Richard Turen
It has been a while since I wrote about how good business really is, while inviting you to join me in a small celebration at our desks today. Things really are looking up, and the numbers are impressive.
Let's start with the travel agents who were all slated to disappear sometime in 2013. Well, if we're dinosaurs, then tell the kids that dinosaurs still roam the earth. Travel agents have never been busier, and our major complaint seems to be an inability to find suitable staff to handle the "returnees" from the morass of direct bookings and the utter distortion, coupled with confusion, that seems to accompany most travel searches.
Just for fun I Googled "cheap cruises" and I received an immediate notice that there are approximately 52,300,000 results for that search. When you think about how confused most people get when choosing appetizers at Olive Garden, you can sense the impact of that many results. It turns out that the information superhighway needs informed traffic cops, without whom shreds of information crash into one another in an endless cycle of distortion and distrust.
We are in a time of record-breaking profits in several sectors of our industry, and I think we deserve an hour of celebration at our desks. I hope you will pour yourself a glass of something nice from California or Washington state as we consider what good times we are experiencing and just how resilient the American traveler, both business and leisure, is proving to be.
The good news at the end of the third quarter began with reports from the major airlines that occupied seats per flight were averaging 86%, a 2% rise from a year ago.
American Airlines broke its own profit records, set the previous quarter this year, with net income of $1.7 billion, despite a merger with US Airways that required the res systems to actually talk to each other. Profits were 80% higher than the year before.
Delta also produced record-breaking profits of $1.4 billion, but that still wasn't enough to top United's record earnings of $1.7 billion. Southwest also had a terrific third quarter, reporting net income of $623 million.
Naysayers, of course, will say that this all has to do with lower fuel prices, since fuel is any airline's single biggest cost, and prices are down 43% from a year ago. But we are also seeing that the number of flying trips Americans are taking has increased year-over-year, and seat occupancy is up substantially. Only 14 of every 100 seats on the average aircraft remain unsold at boarding time. Planes don't just seem more crowded; credible data proves it.
You could, I suppose, argue that the airlines are doing so well because they have taken heavy portions of their fuel cost savings and reduced their fares proportionally. But no one I have talked to in the industry suggests that this has happened.
With the country's mood seeming to support a move away from Mideast fuel dependency, the current cost of fuel could start to be the norm. That is speculation. What isn't speculation is that more Americans are flying to more places. We should celebrate that fact, although we need to temper it with the observation that there is no empirical evidence Americans are increasing the length of their vacations or business trips in any measurable way.
Still, you only have to go back 24 months to see if anyone was predicting the levels of airline profits we have witnessed in this past quarter.
Life is good when we think it's good. Life is bad when we don't think. — Douglas Horton
The U.S. hotel industry has also had a very strong third quarter. STR, the global hotel data company, reports that the hotel industry has experienced extremely positive growth in the three primary performance metrics. Measured against the previous year, occupancy rates were up about 1.5%, to 71%. The average daily hotel room rate in the U.S. grew substantially in the third quarter, up 4.5%, to $122. But the most striking statistic was a 5.9% growth in revenue per available room (RevPAR), to $87.
The three largest markets in terms of RevPAR growth were Anaheim/Santa Ana, Nashville and Orlando. In fact, Orlando experienced the largest occupancy increase in the country, a reflection of the serious growth in Disney and Universal park visitors over the quarter.
Finally, let's take a look at the cruise industry, particularly the major players.
While the consumer still expects deep discounts, based on the industry's inability to recover from the negative press coverage of a tragic accident at sea and 24/7 coverage of a ship that lost power with unfortunate plumbing outcomes, that turns out that this is simply not the case.
In fact, even a casual financial observer looking at the cruise segment has to conclude that the consumer has finally figured out that cruise lines represent enjoyment that appeals to all demographics in an engaging environment with few hassles and a clear perception of excellent value.
One might conclude, based on third- quarter results as well as on analysts' recommendations, that the cruise industry is actually in a boom.
We can use Royal Caribbean Cruises Ltd. as an example. There were obvious fuel savings, but this has far less of an effect on cruise line profits than it does in the airline sector. RCCL's fuel costs were down 13% from the prior year, which equates to total fuel savings, so far, of about $115 million. But that is only one of the reasons, and perhaps not the most important, why the company was able to achieve its highest stock price ever while beating analysts' forecasts.
The three major cruise lines are seeing a perfect storm of good news. While seeing lower fuel costs, RCCL has seen the price of a cruise increase by 5% from one year ago. This price increase was most evident in the Caribbean, which would seem to be a staggering achievement. At the same time, and along with higher prices, RCCL has attracted some 80,000 more passengers than it did a year ago.
Then there is the profit-driven icing on the cake. Every cruise line tries to increase onboard spend. In the case of the big three, this means getting passengers to shell out more on upgraded dining options, alcohol, gift-shop purchases and WiFi connections. RCCL's quarterly figures indicated that onboard spend was up 8%, portending an extremely healthy trend.
RCCL is by no means alone. There is also cause for celebration at Norwegian Cruise Line Holdings and Carnival Corp., where shares are trading at record highs.
All of this, of course, is happening before Cuba opens up. Carnival will be operating cruises with a "cultural" slant early next year. Norwegian, inspired by Cuban-born CEO Frank Del Rio, has applied for the necessary licenses to sail to the island.
The Carnival Vista will launch in the coming year, and the Norwegian Escape is taking to the water.
Investment in China has to pay off, and country-specific product is already in place with exciting new development projects on the way, including a joint venture between Carnival and China State Shipbuilding to create the country's first major cruise line.
So it really is time to hoist our glasses to the executives who have guided this growth while being loyal and encouraging to the current distribution system. We should all be thrilled with their success. Let's not forget that while this newest cruise revolution has been happening, each of the three major brands has reinforced and invigorated its commitment to knowledgeable consultants who have taken the time to develop product expertise.
Their success really is our success, and I know their executives believe that it could not be happening without our support. But the travel agency sector is also growing, to the dismay of some in the media. And we owe a healthy portion of that success to the progressive management at the top of these supplier companies.