PhoCusWright forecasts online travel growth at lowest levels

November 06, 2008 | Online Travel

If unemployment continues to rise and retirement accounts dwindle, travel companies must prepare for a downward trend: fewer people taking trips, just like in 2002, says PhoCusWright.

With the economic situation deteriorating throughout fall 2008, most U.S. travel companies are now grappling with declining demand and uncertainty for the future. The latest market forecasts in the new PhoCusWright’s U.S. Online Travel Overview Eighth Edition reflect these lower expectations for travel companies’ performance. If unemployment continues to rise and retirement accounts dwindle, travel companies must prepare for a downward trend: fewer people taking trips, just like in 2002. The strategy to hold or even raise prices has shifted as travel sellers look to salvage what they can of 2008 while holding steady in 2009.

PhoCusWright projects the overall U.S. travel market is expected to increase by 4% and 2% in 2008 and 2009, respectively. These are the slowest growth rates since 2003, when the market declined by 8% following the effects of the Sept. 11, 2001 terror attacks. All segments, except rail, will be impacted. But the travel industry is no stranger to crisis, and improved results are expected in 2010.

The online travel market remains a bright spot in a dismal forecast, though its glow is dimming. Online travel sales will continue to increase at more than twice the rate of the market as a whole as millions more people shop for and buy their trips online each year. This is due to consumers’ comfort level with online purchasing, perception of online prices as being the lowest [and tools to help verify this], supplier incentives [or penalties for buying offline], ease of use, increased use of mobile devices, and other factors.

But 2008 also will be the first year that the U.S. online leisure/unmanaged business travel market will post single digit growth. Gross bookings are expected to increase 9% in 2008 to reach US$98.2 billion. Hotels will experience the slowest year-over-year online gains (8%), while rail will enjoy the highest increase in online sales (28%).

As the overall travel market encounters flat growth rates, online penetration continues to rise. PhoCusWright estimates that sales from leisure/unmanaged business travel sites will represent 36% of the total market in 2008, up from 34% in 2007. However, penetration rates are expected to increase by just one percentage point in 2009�to 37%.