Racing the Clock

By FRANK GIBNEY JR.

The suicide bombers who struck the World Trade Center may not have brought down America's financial markets, but they would be pleased about the effects of their handiwork if they could pay a visit to Disney World today. Or the Las Vegas strip. Or the beaches of Hawaii. Everywhere there are signs of economic fallout: no lines, cheap tickets.

The $582 billion annual income of the U.S. travel industry is bigger than the entire federal defense budget. And it has been brought to its knees, reduced to begging for government handouts and wooing potential tourists with outrageously attractive deals. At the grand Fontainebleau Hilton in Miami Beach you can get a $450 room for only $200 a night. Universal Studios will let regional customers into its Orlando theme park for two days and throw in a room for two nights--for $99. Budget is offering daily rentals for as little as $19.99.

But even these bargains are unlikely to lure some Americans back onto planes and into casinos until they feel their lives are secure. And no one knows when that day will come, in a war against an invisible enemy with a front line that could be in Afghanistan--or Albuquerque. "Tourism and travel are at financial ground zero," says Andrew Hodge, chief U.S. economist at the forecasting firm DRI-WEFA, who figures absent foreign tourists alone could account for around $10 billion in losses in the fourth quarter.

Over the coming months, the travel industry will be transformed. There will be new alliances among travel agencies, tour operators and resorts. Marginal operators--of airlines, cruise lines, hotels and attractions--will go out of business. (Midway Airlines and Renaissance Cruise Lines became early casualties last month.) Perhaps hardest hit are the country's travel agents, already weakened by a squeeze on commissions and tough competition from Internet-based booking operations like Expedia, Priceline and Travelocity. According to the American Society of Travel Agents, its 20,000 corporate members are losing at least $70 million a day.

Yet in every corner of the industry, those who survive stand to pick up more business than ever once travel resumes. So the search is on for survival strategies. Discounts and cost cuts are two classic responses. But travel businesses are also shifting their marketing focus to regions and customers most likely to spend during these unsettling times. Balancing all that and maintaining high levels of service will be tougher than ever. Here are some key tactics:

CUT PRICES

Deep discounts are a devil's bargain. If companies slash prices, will they generate enough extra traffic to offset the loss of revenue per customer? Immediately after the attacks, airlines avoided discounts, figuring that anybody still interested in flying would pay top dollar. Now they are discounting in the hope of filling planes. Before Sept. 11 airlines needed to collect between 10[cents] and 12[cents] a mile for each seat to break even, but now that has gone up 30%.

Rob Powers, a vice president of the Las Vegas Convention and Visitors Authority, says 20%-to-50% room and airfare discounts have boosted occupancy rates from a low of 67% on the weekend after the attacks to more than 75% a week later, but that's still 20% off the normal weekend level this time of year.

RETHINK YOUR COST STRUCTURE

New security measures will cost everyone, but nobody more than the airlines, which should take a page from Southwest Airlines' playbook and cut costs ruthlessly--without sacrificing friendly service.

Colorado's Crested Butte ski resort, which depends on airlines for most of its bookings, is postponing opening day until Dec. 15 to save payroll costs.

Park Place Entertainment is postponing construction of a $475 million tower at Caesars Palace. Starwood Hotels has postponed a $100 million renovation at the St. Regis in San Francisco.

REDISCOVER YOUR BACKYARD

Amid today's widespread fear of flying, any resort that depends on airlines for more than half its bookings (Disney World, for instance) should focus fresh attention and advertising dollars on potential visitors within driving distance. Visit Florida, the Tallahassee-based official tourism marketing agency for Florida, will allow its entire $2 million emergency budget to be used for in-state advertising, and the Greater Fort Lauderdale Convention and Visitors Bureau has launched a massive direct-mail campaign throughout the Southeast. Las Vegas is directing a $13 million advertising effort at markets within a 750-mile radius. One week after the terror attacks, the management at the tony Canyon Ranch spa persuaded 67 East Coast-based guests who would have canceled flights to its Tucson, Ariz., resort to drive instead to the branch in Lenox, Mass.

FIND GOOD PARTNERS

A well-thought-out partnership could be a smart way to weather this storm and develop new markets that will continue to pay off in better days. Amtrak has dozens of requests from hotels and travel agents for promotion and package trips, particularly in the Northeast corridor.

Coach USA, based in Houston, a billion-dollar-a-year charter-bus line that most consumers have never heard of, is trying to expand its business through cross promotions with online travel packagers Lowestfare.com and Expedia.com

Resorts from Maine to Colorado are pulling back their far-flung ads to aim at drive-market customers, while Coach USA is beefing up its national advertising campaign. "This is totally new territory for the whole industry," says Lee Schissler, Coach USA's senior vice president for national marketing and sales.

FIND YOUR NICHE

Among the more fearless travelers are retirees who want to see the world before they die. Enter companies like Tauck World Discovery and Far&Wide Travel, which offer planned individual and package vacations for an upscale clientele.

Following the Sept. 11 attacks, 7,000 Far&Wide clients canceled upcoming trips. CEO Phil Bakes furloughed a third of F&W's employees and put its eight overseas offices on a reduced workweek. Since then, 80% of the cancellees have reupped. As of last week, new bookings had bounced back to 50% to 60% of normal.

DO IT ONLINE

Amid all the dotcom disasters, online booking services are proving to be excellent clearinghouses for tour operators and resorts. Expedia, Priceline and Travelocity all became profitable this year. Although their businesses have been hurt since the attacks, analysts point out that their low cost structure gives them long-term advantages. Expedia, currently 70% owned by Microsoft, just inked a partnership with online retail powerhouse Amazon.

IT'S THE CUSTOMER, STUPID

While cutting costs, travel companies have to make sure that they deliver great service. And they have a special opportunity to do that during a period when the ratio of employees to customers is unusually high. An exception that proves the point: One of the few companies benefiting from the downturn is Amtrak, whose ridership has increased 15% since the attacks. But the rail service's chronic delays and often brusque employees are unlikely to bring many passengers back once good times return.

--With reporting by Leslie Everton Brice/Atlanta, Desa Philadelphia/New York and Margot Roosevelt/Los Angeles

With reporting by Leslie Everton Brice/Atlanta, Desa Philadelphia/New York and Margot Roosevelt/Los Angeles