PhoCusWright Projects 11 Percent Market Decline in 2009

PhoCusWright, the travel industry research company, projects that the total U.S. travel market will decline 11 percent in 2009, returning the industry to pre-2006 levels. This decline reflects a dramatic shift in consumer demand levels.

Its PhoCusWright Consumer Travel Report found that 25 to 34 year olds are spending the most per household on travel and 18 to 34 year olds are significantly more likely than older age groups to indicate that they plan to travel more this year.

While boomers are commonly described as the wealthiest generation, the 45 to 64 age group is spending the least per household on travel and is also the most likely to reduce travel spend this year.

Consumers who spend more than average on travel are more likely to reduce travel expenditures this year, and those that spend less than average are more likely to actually increase travel expenditures this year.

The result of this mixed bag of intentions is that overall expenditure will decline considerably across the board, but budget brands will experience a smaller decline than upscale brands.

It may seem surprising given the recent flurry of fee cuts and revenue-eroding promotions from online travel agencies (OTAs) like Expedia and Orbitz, but OTAs will outperform other channels in year-over-year bookings because of their consumer base. Just under half –47 percent- of OTA shoppers continue on to purchase; 31 percent go to supplier websites.

Though the majority of travelers typically book online, there is still plenty of opportunity to grow online transactions. Consumers who spend the most on travel still use a mix of online and offline methods.

Travel search engines like Kayak are not new to the travel industry, but are now becoming a mainstream element in the travel planning process. Over a quarter (28 percent) of travelers typically turn to them when shopping for travel and new entrants like TripAdvisor will continue to broaden the audience.

The market will get worse before it gets better, according to PhoCusWright. Across general travel metrics such as trip frequency, duration and spend, consumers exhibit intentions of moving slightly closer to the mean, essentially what’s “normal.” Those who tracked ahead of “the norm” in 2008 exhibit intentions to decrease spend/duration.

Both air travel and lodging are facing declines. In air travel, the downturn will manifest in falling transactions. Lodging, though somewhat offset by increasing drive traffic, will suffer more on the side of rates in comparison to transactions.

Travel products geared toward frequent, big-spend travelers will be hit hard in the upcoming year, while budget products will fair relatively well –perhaps even experiencing an increase in demand in certain markets. Online travel has without a doubt reached maturation, but it is far from saturated.

Travelers inclined to book online still aren’t finding everything they need on the Internet. Complex travel, cruise, vacation rental and timeshare still represent great opportunities for online growth.

Enhancing content and service levels is key to building consumer trust for these products. User-generated content may provide a valuable tool for travel companies looking to grow their online businesses with these products.

The down cycle will act as a catalyst for consumers to try new things in the search for value. Consumers are still using an average of 3.7 sites in the shopping process -­ so, no matter how many products you squeeze into a site, no one brand is going to satisfy the consumer urge to check around.