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Not yet giving thanks.

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Travel and tourism

NOT YET GIVING THANKS

The industry has been bruised, but it will heal

WORLD Travel Market, one of the tourism industry's biggest annual jamborees, opened in London on November 12th. No sooner had delegates begun to compare notes on how bad their business was than news reached them of the crash of American Airlines flight 587 shortly after take-off from New York's JFK airport. All their worst forecasts instantly dipped further into gloom.

The tourism industry has known nothing like this since it became a recognised business. The biggest impact is in America, where fears of recession and terrorist attacks have emptied flights, despite cuts in capacity in September. Although the airlines are using just four-fifths of their capacity, their planes are only 66% full. They need to be 88% full, on average, merely to break even, says Randy Baseler, vice-president of marketing for Boeing's civil-aviation arm. This week, America West became the first carrier to ask for a loan guarantee under the federal rescue plan put in place after September 11th. Airlines in America are now expected to lose more than $7 billion this year.

For American Airlines, the country's largest carrier, this week's crash--its third in two months--is a severe blow. It comes just as it and other airlines were dusting off plans to cut fares and lure back travellers. Early indications pointing to an accident at least spare the airlines a long period of uncertainty in which travellers stay away for fear of a fresh wave of attacks.

Before this week's crash the Travel Industry Association of America (TIA) was already forecasting (optimistically) that overall business would be down by only 6% over the traditionally busy Thanksgiving weekend which starts on November 22nd. It has not yet revised its forecast in the light of the crash, but it has postponed (by a week) a $20m national advertising campaign that had been scheduled to begin on November 14th. The ad features snippets from recent speeches of President Bush exhorting Americans to live their lives as normal.

By some measures, the crash came just as the first signs of recovery were appearing. The TIA's most recent survey of travel confidence showed that the number of Americans planning to take leisure trips in the next six months had risen to its highest since September 11th. Many are being lured by the discounts that hotels and airlines are being forced to offer. Stay a night at an American Holiday Inn, for instance, and you get a second night free. Even top-of-the-range hotels such as the Plaza and the Carlyle in New York have very special offers. For some, pricing is based on what a customer is prepared to pay.

Outside America, it is Muslim countries that have been hardest-hit. Travel-industry people in Istanbul say that foreign visitors to the Turkish city in the past two months are 50-60% down on the same period last year. In Indonesia, 1.3m tourists cancelled trips in the month after September 11th. Even mainly Hindu Bali is bereft, with once lively temple guides reduced to begging. As for Egypt, its stand at the World Travel Market was at times attracting even less interest than that of Belarus.

The industry's pained cries for government help are increasingly being heeded. Egypt is subsidising charter flights into the country, and Mexico has eliminated sales taxes on conventions. Some, though, worry about how all this is going to distort business. Charles Gurassa, boss of the Thomson Travel Group, part of Preussag, a tourism giant, says it should not be "an opportunity to give state aid to those who are already struggling, and always will be." Even without aid, distortions are appearing: cruise ships and hotels are offering deals at well below cost--and in the process forcing small travel companies out of business.

When the weak and over-leveraged flounder, there are always financially stronger sharks circling. Several parts of the industry are likely to see further consolidation in the difficult months to come, although Francesco Frangialli, secretary-general of the World Tourism Organisation, points out that further consolidation in some areas, such as package tours for Europeans, might come up against objections from antitrust authorities.

Leading Hotels of the World, a New York-based group, has designed a scheme to protect its 380 independent luxury hotels from the clutches of large predators. Welf Ebeling, the group's chief operating officer, says it has set up a trust with a private-equity firm and other investors to help endangered members through temporary financial difficulties.

Meanwhile, firms everywhere are trying to cut costs, to reassure customers about security, and to persuade suppliers to be more flexible over pricing. Come next summer, the sun may be shining again. The industry has proved remarkably robust in the past, and as Mr Ebeling says: "People today consider it to be their birthright to be mobile."

PHOTO (COLOR): It's a desert out there

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