WHY IS REVERSE COMPRESSION LEADING TRAVEL RECOVERY?

LEISURE BUSINESS IS DRIVING TRAVEL RATES AND VOLUME IN WAYS WE HAVE NEVER SEEN BEFORE

For all of time, commercial travel has been the broad foundation for rate & fare strength as well as the basis for revenue management that yields leisure demand to fill gaps on top of premium business travel. Not in 2021.

Our team at MMGY Global believes the next six months will create the unique environment whereby leisure demand is so significant that it is creating a dynamic we are calling, "reverse compression." We think trip volume will not only be led by leisure demand (vs corporate demand), but that fare and rate strength will also come first from consumers and second from business, even in market environments and periods where that just doesn't happen.

Our theory holds as such:

1) Booking policies have removed cancellation and change fees from most travel environments. Though six airlines have just announced new fees going forward, the overall cessation of penalties is driving a lot of long lead booking transactions. These extremely favorable booking policies have created record leisure booking pace in many parts of the industry, for the out-months of 2021.

2) "Home sentencing" has left global consumers with a once-in-a-lifetime appetite for leisure travel experiences. MMGY's Travel Sentiment Index (TSI) has never even come close to the intent spike it has seen the last nine months as people remained in the inspiration phase of travel planning this entire last year, just waiting for this moment.

3) Traveling households are wealthier today, by-in-large, than they were pre-Covid. American households alone will have over $4 Trillion in savings, a historical high, and they consider travel the second highest priority for discretionary spend.

4) So many people will now book vacations, weekend getaways and social "catch-up" travel that inventories for weekends and traditional vacation periods will vanish quickly. We now also see increasing advance bookings for international trips.

5) Travelers tell us that they plan to take more vacation days in 2021 than they did in 2019, thus driving a meaningful consumption growth in the year, for the year.

6) Because traditional inventories will be unavailable, and because WFH continues to offer consumers flexibility as to when they can vacation, leisure demand will move into the mid-week, creating a base for Sun-Thursday travel that is non-traditional. This will also create new conditions in the market. Cruise lines, for example, can expect to see activity for non-traditional cruisers (for ocean and growing river options) who cannot secure their normal trips. And legacy leisure brands will now see a competitive threat from more commercial oriented brands not normally interested in leisure volume as a base of business.

7) Unmanaged corporate travel, SMERF, some corporate group and even select international demand will begin recovery in Q2, filling the gaps around spiking leisure bookings. The inverse of what we have always known to be true about building revenue.

8) Rate and fare discounts will be more common for weekdays versus weekends and suppliers will reset packages to appeal to leisure travelers searching for a deal in the mid-week because weekends offer higher than normal rates.

For some time we have been calling for a much more rapid travel recovery than most. We predicate this on much of the above as well as our belief that private industry (P/Ls) and government (promise of jobs and infrastructure improvement) will conspire with consumer sentiment to build massive overall travel demand, not in 2025 but in late '21 and 2022. This demand will be buoyed by a rapidly growing acceptance & deployment of vaccinations, with significant leisure volume. Rates will then be compressed as commercial traffic grows, leading to an ultimate inversion of the revenue management model for 2021. Long-term we expect the second half of 2022 to exceed the second half of 2019 in terms of overall global travel with leisure brands outperforming traditional corporate players in 2021.

Travel brands we work with around the world are telling us long-term demand has picked up significantly in just the last few weeks as well as for this Spring Break period. Those who forecast low US travel in late Q1 and into Q2 were just flat out wrong. Unusual booking patterns and travel shaming have masked a demand that we have seen coming for some time. Now that these conditions are in place, we see some important keys for travel brands:

1) Avoid the inclination to discount in the leisure market.

2) Start your marketing now and use data to target high-yield audiences that fit the travel pattern emerging.

3) If you are a corporate brand, build new communications that package leisure experiences while continuing to engage commercial clients.

4) Consider brand and retail partnerships that better position you with leisure travelers.

5) Do not rely on traditional demand curves to dictate rate strategy.

6) Step forward with your brand in an optimistic way to embrace clean, to be socially in-touch and to convey a message that enables feeling good again about travel's rite of passage.

All of us in the travel industry should remain proud of how important travel recovery is to global health. Small businesses, vulnerable worker groups and government tax growth will all greatly benefit from what we do everyday. It is most exciting.