The travel industry continues to cope with serious revenue challenges tied to the worldwide recession.

Published: 11 Aug 2009

The travel industry continues to cope with serious revenue challenges tied to the worldwide recession.

Weak demand, particularly for business travel and groups, and lower yields are leading to declines in important revenue metrics, according to priceline’s president and CEO Jeffery H. Boyd.

“Online travel companies are helping to mitigate this by pouring resources into marketing, promotions, and value pricing to the leisure traveller and there is evidence that the downward trend in unit pricing may be starting to stabilise, at least in the near term,” Boyd said as priceline shared its second quarter results.

Cyclical recovery

During priceline’s second quarter earnings call (posted on Seeking Alpha), Boyd, responding to a query related to cyclical recovery, said, “If you look at the major difference between our business over the last 12 months and in the prior 12 month period, we had very significant benefits in the earlier period from increasing ADRs and very strong fundamental consumer demand.”

“I think that in a cyclical recovery, those benefits would come back and accrue to our industry again. You’d have less discounting and it’s open to question as to whether the discounting is more important than having strong fundamental demand and strong pricing but it’s certainly our preference and I think our business although is performing very well right now in the face of these conditions, it was performing better 12 months ago.”

US airline capacity constraints

The airlines have been steadily reducing their capacity. From distribution perspective, this has limited the number of seats that are available to be sold by every travel agent.

Boyd said there’s no question that it’s the right thing to do from the airline’s perspective and again reducing capacity is about pushing yields up per seat mile flown.

“That’s what they need to do to drive profitability and again, we can allow airlines who are adjusting their schedules to push the pricing up and to be confident that they’ve got a channel to move the distressed inventory if they push it a little bit too far and they’ve got some empty seats in the back of the plane,” he said.

Growth

“We expect our bookings growth rate versus prior year to continue to be negatively impacted by significant decreases in ADRs. Our third quarter guidance is based on an assumption that the rate of decline in our ADRs will flatten to slightly improve in both our domestic and international businesses versus the rates of decline that we saw in Q2,” Boyd said.

“We expect our international growth rate to also be adversely impacted by fluctuations in foreign currency exchange rates.”