Demand index shows clouds on the horizon

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As we are reminded repeatedly by oracles from the White House, the national economy is robust, unemployment has dropped to an 18-year low and consumer confidence increased in July. So should there be any cause for concern about demand for travel services in the months ahead? Our most recent Traveler Sentiment Index, a leading indicator of travel intentions, suggests the answer is yes.

The MMGY Global Traveler Sentiment Index is calculated from a national probability survey of 2,300 adults and is updated every 90 days to account for seasonal shifts in demand for both business- and leisure-travel services. It derives from measurements of six variables that, collectively, predict demand for travel services: interest in travel, time available for travel, personal finances available for travel, affordability of travel, quality of travel services and the safety of travel. The index, first published in February 2007 just before the onset of the Great Recession, now stands at 110, down five points from April 2018 (115), and down six points from the same period in 2017 (116). This gradual decline warrants the industry’s attention because it suggests that demand for travel services, including lodging, will moderate in the months/year ahead.

Five of the six variables from which the Traveler Sentiment Index is derived have declined year-over-year, with only one exception: the perceived safety of travel. The perceived affordability of travel (160) decreased 14 points from the comparable measurement taken in 2017 (174); time available for travel (105) declined eight points (113); personal finances available for travel (118), the quality of travel services (113) and interest in travel (97) each declined six points from the comparable measurements taken at the same time in 2017.

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Leisure Travel

The incidence of leisure travel continues to be the dominant driver of demand for travel services. Six out of 10 (59 percent) U.S. adults are planning to take at least one overnight trip primarily for leisure purposes during the next six months, although this is down significantly from the percentage who reported this intention during the same period in 2017 (65 percent). Their expected average number of trips remained essentially unchanged: 2.4 trips this year, versus 2.5 last year.

The robust economy is having a positive impact on their spending intentions, however, with nearly one quarter of adults (23 percent) who are planning to take a leisure trip expecting to spend more on those trips during the next six months. Only one out of six (15 percent) expects to spend less, yielding a net eight-point positive difference in spending intentions…good news for all travel-service providers.

Business Travel

Three out of 10 U.S. adults (28 percent) expect to take at least one overnight trip primarily for business purposes during the next six months, also down significantly from the percentage who expected to do so at the same time in 2017. Among those planning to take at least one business trip, the expected average number of trips is 2.9, down from the 3.2 reported during the same time in 2017.

On a positive note, both leisure- and business-travel intentions remain high relative to the incidence levels observed since we emerged from the Great Recession. This augurs well for sustained demand for travel services. The significant growth we enjoyed in recent years appears about to subside, however. 

Peter Yesawich is vice chairman, emeritus, of MMGY Global. Contact him at [email protected]