Business Update with Mark Lacter

Vacation or Stay-cation?

KPCC's business analyst Mark Lacter talks about what's happening on the vacation front this summer.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. I'm hearing talk in the hallways here about summer vacation plans - what's your sense, Mark? Are people vacationing or stay-cationing?

Mark Lacter: Oh, there's going to be plenty of travel this summer - barring some huge jump in fuel prices or a big drop in the economy. The question is what kind of travel - and the answer will tell us a little something about consumer confidence, which of course will tell us something about how much the economy is growing. What's happening on the vacation front isn't much different from what's happening with other kinds of spending - people are cautious, they're looking for deals, and perhaps most of all, they don’t want to rack up big numbers on their credit cards – debt levels remain a huge deal.

Julian: Do you think people are less willing to spend money this year - or are they just too broke?

Lacter: Here's an amazing factoid about household finances: Nearly half of all Americans say that probably couldn't come up with $2,000 in 30 days. That comes out of a new research paper and it's quite a conclusion – I mean, $2,000 in this day and age is not a ton of money. So things are tight - and yet many folks do want to take a vacation. The Auto Club expects more people to take car trips this summer than a year ago, and the Air Transport Association is projecting a small increase in airline passengers this summer, although air fares are up considerably from last year.

Julian: What about hotels and gas prices?

Lacter: Well, the travel industry is in a bind - the temptation is to jack up rates after several really bad seasons, but you don't want to raise them too much and run the risk of scaring off customers. Several hotel chains are trying to find some middle ground by offering things like restaurant and gasoline discounts as an inducement. Gas prices are still quite high (an average of $4.16 per gallon in the L.A. area, according to the government survey), but they've been falling over the past couple of weeks, and they’ll probably keep falling for a while. That should ease some concerns about the economy and lead to some more spending, although people are definitely being careful.

Julian: What about travelers coming to Southern California this summer?

Lacter: Business should be decent but not great. Good news is that the Los Angeles area is expected to be one of the nation's popular destinations this summer, according to a survey by Orbitz, which is important because travel and tourism is L.A.'s largest industry in terms of the number of people employed. It’s also pretty impressive considering that the average air fare coming into L.A. is running 20 percent ahead of last year.

Julian: What’s the attraction?

Lacter: Well, hotel rates are actually down from 2010 - kind of a mixed blessing, though, for the L.A. hotels that have been struggling since the recession.Visitors expect the same lower rates that hotels have been stuck charging, which is not great for the bottom line. The real answer is a strong economy that has people willing to pay the higher rates - and we're certainly not there yet.

Julian: How challenging will it be to get international travelers here?

Lacter: Quite challenging, Steve, both from Japan (they're still recovering from the earthquake) and also from Europe (where travel into the U.S. will be more expensive because of a higher dollar). All of which could make for a significant revenue loss because international visitors tend to spend more money. Of course, a lot of the out-of-town business will be supplemented by locals who choose to stay closer to home this summer. They’ll go to places like Disneyland and Universal Studios, and that certainly will help bring in dollars, as it has the last few years. So like I said, a decent but not great summer.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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