The Road Less Traveled

Desperate times call for desperate measures. In France this summer, that means being downright friendly to tourists-- something that doesn't come naturally to every cafe waiter and concierge in Paris. So, in an effort to bolster tourism, the French have launched the "Bonjour!" campaign. Nearly 6,000 billboards emblazoned with the greeting are now scattered around the country, reminding locals to extend a warm welcome to visitors. Meanwhile, the French Tourist Office is offering 60,000 tourism professionals lessons on how to smile brighter and provide better service. "We want people to be nicer, especially to Americans," says the office's director-general, Jean-Philippe Perol.

No wonder. Americans are the big spenders of global tourism, a $3.5 trillion industry that represents 10 percent of world GDP and employs more than 200 million people. But, like many others around the world, Americans are becoming more and more skittish about traveling beyond their own borders. Already reeling from 9-11, which cut growth in the industry for the first time in two decades, tourism has since been hit by a host of other woes: the war on Iraq, additional terrorist attacks (including one on holidaymakers in Bali), the killer SARS virus and a relentlessly dismal economy. The World Tourism Organization recently called the current climate "the worst in living memory." Some who work in the tourism and travel industry have simply dubbed it "the perfect storm."

To be fair, the sheer number of trips taken by tourists has rebounded considerably since 9-11. Yet spending hasn't recovered, because travelers are eschewing more lucrative long-haul trips in favor of shorter, regional jaunts. Americans are flocking to Florida rather than France, and Europeans are staying within the EU instead of risking more exotic trips to the Middle or Far East. Asian tourism--which industry professionals hoped would provide a bright spot of growth this year--has been decimated by SARS. The Chinese, well on their way to displacing the Japanese as the region's pre-eminent travelers, have for now banned all international and domestic tour groups. With hotel rooms from Hong Kong to Singapore vacant and hundreds of flights grounded, economists are cutting GDP forecasts by a percentage point or more--not just for China, but for much of the region.

Even before SARS hit, the World Travel & Tourism Council (WTTC) was predicting a paltry 1 percent growth in global tourism for 2003--a dismal showing for an industry that has averaged 4 percent or more annually over the past 20 years. SARS will likely lower that figure further. But even as the bad news continues, tourism's perfect storm is beginning to cleanse the landscape, encouraging cooperation and change in an industry that desperately needs it.

Despite its global reach, tourism remains extremely fragmented; major hotel chains and tour operators represent only 20 percent of the business. Most companies--and countries--prefer to go it alone, even when it might be in their best interest to share data and marketing strategies. Now that's changing. In the past year, Spain and Tunisia organized a conference to support Mediterranean tourism. Australia, New Zealand and Fiji have also come together for a joint marketing campaign. Luxury hotel associations, like Relais & Chateaux and Leading Hotels of the World, are exchanging customer information with high-end cruise lines and tour operators such as Abercrombie & Kent in an effort to jump-start business.

The industry's woes have hastened the push toward consolidation. Restructuring in the troubled aviation industry has been underway for some time; now ailing travel companies have become cheap buys. Experts like Alex Kyriakidis, managing partner of the Deloitte & Touche tourism and leisure practice, expect private-equity firms to snatch up troubled hotel chains and tour operators over the next few months. "The majors are trading at a 70 percent discount to their asset values," he says. "So, I think we are going to see a lot of buyouts." Already, private-equity firms have purchased hotel groups like Paramount and Le Meridien. Leading Hotels of the World has set up a special fund to take stakes in ailing members, like family-owned boutique hotels that may have fallen on hard times.

The downturn may also slow the trend toward impersonal, cookie-cutter megaresorts. In any number of surveys, security is now the top priority for travelers. And experts say that translates into a desire for a more intimate, personalized setting--which is perceived to be safer. "Big hotels are trying to turn themselves into small hotels," says travel-industry consultant Mary Gostelow. In Las Vegas, the 5,034-room MGM Grand is setting up a special 600-room wing to be run like a separate hotel. Starwood Hotels & Resorts has developed its own very successful boutique-hotel brand, W. Wealthy travelers are forgoing fancy hotels for serviced villas, which feel more like home but are run by agents who cater to their every whim. Abercrombie & Kent's fast-growing private-travel division allows customers to sit down over coffee with a single travel counselor to plan every detail of their trip. "Customers want to know that nothing will go wrong," says CEO Geoffrey Kent.

Indeed, the personal touch is more critical than ever. Hotels have chucked things like credit-card check-in systems and room service that must be ordered via an Internet connection on the TV screen rather than by phone. At a recent WTTC security seminar in London, executives warned that too many electronic gizmos could turn resorts into high-tech gated enclaves, repelling both tourists and locals. A better strategy, says WTTC president Jean-Claude Baumgarten, is to "humanize" security by hiring more and better-trained staff (as U.S. transport authorities did post-9-11), and encourage locals to be on the lookout for security threats.

Tough times are making tourists more efficient, too. And that means using the Internet whenever possible. Despite the crisis in tourism, online travel bookings in the United States rose 37 percent from 2001 to 2002. "Once people find a good fare online, it's like pulling a slot machine," says Peter Yesawich of the travel-market-research firm Yesawich, Pepperdine, Brown & Russell. "They are back for more." Budget airlines like easyJet and Ryanair have long conducted the majority of their sales online. Now more and more mainstream airlines are advertising fares on their own Web sites, as well as on aviation-industry sites like www.opodo.com and Orbitz.com. Better software is allowing consumers to individualize their trips--from air travel and hotel bookings to theater tickets and dinner reservations--with a click of the mouse.

But even as online bookings have helped the customer, they've made things harder for airlines and hotels: since the Internet facilitates comparison shopping, companies are forced to lower prices and cut even further into already thin margins. And since online bookings generally steal from the offline market, its growth doesn't really represent new business for the industry. "Almost all of online [travel's] gains have been siphoned from traditional travel agencies and call centers," according to a survey by the U.S. travel-market-research firm PhoCus.

Ultimately, tourism's jump-start will have to come from the same place officials predicted it would come before 9-11 and SARS: the developing world, and in particular, Asia. The World Tourism Organization predicts average annual growth of 6.5 percent in East Asian and Pacific outbound tourism until 2020, while Europe and America are predicted to grow 3.4 and 3.1 percent, respectively. While tourism has historically been driven by customers from the West, the next two decades will be shaped by the democratization of travel, as Russians, East Europeans, Southeast Asians and, most importantly, the Chinese gain the means and the desire to go abroad.

Before the industry crashed, new trends were already taking shape. Tourism from Russia to France has risen 25 percent in the past year, as wealthy Russians flock to see the churches, ski resorts and beaches their great-grandparents visited 100 years ago. Thanks to Mediterranean marketing campaigns targeting Eastern Europe, Poles and Slovaks are flying to Tunisia for cheap doses of sun. And in China, a growing middle class has been booking package tours to places as far-flung as Turkey and Hawaii.

Two years ago the World Tourism Organization predicted that China would become the fourth largest country for outbound tourism by 2020, exporting 100 million tourists a year. Pre-SARS, the Chinese were already well on their way to achieving that goal, having become the fastest growing source of international tourism in Southeast Asia. Now experts say it may take a year or more for travel to return to previous levels. But few doubt that the Chinese will be among the biggest travelers of tomorrow.

In places such as Singapore and Thailand, the Chinese are already making up for the dearth of Western tourists. Though less likely than Westerners to stay in five-star hotels, the Chinese propensity to spend on luxury items like jewelry has been a boon to local economies. According to a survey by the Singapore Tourist Board, Chinese tourists spend an average of $112 per day in addition to accommodations--more than either Britons or Americans. Another survey by the U.S. Department of Commerce found that the average Chinese vacationing in America parts with a whopping $5,700 per visit. In fact, the World Tourist Organization notes that Chinese are among the highest per capita spenders on trips abroad, dropping more than $2,000 on 12-day journeys. These numbers are convincing some governments--often reluctant to issue Chinese visas for fear of ending up with masses of illegal immigrants--that the Chinese are legitimate, and lucrative, tourists.

Many hotels across Southeast Asia that once welcomed hordes of Chinese tourists now stand empty, waiting for the SARS panic to end. But once the tourists come back--as they always do after a downturn--there will be new challenges to face. Chief among them: the culture clashes that are an inevitable part of global tourism. The rise of the developing-world tourist has already created friction: Chinese travelers have unwittingly become victims of tourist scams in Italy and Thailand; wealthy Russians have found themselves snubbed by five-star resorts; countless others have been hassled by passport officials who wave through Americans or Western Europeans.

That means the lessons the industry is learning now will come in handy once the current gloom lifts. Hotels and airlines will have to do more than just offer steamed Chinese buns for breakfast, or oblige Latin Americans and Russians used to paying only in cash. They will also have to provide a warmer, safer, more intimate experience, no matter where their customers come from. Over the next few years, places that can do that will be the ones that succeed. If the French can greet Americans with a cheerful "Bonjour!" surely the rest of the world will be able to give a warm welcome to the travelers of tomorrow.