The City view Economic outlook set to brighten
data to get modestly better from here. Bank lending to SMEs is also now positive again for the first time since 2008, and the Q3 results season has been encouraging, with the highest proportion of companies beating estimates since Q1 2011.”
Six reasons for optimism Here is my list of reasons why travel industry insiders should be hopeful for 2015: 1) The eurozone economy is at its worst and determined action across Europe should see a rebound in sentiment. That will be great for any business that has a focus on the core markets of northern Europe.
2) The US economy has kept everyone afloat in 2014 and although there is some evidence the pace of growth might be flagging, I suspect we are only midway through a multi-year recovery in North America.
3) The US Federal Reserve and the Bank of England are contemplating small interest rate rises and some tightening of their balance sheets, but the effect will be minimal, especially given the fact that the eurozone and Japanese central banks are massively stepping up their interventions. If interest rates do start rising I would be astonished if they went up by more than 1% over the next year or so.
4) Energy prices are almost certainly likely Cost of capital
Most analysts and investors focus on the big, broad-brush trends. But travel businesses should keep an eye on some smaller trends that might catch the sector by surprise. In particular, watch out for the cost of
capital, which is going to be the elephant in the board room for many big firms. The UK and US are moving slowly to a tightening of liquidity. That means less credit available
from central banks. Interest rates might rise a bit, but watch out for bond investors demanding a higher return on investments in big and medium-sized corporates. Put this together and big corporates will have to pay more for capital, which will have an impact on new investment and the rates of return required by business units. Crucially, there will be less liquid capital sloshing around.
+12%
Dart Group £360m (£1.12bn)
+87%
Flybe £269bn (£620m)
to collapse. Three main factors stand out: a) Indiscipline by Opec producers, led by Saudi Arabian and Kuwaiti efforts to maintain market share against high-cost producers. Maybe we are witnessing an epic battle between the Saudis and the US to be the swing producer; b) Accelerating growth in non-Opec production, led in part by the US which has also played a major role in... c) Driving the cost curve lower for oil and gas production globally. I’m not too sure any of these forces will abate in 2015 and thus I would line up with the emerging consensus that has oil prices falling as low as $60 for WTI (West Texas Intermediate) Light while Brent crude prices touch $70 a barrel. My only note of caution would be that oil products (gasoline, diesel and jet fuel) might show greater pricing strength as US demand slowly grows through 2015 and refining-supply constraints become increasingly obvious.
5) Consumer spending will carry on increasing in the UK. Much of this uptick will be driven by what some of us euphemistically call “balance sheet” issues. This is jargon for the fact that poorer consumers will borrow ever more money (a bad thing in the long term) while wealthier, retired customers start to spend their pension pots on once-in- a-lifetime trips. But it’s also fair to say that increased consumer demand will be helped by wage rates, which are showing signs of a rebound among skilled workers, and increased minimum wages at the lower end of the workforce.
6) Currency wars: the good news is that every major economy is now desperate to weaken its foreign exchange (FX) rate. Exporters in the eurozone and Britain would be delighted if the euro and sterling started falling back against the dollar. The bad news is that not
32 | Travel Weekly Insight Annual Report 2014
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