Travel demand withstands softening economy

By Kyle Peterson and Chris Reiter - Analysis

CHICAGO/NEW YORK (Reuters) - Hotels and airlines are bracing for softer demand as the economy shows signs of slowing, but the pain may not hit the travel industry for months.

The U.S. Labor Day holiday this weekend marks the symbolic end of the busy summer travel season, after which demand for airline tickets and hotel rooms drops significantly.

With travel activity at a low level in the fall, the effects of weaker consumer spending may not be that evident until Thanksgiving when airlines and hotels often see a spike in bookings.

Prospects for a softening economy triggered by a crisis in U.S. credit markets prompted consulting firm PricewaterhouseCoopers to lower forecasts for hotel demand growth for 2007 and 2008.

"It wasn't a revision based on performance of the summer. It was more the outlook based on trends in the economy and how they'll affect the balance of the year," said Bjorn Hanson, an analyst at PricewaterhouseCoopers.

The company now expects occupied room nights to increase by 1.3 percent in 2007, compared to a previous forecast of 1.4 percent. For 2008, it lowered its forecast to 1.7 percent growth from 1.9 percent.

Airlines, meanwhile, are ratcheting up fall sales, reflecting a greater urgency to sell tickets.

"We have a lot of sales," airline expert Terry Trippler at travel club myvacationpassport.com.

"Consumer demand is down somewhat. Maybe people are a little cautious," Trippler said, attributing the dip in demand to high fuel prices and foul weather in parts of the U.S.

"It's a little weaker than probably they would like and it's a little weaker than we saw last year," Trippler said.

Hotels, which have enjoyed years of booming demand, are also offering incentives. Marriott International Inc (MAR.N) lists over 1,600 deals at its U.S. hotels on its Web site. Choice Hotels International Inc (CHH.N), which operates the Econo Lodge and Comfort Inn chains, is offering customers a free night after two stays at one of its hotels.

FUEL COSTS

Gerard Arpey, chief executive of American Airlines parent AMR Corp (AMR.N), said aggressive competition in a tough market didn't allow the carrier to raise fares enough to recover higher fuel costs.

"We have some capacity problem where airlines -- not American -- are growing rapidly in a difficult environment," Arpey said at the unveiling of a new airport terminal in New York on Wednesday.

"We have gotten some pricing traction in the past year, but not enough to cover the enormous increase in the price of fuel," he said.