in Geneva and Montreal, reports that passenger traffic on the world's airlines jumped 11.7 percent this May from May 2009, while air cargo shipments soared 34.3 percent over May 2009. IATA also forecasts a profit of $2.5 billion USD for global airlines this year, a big upgrade from the $9.9 billion USD loss the airlines suffered in 2009.

Just as this welcome news arrives, however, the larger economy in the U.S. and Europe seems to be grinding to a halt, if not sliding backward. A tepid U.S. jobs report yesterday depressed markets, sending the Dow Jones Industrial Average back below 10,000 - down 5 percent for the week in the steepest drop since the near-depression in October 2008. Moreover, U.S. consumer confidence, as determined by New York research firm the Conference Board, plummeted to 52.9 percent in June from 62.7 percent in May, driven by concern over a lack of jobs and Congress cutting off benefits to the long-term unemployed.

"Economists pay close attention to measures of consumer confidence as a proxy for consumer spending, which drives the bulk of the U.S. economy,'' explained a June 29 report on CNNMoney.com.

There's more: The New York Times's Web site, nytimes.com, today stacked no fewer than six stories on the home page tracking economic slowdown and decline.

Times columnist Paul Krugman, a Noble Prize-winning economist, took it a big step further:

"We are now, I fear, in the early stages of a third depression,'' he wrote, referring to the Great Depression of the 1930s and a long depression in the U.S. after the Panic of 1873.
"And this third deprssion will be primarily a failure of policy. Around the world ... governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. ... Both the United States and Europe are well on their way toward Japan-style deflationary traps.''

Reading these signs and portents is enough to induce a sinking feeling - that Herbert Hoover feeling, to be exact.

Hoover, of course, was the U.S. President who presided over the Wall Street crash of 1929 and whose policies only made matters worse. Things improved under his successor, Franklin D. Roosevelt, but then Roosevelt slowed stimulus spending in 1938, leading to relapse in an economy not yet recovered from the collapse of 1929-31. We all know what happened next: World War II. If that tragedy hadn't occurred, we might still be in the Great Depression, for it was only wartime spending that ended the depression - at huge human cost.

What does all this macro-economic stuff and political history mean for travel? Plenty.

For one thing, even the good travel news contains signs that not all is actually well.

Giovanni Bisignani, the outspoken IATA director-general, said of the rise in the civil aviation business, "This is good news, but it is only a 0.5 percent margin. We are still a long way from sustainable profitability.''

Even the seemingly buoyant AAA forecast is not as encouraging as it looks at first glance. More U.S. motorists will hit the road this holiday weekend, but they are expected to spend less: a median spend of $644 USD this year, down from a median of $693 last year. Motorists seem drawn to the highway partly by the lure of relatively cheap gasoline (a U.S. average of $2.70-$2.80 per gallon) and because they don't want to spend money for airfares, which are up 13 percent in the U.S. from last year. They are not in an expansive, let's-spend-it mood.

If international economies stop recovering or even contract, travel will be among the first to feel it. Fewer people will travel. Those who do will spend less. Already stressed hotels, cruise ship lines and airlines will cut capacity, have to cut their rates and lay off staff. By some measures, tourism is the world's leading industry by production of revenue, and most travel-industry employees are working-class people - many of them living in developing countries - who will quickly fall on hard times if we really are in a third depression.

Sorry for the gloomy, foreboding tone of this post. But the first step toard dealing effectively with crisis is to see it for what it is.

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