p18 City Oct9 6/10/09 18:34 Page 18
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Comment Graham Pickett
company failures in the wake of XL Leisure
Group’s collapse. With unemployment reaching
2.47 million in the UK, and further rises expected,
consumers are also reluctant to commit to
large expenditure before they need to.
This puts increased pressure on the tradi-
tional business model of holiday companies,
making it harder than ever to predict departure
patterns. Airlines and tour operators that have
already cut their headcount are less able to re-
spond to changes in demand at short notice.
According to Iata, airline load factors actu-
ally rose 0.4% in July 2009 compared with the
previous year. However, with passenger num-
bers down by 2.9%, this points to a reduction
not just in demand but in supply.
No green shoots for travel
The collapse of several airlines in the past year,
coupled with cuts by the remaining carriers and
tour operators, have reduced overall capacity
in the market. The logic of current market con-
ditions would suggest that consolidation is one
way for airlines to gain a competitive advan-
tage of scale. While merger and acquisition ac-
tivity remains slow, some developments are
taking place.
The airline and travel industries are in the
Slow recovery and
midst of deeply uncertain times. Flexible
responses in the face of unpredictable booking
patterns, cost reductions and innovative
revenue streams are all needed.
Operators need to focus on those areas
where consumers are spending money, such as
oil pose new threat
economy business travel, all-inclusive holiday
destinations, non-eurozone/domestic holidays
or cheaper, greener transport. Airlines may
need to shift away from previous “cash cows”
such as premium business travel, if they are to
return to profitable results.
Airlines that have suffered during the downturn could face a threat to
Whether this can be achieved quickly enough
their balance sheets during economic recovery, says Graham Pickett to avoid any further
large scale failures
is a key question.
O
il prices that fell significantly during quickly to these changing conditions. This is a Whilst some
the recession have begun to climb major challenge for an industry that has to commentators
once more. The airline industry was bear the huge fixed capital costs of operating are seeing green
able to mitigate the effects of the aircraft, ships or hotels. shoots appear in
previous oil price peak by hedging – that is, the UK economy,
buying forward months ahead at lower prices. UK confidence impacted for aviation and
This time, with cash reserves low and Within leisure travel, job market uncertainties travel the
balance sheets in a weaker position for some and the falling value of sterling have dented recovery
airlines, it will be more difficult. This will be consumer confidence. Holidaymakers who had appears
even harder from a timing point of view with become accustomed to a strong pound have to remain
the quieter winter season upon us. seen their spending power slashed in their some way
After months of economic uncertainty, airlines favourite destinations. As it appears likely the off.
and tour operators have seen significant changes UK economy is in for a slow recovery, this could
in the nature of demand for their products, be a problem that will continue for some time.
such as the rise in late bookings. Late bookings is another key trend affecting Graham Pickett is aviation partner at
Airlines and tour operators need to respond the leisure sector, caused partly by fears over Deloitte UK
18 09.10.2009
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