Consumer Products & Services

Consumer Services Industry Heading North

In the consumer services industry, airline ticketing and hotel reservations sector is witnessing higher demand in recent times compared to last year. In spite of a difficult economic climate, leisure travel demand for the summer peak season has been stronger than expected, driven partly by the availability of persuasive discounts. Many airlines and hotels in the U.S. have slashed their rates to attract customer and have a steady cash flow in this difficult environment.

Airline ticketing services got a boost as airline prices hit historic lows (despite a capacity reduction by the carriers). According to Bureau of Transportation Statistics, average cost of a plane ticket within the U.S. plunged 9.1% to $315 during the first three months of 2009. However, unemployment and global economic downturn continue to affect travel spending, particularly in the high yield business travel segment. This places some strain on travel services.

Industry striving to meet customer expectations to survive recession

With the recession greatly impacting consumer spending, the primary concern for CP companies would be to maintain top-line growth in the year ahead. In the current situation, merger and acquisition may become an important tool for growth as domestic markets grow slowly and offer CP companies limited ability to raise prices. As such, the only way to grow substantially is through strategic acquisitions in emerging markets and the juggling of product portfolios. Companies having sufficient financial muscle should be able to work through the current economic downturn by acquiring and maximizing access to new markets as a source of growth.

Back home, consumer spending has been affected substantially during 2008-09. Unemployment is putting pressure on household incomes, restraining their capacity to spend. Of particular concern is the steep drop in spending on durables and apparel. Less worrisome is the market for fast-moving consumer goods, which tends to be less volatile; however, there has been a shift in spending in this area towards discounters and private labels.

Considering the uncertain economic conditions and volatile market data, it is difficult to predict the near-term outlook for the sector. At the very least, 2009 will be a year of declining economic activity and if all goes well with economic stimulus policy, 2010 could witness a recovery. The consumer products and services companies need to focus on the future and capitalize on consumer expectations. At the same time, they need to concentrate efforts to offer products and services that create more value per dollar. Companies need to develop a clear vision of how they intend to meet the altered needs of today’s consumer in light of the economic challenges they face on a day-to-day basis, which also redefines the way they will perform in the years ahead.

Consumer spending has plummeted substantially during 2008-09, rendering many retailers and their suppliers in catastrophic condition. Unemployment is putting pressure on household incomes, restraining their capacity to spend, coupled with ravaged retirement savings and falling home values.