April 2020 Newsletter
The 80:20 Rule
In any organisation, team work is of the essence and a key element of that team work is that everyone pulls in the same direction. The plan that is put into place may not be to everyone’s liking, but having everyone pull in the same direction is vital if goals and objectives are to be achieved. With the current state of play across the globe, there has not been one standard approach to dealing with the pandemic, each country has taken it upon itself to use its own local knowledge as well as knowledge of its own infrastructure capabilities to set a path that leads to minimal loss of life and a route back to a quick economic recovery. This concept works perfectly well in theory but sometimes struggles when it comes to reality.
The Bulgarian government has so far done an outstanding job in combating the spread of Coronavirus and its performance is amongst the best in Europe. At times though, one has felt that it has had to contend with the 80:20 rule and the notion that whilst 80% of the population are fine upstanding citizens who will do what they are requested, the other 20% are most definitely “Covidiots”. This 20% are the ones for example who think they don’t need face masks on the street as a street is not a public area. Recent visits to the bank revealed that despite the then legal requirement for it, around a half of the general public in the vicinity were not wearing any mask as it seemed to interfere with their cigarette. Then there are the groups of children whose parents seems to think the summer holiday has started early as they let their offspring out into the playgrounds and on their bikes from sunrise to sunset: the rules obviously don’t apply to them either. Next are the boy racers who have the added bonus of being able to race their ageing “souped-up” cars and bikes on Sofia’s relatively quiet streets safe in the knowledge that the police are too pre-occupied to give them speeding fines as they are trying to stop other Covidiots travelling from Sofia to other parts of the country to eat lamb with their relatives over Easter. Indeed, whilst the 80% of the population should be applauded, the facility at Arena Armeetz designated for emergency help care, could instead have been used to house some of the 20% of the morons who think rules do not apply to them. There wouldn’t have been much sympathy from the majority.
As far as the travel industry is concerned, by the time an updated and current “status” report is written of what is happening where across Europe; its defunct. The only clear thing we know is the relaxation of the laws will be a phased one with numerous phases, each taking several weeks of adoption before the next phase is reached. The last phase is likely to be the return to work for restaurants and bars and probably before that, some form of return to work for the majority of the population. We have some time to go before the current test on the human species is complete and the “re-set” button is pressed for life to start again. If you need any clearer indication of when and if travel will start again, then three simple examples that prevail as we type provide a much clearer overview of where we are at:
1) Turkish Airlines have cancelled all their flights until 28th May, whilst Austrian Airlines have extended their suspension of flights until 31st May,
2) Dubai hopes it can accept visitors from July onwards and
3) Germany has suggested to its citizens that no overseas travel be undertaken before the 14th June. There are countless more similar examples.
The articles in this newsletter looks slightly deeper into what the repercussions might be when it comes to travel and what the travellers of the region may face.
Jamadvice Travel | BCD Bulgaria
Which way will airfares head?
Whenever and if ever the world of travel re-starts, things are most definitely not going to be as they were when the world stopped. This also applies to the cost of air travel; the problem is, no-one is quite sure whether fares will head north or south. Put another way, whether they will “increase or decrease”.
If we apply a combination of logic and experience and add in the words of Ryanair’s outspoken CEO Micheal O’ Leary, when the pandemic stops, there’s “’going to be massive discounting going on”’. Translated; airlines will dump their fares in an attempt to entice people to travel again. A reasonably logical way of thinking and a model that has worked before. However, there is also the other side of the fence to look at.
The alternative thought fly’s in the opposite direction – if you pardon the pun – of logic and also of Mr O’’Leary’s optimistic thinking. What is different this time around is that planes have been permanently taken out of operation by airlines; staff have been either made redundant or put on leave in their tens of thousands; the supply chain involved in aviation such as ground handling and catering as been almost wiped out; but perhaps more importantly, people’s hunger for travel has been curtailed. Whichever way you look at it, if last year was 100, this year will be 25 in terms of demand and supply, view this in relation to whatever you wish.
Planes cannot be rolled out of the garage and started again at the snap of the fingers, popular routes where there were 10 flights per day will initially at first see 1 or 2 per day being operated. Routes that were marginal in respect of being profitable or not will be ignored for the time being as valuable resources are aimed at those routes were some profit can be made. An excellent example of this is some of the seasonal routes that Ryanair operate between Germany and Croatia: cancelled for the rest of the year before they began. The risk of low demand means Ryanair wont waste its time on devoting resources which head down a black hole.
Look at the economics of flying from another angle. If you used to have 4 flights a day between A and B and each flight takes 100 people, that’s 400 passengers per day. If now the demand is forecasted to be 100 people per day, then test the market with 1 flight per day, hoping that demand matches or outstrips supply. If so you then charge a premium from people desperate to travel as all seats will be sold. The 1 flight will be profitable; running 2 or more flights wont be. This is likely to be the default setting certainly in the short term and even into the medium term. The medium term we could also be talking of as being well into the next year. One simple example that may support this notion is the comment from Air France/KLM that they plan to “’ run (just) 30% of their usual flights from July onwards”’.
The bottom line is therefore likely to be that when travel re-starts, whilst hotels may be offering a good deal in an attempt to get occupancy up, the cost of getting to those hotels might come as an expensive shock.
Lufthansa Group – digging itself out of a hole
The importance to Bulgaria and indeed other countries in this region of the Lufthansa Group, which includes Austrian, Brussels Airlines and Swiss, in aviation connectivity terms, should never be under estimated. Whilst its true that the new kids on the block, Wizz, have certainly re-shaped the landscape, the Lufthansa Group is still vital for business people and those travelling for leisure alike. Whilst Wizz have been “out of the news” largely during this pandemic, the German speaking grouping most certainly has not; it hasn’t been rosy either.
The end of April saw the German federal government provide 9 billion Euro in state aid to help Lufthansa. The aid comes with the proviso that the German government has two seats on the supervisory board and a blocking vote, something that Lufthansa in the past had always resisted. However the harsh reality for the airline was that both cash and time was running out – fast for them and so fast they were in no position to negotiate.
Lufthansa had themselves already announced that they were significantly trimming back their fleet by “scrapping” aircraft from its operational fleet including six of its 14 (new) A380 superjumbo’s. One wonders if this plane will be remembered by European carriers as a status symbol “me too” white elephant? Lufthansa are also closing down what is left of subsidiary Germanwings. Sibling Austrian Airlines, who again are vital for Bulgaria’s connectivity with the outside world, is reducing its fleet size from 80 to 60 by scrapping 20 planes and thinks that the summer 2020 capacity will be around 20-25% of the previous year and the most optimistic forecast is by the year end to have 75% of its capacity back in place.
So, the bottom line is that when the world finally is set to “’re-start” the aviation landscape will look nothing like it did when the pause button was pressed,
Of course, not forgetting in all this is that under EU law, state aid to airlines is forbidden: ask Malev and Cyprus Airways to name but two.
The summer cometh
Each day brings us new news and also further speculation as to what might happen across the European landscape when it comes to summer tourism. Here in Bulgaria of course (at the time of writing) we are clueless as to what might open and when; if at all. The same seems to apply across other popular tourism destinations also. July is being talked about as regards when countries tourism doors will be opened but is this optimism or realism?
Italy has announced – perhaps prematurely – that it is banning tourists for the rest of the year whilst Spain’s Balearic Islands are saying that its own summer “might” start in August but would be selective as to whom it let in! UK citizens would be kept away for longer as it is perceived they acted too slow to prevent the spread of the virus and other countries citizens may also be tarnished with the same brush. The problem for tourism in the Balearics is that the UK market makes up one third of the total. Some 130,000 jobs are expected to be lost on the islands which attracted 13.6 million visitors last year.
Thinking closer to home, one wonders what the Black Sea tourism will look like this summer, if it even exists and can it restrict certain nationalities or residents of certain countries from entering? Mind you there probably wont be planes in the sky to bring the usual hordes anyway.
Might it be that Bulgaria should have copied our Northerly neighbours Romania in their policies to enforce the restrictions surrounding Coronavirus? Between the 24thMarch and 19thApril some 200,000 fines were issued generating 78m Euro’s in income which is roughly the size of a months Corporate Tax collection for Romania.
Which way is green heading
In editions to come we will look closer at what might now happen globally with the “green” agenda that had been gathering momentum and which may be viewing the current situation as a blessing in disguise to those who want to ban air travel; or at least restrict the ease of it for the majority. So whilst the skies have never been clearer as they are today in terms of less pollution, the last blip we saw in the way the world works (last recession) which occurred some 12 years ago, saw the green agenda disappear to the bottom of the pile in the “Most important things to consider” whilst moving forward. Simple survival came top for 99% of the population.
Whether the colour green goes to the bottom or not, most hotel chains have already been investing in their green credentials and that includes in giving us (in theory) “green hotel brands”. Possibly the top three Eco Hotel brands one currently finds on the high street nowadays are:-
- Voco – from IHG Group (Intercontinental/Holiday Inn) which as its statement in life prescribes its brand as a tread light philosophy with paperless check out and more than half a million plastic bottles recycled so far to make IHG’s brands bedding”.
- Greet – the new Accor brand (Sofitel/Mercure etc) that encourages hotels to salvage objects from second-hand sources or eco-responsible suppliers.
- Element – part of the Marriott family, it offers vehicle charging and bikes for hire and uses recycled material and in-shower dispensers to reduce plastics.
As we say, it remains to be seen how the public and indeed business reacts to the green agenda and perhaps disparagingly, many would say much of the above content of green hotels is or should be staple for most hotels these days anyway.
To tax or not to tax? That is the question
William Shakespeare asked a similar question many moons ago and the answer was never clearly established. “To or not to” is actually the new question that many governments, both national and local, will soon need to ask themselves when it comes to tourist taxes.
A city or tourist tax had become a soft way for any local or national revenue collection agency to raise extra funds from the throngs of people who went on holiday, travelled for business or simply took a city break. The supply of people willing to travel means they were a soft target. With the current situation, business logic would be to encourage or incentivise as many people as possible to travel in order to get the world back to some degree of normality. Whether this will happen now is another story.
The tourist tax collectors have got used to X million people multiplied by Y Euro’s = a lot of extra funding. The problem now is X will be ¼ or less of what it was for the short and medium term which will put a not insignificant dent in the coffers of those relying on the tax. The dilemma now is whether a) to reduce or get rid of the tax as a stimulus to encourage people to travel and thus contribute to the re-start of local economies, or b) to increase the taxes to make up for the shortfall.
Business people say the former, bean counters suggest the latter; let’s see who will prevail.
Numbers in red
The World Travel and Tourism Council is warning that a staggering 100 million jobs could be lost due to the Coronavirus Pandemic with the vast majority, 75 million, in the so called G20 rich countries.
Asia is forecasted to take the biggest hit with 63 million losing their jobs, followed by Europe with 13 million.
Travel and Tourism is often cited as being the back bone of the world economy and hence job losses equates to GDP losses, in this case, some 2.7 trillion USD globally.
Disney shames Disney
Senior Executives at Disney have a long standing vocal critic and one whom they simply can’t shut up, Abigail Disney. The Disney heiress is a long-standing champion of workers’ rights and she has slammed the corporation for furloughing more than 100,000 workers whist at the same time maintaining executive bonuses and shareholder dividends.
She is quoted as saying that “Disney faces a rough couple of years but that does not constitute permission to continue pillaging by the management”.
She also highlighted the 1.5 billion USD in bonuses and dividends as being unjust in the current climate. Noting also that the furloughs will save just 500m USD in payroll costs.
Whilst the executives are taking pay cuts, she also notes that salary is just a small drop for these staff as the real pay day is in the rest of their package. One perhaps wishes she was the CEO and not just the heiress.
One suspects that Plovdiv is breathing a massive sigh of relief. It had the privilege of being one of two cities labelled with being the European Capital of Culture for 2019 and thus benefitted from huge exposure and no small amount of extra visitors when the world was normal. The two cities chosen for 2020 must be wondering what they have done to deserve the title for this year!
The European Capitals of Culture are Galway in Ireland and Rijeka in Croatia. One wonders if this title will be extended into 2021 and thus pushing subsequent titles back one year further down the line.
There was once a Canadian Airline called Zoom that ceased operations in 2008; today the word Zoom seems to appear in every conversation, except this time around its not an airline that is being referred to but the videoconferencing app.
Video conferencing was, not so long ago, pronounced as the knife that would be the death knell for the world of business travel and for airlines; except that this was more of a sales pitch than the sound of market demand. Bums on seats increased exponentially but the use of video-conferencing was much slower on the uptake. With the world as it is now, is this about to change?
Every school, sports association or family not yet connected via a social media platform seems to have turned to “Zoom” as a means to keep in touch with its students, members and family. Even the UK government was shown using the tool for a cabinet meeting. That comes despite the well known fact that security within the operation of the Zoom technology is questionable to say the least. That said, if you are not holding top secret talks then perhaps security matters not. The bigger question though is whether the use of such technology will serve as a reality check for business’s who now feel that they can hold conferences/ discussions/ talks by such a channel rather than put an employee on a plane. Only when the dust settles will we perhaps see if video conferencing has killed the business traveller, or once again has common sense prevailed.
Thought: video conferencing enables the maintenance of a relationship but not to create new ones, for which travel is still required.
Whether it is as a direct consequence of the Coronavirus pandemic and the fact that they have no cash left or even because they are being sued to the hilt for dodgy Boeing 737 Max aircraft, the much-acclaimed takeover by Boeing of Brazilian aircraft manufacturer Embraer is off.
The deal was supposed to be worth 4.2 billion USD with both sides pointing the finger at the other for the collapse. Boeing saying the Brazilians couldn’t “satisfy the necessary conditions’’ whilst the Embraer Management saying Boeing was “manufacturing false claims to avoid paying the agreed fee as they were cash short due to the 737 Max debacle”.
Embraer make a successful smaller fleet of aircraft that are ideal for regional/short haul work and which is sorely missed in the Boeing offerings.
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