Travel Is Road to Fast Growth in the 1990s
Actions speak louder than words. While economists debate whether the economy will suffer a recession or only a slowdown, investor Marvin Davis bids $5 billion-plus for United Airlines, the stock of Hilton Hotels sells at sky-high prices pending an auction of the company and Walt Disney Co. is forced to expand a just-opened attraction at Florida’s Disney World in response to overwhelming crowds.
What’s going on? Travel is supposed to be what economists call a “cyclical” business--up in good times, down in bad. So why aren’t Davis and Disney paying attention to the slowing economy? Because they’re busy counting customers--and contemplating the promise of more tomorrow as experts call travel a sure-fire growth industry for the 1990s.
The number of world travelers will increase to 600 million in the next decade from roughly 380 million last year, predicts Laventhol & Horwath, an accounting and consulting firm to the hotel industry. The business is growing even faster in revenues, up to $160 billion worldwide at present from $100 billion in 1983.
Growth in the 1980s is no surprise, of course. Unemployment is low and working people can afford vacations. But the outlook is for more of the same. Company executives foresee business travel growing more than 10% a year in the 1990s, according to a survey by Carlson Cos. of Minneapolis--a firm that operates hotels, restaurants and travel agencies.
On the Rise Abroad
And the outlook for leisure travel is at least as good, says John Reiner, a Carlson senior vice president, because of the “graying of America.” He doesn’t mean retirees, but the great numbers of baby boomers from the 1950s who turn 40 in the next decade. With kids in tow, or without, those people will be on the move--two-paycheck families taking frequent short trips as well as traditional vacations.
Travel is also on the rise in Europe and Asia. What is really happening is that industrialized societies everywhere are enjoying more free time and using some of that freedom to get out and look around. Small wonder that airline and other travel companies are attracting bidders and stock prices are soaring.
Investors should keep in mind, however, that not all travel companies will be winners. Serving the public demands attention to detail and isn’t easy, as Holiday Inns found out years ago when some of its franchisees let their hotel rooms get scruffy. For a time, travelers avoided the whole chain.
By contrast, Walt Disney made cleanliness a first principle of the amusement park--Disneyland--that he opened in 1955 as a rebuke to the grimy carnivals he had visited with his kids.
Disney had taken his cue from the first amusement or theme park, Tivoli Gardens, which opened in Copenhagen, Denmark, in 1843. The Tivoli, according to a report by S. G. Warburg, a London banking house, included not only rides but also “broader entertainment values--landscaping, flower beds, lighting, cleanliness, restaurants and theaters.” It was not only a delight for children but also a place that adults could count on.
Lengthened Stays
And in Disney’s hands it became a great business; Walt Disney Co. today gets $2 billion of its $3.5 billion in revenue from theme parks in California, Florida and Tokyo. The parks, in fact, are a better business than the movies, more profitable and more stable, with a remarkable ability to expand revenues not only by attracting more customers but also by adding more attractions to keep them entertained. The longer the customer stays, the more that he or she spends.
That’s why MCA Corp.’s Universal Studios Tour is doing so well these days. It has added attractions and restaurants, and lengthened the average customer stay from 2 1/2 hours to more than six hours.
But Disney has taken the principle further at its 28,000-acre Disney World in Florida by multiplying not only the attractions but also the number of separate parks. In May it added a movie studio tour to its traditional Magic Kingdom amusement park and Epcot Center world of tomorrow attractions--creating three separate admissions, three days full of attractions. It is building additional hotels at Disney World and nighttime entertainment attractions--as well as expanding the movie tour in response to popular demand. Few resorts in history have been as ambitious.
Yet Disney will go even further in its Euro Disney park being built on 4,800 acres, 20 miles east of Paris. Euro Disney, which will begin with a Magic Kingdom in 1992, is a 30-year project that ultimately will include two theme parks, shopping malls, hotels and commercial and residential development.
What makes it remarkable is that the French government has given Disney low-cost loans and special development help on the project because it looks on Euro Disney--the largest metropolitan development in Europe--as a project to revitalize the area east of Paris.
How times have changed. In the past, governments gave development grants to textile mills and auto plants. In the new age, they give it to leisure attractions--which says louder than all the forecasts that travel is a business to watch.
