blog post

As European tourism leaders gather in New York City today for the annual Trans-Atlantic Marketing Conference, a monthly report on travel to Europe is once again reporting a decline in passenger numbers. According to the report, which is compiled for the European Tourism Commission by Donald N. Martin & Co., the downturn in overall trans-Atlantic travel, which began in November, continued through December, with leading carriers reporting an average decline of 4 percent compared to December 2007. Average capacity was basically flat, dropping just 0.6 percent, and the average load factor was still strong at 80.1 percent. Meanwhile, U.S. travel to Europe was down 11.8 percent in October, according to the latest figures from the U.S. Department of Commerce. While the current decline in U.S. travel to Europe began in March, this was the first double-digit monthly decline since April 2003, at the height of the Iraq invasion.

According to the report, November and December are not likely to be much better. Projections for the first four months of 2009 are for continued monthly declines of more than 10 percent. The U.S. economy has further to fall in what looks to be the steepest downturn since the Great Depression, according to top economists, with more jobs lost than in any previous year since 1945. Retail sales and housing sales continue to decline, and banks are still holding back on loans for everything from cars to homes to new business ventures.

The United States is looking toward President-elect Barack Obama’s evolving plan for $775 billion-plus worth of public-works projects (mainly for transport infrastructure) and tax breaks ($500 per adult in middle- and lower-income households). The goal is to create as many as 4.1 million jobs over two years, and to put money in hands most likely to spend it. But the economic plan also must get bipartisan support in Congress. The loss of 524,000 jobs in December was slightly less than expected, but added to revisions for previous months put the total job loss in 2008 at 2.6 million, the most since production began to slow at the end of World War II. Unemployment jumped from 6.8 percent to 7.2 percent, the highest since the post-World War II high of 10.8 percent recorded in 1982. Americans looking for work now total 11.1 million. For those who do have jobs, the average work week has shrunk to 33.3 hours, the shortest since records began in 1964.

The yearlong housing collapse has widened. Sales of single-family homes fell 7.6 percent in November, the steepest decline in 20 years, and median resale prices fell a stunning 13.2 percent compared to November 2007, the most, probably, since the Depression, according to the National Association of Realtors. Major banks, such as Citigroup and Bank of America, report continued losses on home mortgages and derivatives. They fear increasing commercial defaults and seek billions more in federal help. Assuming the economy continues to contract into the spring, this will be the longest recession, at 17 months, since the Depression of the 1930s. Few economists are predicting any upturn before the third quarter, and, based on the 2001 recession, unemployment could remain high long after growth resumes.

On the currency front, the dollar has rebounded to 0.76 euros, following a late-December plunge versus the euro. The dollar is also strong versus the pound at £0.69. The euro celebrated its 10th birthday on New Year’s Day, and Slovakia became the 16th nation to adopt the single currency. Other good news for travel to Europe includes the fact that the price of fuel remains low. With oil at less than $40 a barrel, and demand for oil depressed worldwide, trans-Atlantic airlines should be able to keep fares down through the winter and spring.

At the same time, two leading surveys of consumer confidence diverged sharply. The Conference Board’s index plummeted to 38.0 in December, its lowest ever, from a revised 44.7 in November, while the Reuters/University of Michigan index rose to 60.1 in December from 55.3 in November. The latter found that consumers were somewhat upbeat because of lower gas prices. But U.S. consumers are simply not spending. Retail sales fell in December for the sixth consecutive month and by 9.8 percent compared to last December, the largest decline on records going back to 1993. Many are worried about their jobs, their homes, their children’s college tuition and their depleted retirement accounts. Vacations are being pushed far down their to-do lists.

Overall trans-Atlantic traffic continues to score better than air traffic within the U.S. or Europe. Some November comparisons: Overall trans-Atlantic traffic was down 4.2 percent (with a load factor 76.3), while U.S. domestic traffic was down 14.2 percent (with a load factor of 76.3). All traffic worldwide was down 4.6 percent (with a load factor of 72.7). For all of 2008, overall trans-Atlantic traffic was up 4.7 percent. Europeans traveling to the U.S. more than made up for the decline in U.S. traffic to Europe that began in March.

Thanks to its 16.7 percent increase in its trans-Atlantic capacity in 2008, Delta was the leader in building overall trans-Atlantic traffic. Delta’s traffic was up 15.2 percent for the year. When Northwest’s numbers are added, the two accounted for 20.7 percent of all trans-Atlantic traffic in 2008 and their combined increase in traffic was equal to 64 percent of the total increase in overall trans-Atlantic traffic. But Delta’s expansion drive has slowed with postponement of flights that were to begin in June from Raleigh-Durham to Paris and from JFK to Göteborg. Continental also said it was ending Cleveland-Paris flights. The report estimates that for all of 2008, U.S. traffic to Europe totaled about 7 percent less than the record 13.33 million visits in 2007.

For the off-peak season (October-April), the report projects a decline of more than 10 percent in U.S. travel to Europe. Perhaps a third of this will be lost business travel. Peak-season traffic might drop as little as 5 percent, but only because the decline was well under way during the 2008 peak season (May-September traffic was down 7.3 percent in 2008 compared to 2007).

In making projections, the report’s authors said they have no truly comparable previous periods to refer to. Since 1980, the few steep declines in trans-Atlantic traffic have been triggered by security concerns; recovery was rapid except after the 9/11 attacks (the Iraq confrontation helped to stifle that recovery for many months). Recessions during this period were milder and considerably shorter than what the world faces today. For more information on the Trans-Atlantic report on travel to Europe, call 212-922-0400 or visit www.DNMartinco.com.