eTN Executive Talk: Worst year ahead, WTTC head says


This year is going to be tough in business and tourism , according to the head of the World Travel & Tourism Council (WTTC). At 2 percent overall growth realized by international tourism in 2008, not much will change this year. Further meltdown in more matured economies will witness a negative growth before mid-2009 as world GDP plummets further. A contraction in GDP for the first time since World War II has now spread to the new, progressive BRIC (Brazil, Russia, India, China) nations.

According to WTTC’s president and CEO, Jean-Claude Baumgarten, the discouraging US macro-economic indicators such as massive job losses, consumer spending falling (pushing GDP into negative growth), consumer/producer confidence falling to an all-time low and the worsening housing market do not bode well for the tremendous loss of wealth. Eurozone reports tremendous losses in stock markets.

Despite the dismal outlook, however, Oxford Economics predicts a stronger Q2 for 2009.

Haver Analytics shows that commodity prices now sinking, actually were surging (with price of $140+/ barrel of oil peaking in 2008). Commodity follows inflation falling globally, providing scope for much-needed interest rate cuts. And despite the rate cuts, the housing market continues to plunge.

Baumgarten says that with the worsening 2009, it’s imperative that companies motivate their people and that strong leadership should emerge. At the Americas Lodging Investment Summit (ALIS) held in San Diego, CA where he spoke, he said most industry leaders echoed the need for strong leadership in the industry. “At the same time, all the essentials should remain, such as customer service. Alongside the fundamentals, companies need to look into the future – meaning essential development projects should not be stopped especially in the US where there is tremendous growth potential ahead. Reduce the non-essential projects; however, don’t stop projects under construction. In markets with good potential, this will be the worst thing to do in this economy,” he said , adding the travel and tourism industry is a resilient one.

When the market turns the corner in the future, the hotel sector will be ready, provided developers don’t stop building, said the WTTC president. “Just because 2009 and 2010 look tough, people should not put off development plans,” he said.

Lodging Econometrics 2009 shows that the US tops the world in construction in 2009 with 5652 projects delivering 158,851 rooms into 2009 inventory of the current 740,272 total. The US is closely followed by Asia at 1990 projects with 143,289 rooms to be built in ‘09. Europe ranks third in projects.

“This crisis now becoming global, yet so new and unexpected as we have not experienced such situations before, will have to wait for the financial system to turn-around. Then and only then, will people travel again. Emerging markets, particularly the BRIC countries will play a major role in ‘restarting’ the ball rolling. Companies will have to work around these strategies over the next years,” added Baumgarten.
Oxford Economics shows the lowest point forecast in 2009 to be at –3.5 percent. However, its travel and tourism economy GDP chart shows the market, after hitting rock-bottom, will quickly rebound to 1 percent in 2010 in a steady rise.

Tourism’s share of investment and GDP in the Middle East will continue its surge through 2016. The rise of China as a key source of outbound flows remains as good prospect through 2020 with outbound Chinese travelers and travel spends going up steady, said Baumgarten.

The WTTC chair summarizes that the relatively-resilient first-half 2008 performance plus the lead time between holiday booking and actual vacations suggest the impact on growth in 2008 will have been limited. Nonetheless, travel economy GDP is now expected to have increased by only 2 percent last year, a percentage point below their 2008 forecast. “But the impact on travel and tourism in future years is much greater. T&T economy GDP is now expected to contract in 2009 and to grow merely by 1 percent in 2010, significantly below its long-tern trend,” he said.

He said his forecast carries with it downside risks if the intensified credit crunch extends through the whole year 2009. Long-term prospects in the industry are supported by the continued rapid expansion of emerging destinations along with the global increase in per capita income.

At the same conference last year, while referring to the recession, Baumgarten said: “In the past, when America sneezes, the world catches a cold. Today, when America sneezes, the world goes shopping…”

He now admits, however, that he was wrong thinking that emerging countries will buck the trend while the US suffers. “Somehow, it shows today, that everybody is affected,” he said. “The US continues to dominate the market; 43 percent of forecast rooms in the world will be built in the US.”