Business travel to U.S. from overseas spikes

Suits and ties are no longer in short supply on visits to the United States from overseas. The latest data from the U.S. Department of Commerce shows 11 percent growth year over year for the first six months of 2010 … for total travel. Business travel led the way, with a 19 percent year-over-year gain for the same period. Leisure travel was up 9 percent.

Of course, this follows the staggering losses of 2009, in which business travel to the United States from overseas plunged 40 percent year over year, thanks in large part to the effects of the global financial crisis and the collapse of Lehman Brothers in September 2008. So, this year’s double-digit gains aren’t nearly enough to recover for the business activity that has been lost.

We’re headed in the right direction with business travel exports, but we still have a long way to go. The Department of Commerce notes in a statement, “[T]he double digit gains in business travel that most of the top overseas countries registered in the first half of 2010 are a welcome change.”

For the top 20 countries in travel to the United States, all posted gains for business-related travel, but only six showed leisure travel growth.

The suits are back, and they’re probably bringing some cash with them!

Airline profits may mean more elbow room for a little while

The airline industry wants to thank you. Last year, it was mired in despair. The post-financial crisis recession left the carriers beleaguered and desperate for a turn of fortune. Corporate and leisure travel had fallen precipitously, and doubling down on extra fees, though prudent for profits, alienated both those considering a flight and the passengers with little choice but to hit the road. The brutality of 2009 was evident, and it seemed as though all there was for 2010 was the hope for something better.

Well, hope paid off.

Three quarters into this year, money is again beginning to flow, as a result of (finally) climbing fares, additional fees and an increase in passenger traffic. United Continental, Southwest and JetBlue have reported strong profits for the third quarter using a variety of tactics, but an increase in sales and higher prices appear to be the universal driver. And, this may translate to a bit more elbow room for you.
According to the Associated Press, airlines are beginning to bring back some of the routes they cut last year, as indicated by decisions at Delta and American Airlines to hire more flight attendants. The challenge, however, will be to increase capacity (and thus headcount) without imperiling this year’ hard-won profits.

The business of satisfying pent-up demand isn’t easy for the airline sector. After all, capacity can’t be added one seat at a time. Restoring a route to handle more passengers comes with it the obligation to fill the plane (to the extent possible) each time, in accordance with revenue per available seat mile (RASM) targets.

Nonetheless, the carriers seem ready to rise to the challenge. JetBlue is amping up fourth quarter capacity by up to 10 percent, with Delta looking at an increase of 5 percent to 10 percent. This follows even faster growth in September, according to the Associated Press:

Still, most of the airlines saw traffic rise even faster than capacity in September suggesting they have enough business to support the additional flights. The only exception was Delta, which added capacity slightly faster than traffic rose.

The moves come in anticipation of a strong 2011, according to Ray Neidl, an analyst for Maxim Group. He tells the associated press that the growth in capacity “is a little more long-term,” adding that “[d]espite the lackluster economy, it’s going to be a big year for airlines, especially as consolidation kicks in.”

So, what does this mean for the flying public?

Well, you may not have to occupy that middle seat for a little while, and the odds that someone else will be in it may be improving. The increase in capacity necessarily precedes an increase in sufficient demand to make it profitable, so enjoy it while you can! If the airlines can’t fill those new seats, a return to austerity could send you back to sharing an armrest.

[photo by Joe Shlabotnik via Flickr]

New Mexican town created by hedge fund causes layoffs?!

Hedge fund DE Shaw laid off 150 employees a couple of weeks ago, and the reason is being traced back to a town the company tried to create in New Mexico. Trying to add to the map of a state, it seems, doesn’t pay.

DE Shaw and real estate developer SunCal Cos carved out 55,000 acres (twice the size of Boston, according to Business Insider) and sought to turn it into a new town. The financial crisis pretty much put a stop to the $250 million endeavor, but when the music stopped, the payments didn’t. Now it looks like DE Shaw has a $150 million tab.

The question that remains, according to Business Insider’s Courtney Comstock, is pretty simple:

DE Shaw is a quant fund that trades – we thought – exclusively computer-driven strategies. So what the heck were they doing trying to create a residential, industrial, and commercial community out in New Mexico?

Hopefully, nobody printed updated maps!

[photo by leiris202 via Flickr]

Are airline fees about to go higher?

What could possibly be next? Absent Ryanair-style fee insanity, there seems to be little the airlines can do to our wallets now. Blankets, bags and beverages are just the tip of the iceberg: it seems anything that can come at a price does. The only thing missing is a seemingly well-intentioned Congress that wants its share of the airlines’ recently found largess.

Make no mistake about it: extra fees translate to real money for airlines. Last year, they amounted to $7.9 billion in the United States, and in the second quarter of 2010, the top six airlines in the country picked up $2.1 billion. Following the effects of the 2008 financial crisis, this is cash these companies desperately needed to collect.

This is where Congress enters the picture. Right now, the government scores a 7.5 percent on fares. By effectively unbundling certain “amenities” – like checked baggage – from the fares, the airlines can charge lower prices, with the ancillary stuff charged on a pay-to-play basis. In the end, the feds are stuck with a smaller revenue base to tax. And, the airlines are able to bypass the excise tax, and boost their profits a bit.To plug the hole, Senator Jim Webb of Virginia has proposed legislation that would subject the additional fees to the same 7.5 percent tax as the fares, restoring at least some of the lost tax revenue. From the perspective of Congress, this makes sense. The feds took it on the chin financially when the airlines unbundled, and they need to make up for it (because cutting spending just doesn’t seem to be an option).

For the airlines, this poses a problem. Either they can swallow the pill and take the 7.5 percent it against their revenues, or they can pass the additional cost along to their customers. Since 2011 is likely to be a tougher year for the sector than 2010, it looks to me like the writing is on the wall. Why absorb it when you can pass it along, right?

The tax is being proposed, so give it some time. But, if it hits, I’d expect we’ll feel it, too.

Five signs that the hotel meeting business is recovering

Business meetings are back in style. Group customer is on the rise for the hotel business, signaling that the corporate crowd Is getting back out on the road. Joining the party are other groups, such as associations, sports teams, religious groups, social organizations and the military, according to USA Today.

The U.S. Travel Association is predicting a 7 percent increase in meeting and convention spending this year, with a forecast of $90.7 billion. Last year, this measure fell 15 percent, as the effects of the financial crisis and subsequent recession led to cancelations.

To get the big bucks back in the door, hotels and convention bureaus have been rolling out favorable pricing and sweetheart deals, and it’s starting to work.

So, how do we know this sector’s coming back? Here are five hints:

1. The meeting planners say so: A June survey by Meeting Professionals International showed 61 percent of respondents saying “that they’re seeing more favorable business conditions, including attendance, budgets and number of meetings,” according to a USA Today report. Only 15 percent responded this way in August 2009.

2. Hotel groups say so: InterContinental Hotels Group has announced that its group and corporate revenue climbed 10 percent in the first half of 2010 relative to the same period in 2009. Denihan Hospitality Group’s eight New York City hotels are showing an increase in group revenue of 26 percent year-over-year.
3. Even Grand Rapids has good news: The JW Marriott in Grand Rapids, Michigan has sold more than 1,500 group room-nights so far this year, up 20 percent from last year.

4. So does Fort Lauderdale:
In this Florida town, group revenue is up 30 percent at the Harbor Beach Marriott. Corporate deals are still down from last year, but other groups are more than making up the difference.

5. Hotels understand what’s going on: Even though the market is coming back, hotels realize that they still need to price aggressively. Notes George Aquino, general manager of the Grand Rapids JW Marriott Everyone’s felt the turmoil of 2009. We don’t want that to happen again.”

[photo by msprague via Flickr]