Travel pinched by global financial crisis

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(Agencies)
Updated: 2008-12-02 15:18

NEW YORK - The tourists chatting in multiple languages in the piazzas, bars and shops of Rome belie a more somber mood at the ancient city's hotels.

Luigi Rinaldi, concierge of the Hotel de la Minerve next to the Pantheon, said American tourists have disappeared, although demand among German, Spanish and Russian tourists is solid.

The hotel is trying to lure guests by keeping prices steady even during the high season at Christmas and New Year's and by adding weekend promotions.

"But we are a five-star hotel," Rinaldi said. "We can't be too daring."

Rome is among many major cities around the world seeing dramatic declines in hotel occupancy this fall as consumers and businesses cut travel spending: Occupancy in Rome fell 17.5 percent in October compared with the same month last year.

Global air travel also has fallen off as the financial crisis that has hit economies around the world takes its toll. Executives from major airlines speaking at a conference in New York on Tuesday may reveal further erosion of demand for seats and discuss capacity reductions they will make in response.

The International Air Transport Association says international passenger traffic declined 1.3 percent in October compared with 2007, following a 2.9 percent drop in September.

"I think it's going to be a very cold winter, and I'm not a weatherman," said Calyon Securities airline analyst Ray Neidl.

Airlines, which already made dramatic cuts to their fall schedules as oil prices soared over the summer, have cited the economic slowdown as reason enough for them to continue to be cautious, even though oil prices have dropped significantly the last few months.

Several US airlines have promised or hinted they will cut domestic and international capacity further in 2009.

Atlanta-based Delta Air Lines Inc. said in a recent regulatory filing that demand has slowed during the fourth quarter, which began October 1. Its domestic advance booking rates are running two percentage points higher year-over-year, reflecting capacity reductions in the domestic system. International bookings are down 4 to 5 points, Delta said.

According to the IATA, the number of passengers traveling on premium airline tickets who tend to be business travelers dropped 8 percent in September, reflecting the severity of the global financial crisis and a slump in the confidence of manufacturers in the US, Japan and Europe. Premium traffic slumped in North Atlantic markets, between the US and Asia across the Pacific and within the Middle East. That's a bad sign because business travel helps drive airline profitability.

An "open skies" agreement between the US and the European Union, which took effect in March, allows airlines to fly to and from any point in the US and any point in the EU.

"There's more capacity now with Open Skies at the same time you're having a severe downturn in potential demand," Neidl said. "But once we get through this financial crisis, and hopefully it will happen by next spring, people will start traveling. People have to travel for airlines to make money."

In Rome, meanwhile, business is down sharply at the five-star Grand Hotel Plaza, one of the city's most prestigious hotels just a few steps from the Spanish Steps, according to sales manager Paola Ucciarello.

Other cities are being hit hard, as well.

STR Global Managing Director James Chappell said he was surprised by the extent of the downturn in the United Kingdom, where London's five-star hotel market has been hit particularly hard because guests are trading down to less pricey accommodations. September and October also brought hotel business declines in Hong Kong, Los Angeles, Madrid, New York, Paris, Toronto and Sydney.

Hotel occupancy across Europe fell 4.9 percent in September from a year ago, and 6.3 percent in October, according to STR. In Italy, revenue per available room - a key gauge of a hotelier's performance has been on the wane since May and plummeted about 20 percent in October. In London, hotel occupancy fell 5.2 percent in September and 4.2 percent in October compared with the same months last year, according to STR.

In the hotel industry, the current downturn is exacerbated by increases in supply over the past several years from a flurry of hotel development that continued into 2008. In Beijing, for instance, occupancy dropped 20 percent in October compared with 2007, which Chappell largely attributed to an excess of rooms at hotels built for the Olympics.

Markets in the Middle East and Africa, where hotel supply is still catching up with rising demand, are bucking the trend. Occupancy in both Dubai ed to the delayed impact of a strengthening US dollar and the escalating financial crisis.

International traffic was stronger as recently as October. Roughly 60 percent of the hotel's weekend guests were international tourists, many from Germany and Great Britain, taking advantage of the weak US dollar to stock up on clothes and luxuries.

"They were coming here with empty suitcases and going out with an extra one," Bachvarov said with a chuckle.

But recently, he said the hotel has started to get cancellation requests, which are "highly unusual" this time of year.

Like other hotels, The Wall Street Inn is offering steep discounts to help fill rooms. Ratxt week much less two years in advance," Baggaley said. "So, clearly any predictions about a travel turnaround are highly uncertain at this point."