By Robert Klara

A pop quiz: Can you guess the three letters that have struck terror into the souls of travel-industry brands everywhere? Answer: AIG. Late last year, on the heels of an $85 billion, taxpayer-funded bailout, American Insurance Group brass decided to take a $440,000 corporate retreat at the St. Regis Resort in Monarchs Beach, Calif. The junket (complete with pedicures) made for punchy news copy, but it was airlines, hotels, and rental-car companies that got the black eye, with business still down dramatically for all. “That AIG fiasco made it a crime to have a meeting in a five-star hotel,” says John Wallis, svp of product and brand development for Global Hyatt. “The slowdown is resulting from discretionary travel at the business level,” confirms Becky Alseth, svp marketing at Avis, which does most of its bookings with execs on the road. As 2009 unfolds, the pain is likely to continue for all segments of travel that cater to the tasseled-loafer crowd, from upscale resorts to first-class airline bookings. An October 2008 survey by the Business Travel Coalition showed that 26 percent of companies had implemented “emergency cutbacks” in executive travel.

Nobody needed this news, coming as it did atop the recession—which was already taking its toll on the other side of the travel biz, the vacationing consumer. Here, however, the picture is more nuanced. As Alseth puts it, if business travelers “aren’t going, well, they’re not going.” But when it comes to getaway trips, everyday Americans are still going—they’re just staying closer to home and spending less. According to Forrester data, 47 percent of leisure travelers plan to reduce the amount of cash they drop on a vacation. As Forrester travel analyst Diane Clarkson puts it: “They’re trimming around the edges.”

That’s why the name of the game for marketers is, and will continue to be, value. “The consumer is still vacationing,” observes Jim Berra, CMO of Carnival Cruises, but he’s “making certain that they find the best experience for the money.” Carnival now advertises cruises for less than $100 per person, per day. Hyatt recently sponsored an a contest that invited people to write about what they’d do with 365 free nights in the Hyatt property of their choice (which was first prize)—and 54,217 people submitted verbiage.

Of course, few travelers stay at hotels, board cruise ships or rent cars without getting off a jet first, making a disproportionate number of brands beholden to the airlines. Fortunately, fuel prices and ticket prices have fallen. But Clarkson cautions it’ll take more that lower fares for airlines to win customers back. Fuel surcharges and baggage fees have “driven a sense among travelers that they’re taken for granted.” Carriers, she says, will have to focus on providing better customer service. Who knows, maybe those pillows might be free again.

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