October 2021 Newsletter
Selfish Short Termism
It is seldom that common sense prevails in commerce when vested interests and self-gain for short term benefit are put ahead of the greater and long term good. This is exacerbated when and if government bods interfere in an area they have little or no experience e.g. in commerce and if the voice of accountants are given too much time on the podium. Currently we are seeing inflation impact our daily lives pan Europe as the attempted return to commercial normality across the globe (particularly in Europe) following the pandemic shutdown, impacts the supply chain et al across the board. Such an impact was always inevitable and obvious to those operating in the commercial realm, though likely less obvious to those making the actual decisions in the first place, who in turn then wonder why there is any issue at all.
Presently, the bank manager and shareholder interests (profits) in the short term invariably outweigh a potential bigger piece of the cake further down the line from where all can benefit. The travel industry is not unique in following this path, far from it, but such attitudes impacts the employment of much of the population and defacto a significant wedge of the GDP for the countries to which they belong. The world will “right” itself slowly but surely, but in the process, as the saying goes, “there will be ups and downs”.
The past summer has seen a cocktail of amazingly cheap air fares mixed with historically expensive ones that seem to follow little pattern, other than a difference of opinion in what the short-term game is. Is it make as much money as quickly as possible by ensuring the supply of flights is less than the demand for them; a particular common theme in traditionally short haul flights to business destinations across Europe. Or is it the idea to get bums on seats and encourage people to travel by offering low fares in the hope that travel momentum will grow and people all the way down the travel food chain will benefit. Both modes of thought were clearly in evidence this past summer. In a similar vein. the summer also brought to many local people’s attention the dramatic increase in prices along the Black Sea, where clearly short-term optimisation (profit) was ruling over longer term thinking; perhaps not a surprise though to many with a greater experience of local business culture and where long term translates into next year.
If the feeling is that the corner has been turned within the travel industry and that there is a light at the end of the tunnel then a look at some of the numbers emitting from aviation and therefore the ongoing threats associated with these, will be somewhat sobering reading. Equally sobering is the way that some think they will recover from their current position.
In the aviation sector, IATA, the body that represents the interests of airlines, reckons that the pandemic will force the industry to lose more than 200 billion USD by the end of 2022. This figure has got progressively worse as the time ticked on, after initial calculations at the end of 2020 that passenger revenues would fall by only 55%, itself a massively optimistic (random) “guess”. Interestingly, by October 2020, they were also calculating that airline worldwide were losing a staggering 300,000 USD per minute! The overly optimistic guesswork didn’t stop there as towards the end of 2020, predicted losses increased from 84 billion USD to 118 billion USD with an improvement to losses of a mere 48 billion USD for 2021. Hopefully the people supplying the figures have another day time job lined up as the actual figures for 2020 show a loss of a whopping 138 billion USD globally for airlines. Just what the losses are for 2021 will be is yet another stab in the dark, but the more recent estimate is around 52 million USD and even in 2022, the ink will stay red with a predicted loss of over 10 billion USD. Who in their right mind would invest in aviation?
So, with all these losses already documented and with more to come, the logic across the industry would surely be that it’s all hands to the pump, work together and get the world moving again with everyone pulling in the same direction: wrong! It seems that infrastructure holders connected with the travel sector i.e. airports, air traffic control centres etc. have their own agenda. It is reported that London’s Heathrow Airport has proposed that landing charges be increased by 90% in 2022! Amsterdam Schiphol meanwhile has proposed a 40% increase. If anything like those increases goes through it will likely mean that less flights will operate to these facilities and therefore the downward race to the bottom has commenced with everyone in the chain losing. A case of accountants getting too much podium time again in an short term attempt to pacify shareholders?
Travel plays a massive part in both the global economy as well as in many individual ones. The sector has benefitted for many years with healthy profits and this applies to airlines, airports, airport operators and the rest. They all need to play a part in the recovery of the sector and not take a selfish short-term approach to proceedings.
Jamadvice Travel | BCD Bulgaria
The pressure starts
The whole subject of vaccinations is a contentious one, but slowly and surely the screw is being turned in a less than subtle manner to force all and sundry to get vaccinated. Airlines and indeed hotels were always going to be one of those vehicles that could convince people who wanted to travel to get jabbed. Thus, it’s no surprise that airlines are starting to announce that only vaccinated travellers will be able to fly with them.
Just two examples of that are Air New Zealand who say that from February 2022 they will operate a “no jab no fly” policy on its international network. Malaysian Airline, Air Asia also recently said that only vaccinated travellers on both its domestic and international network will be allowed to board.
This pattern will no doubt gain traction across the globe in due course although one does wonder if in Europe, one obstacle to such a rule may be the EU who potentially may suggest that this infringes civil liberties.
At the end of the day though, there are many ways to skin a cat.
Each to their own
The inconsistencies and indeed opaqueness surrounding the rules and regulations implemented by individual countries due to the pandemic, as well as inconsistent levels of vaccinations globally is proving to be the real barrier affecting people’s confidence to travel. At least that’s the word from UNWTO, the United Nations World Tourism body who no doubt wish to get their point across. The region with the largest fall off from tourism is Asia- Pacific with a 95% decline for the first half of 2021, followed by the Middle East with a 82% decline with Europe and Africa following in at 77%.
So, when will the pessimism turn to optimism? If we are to believe the UNWTO then around a half of its experts (!) see international tourism levels of 2019 being reached in 2024 or later, whilst slightly under half see a recovery by end 2023. However over 50% of the same experts anticipate that European levels seen in 2019 can be re-attained comfortably by 2023.
Whether these figures are optimistic, realistic or a finger in the sky to appease the travel sector, its open to you to formulate your own opinion and no doubt it will be every bit as logical as those voiced by the “experts”.
Bye bye Alitalia
The 14th October saw the final flight of Alitalia with new a national airline, ITA taking its place. Alitalia had been for sale since 2017 when it filed for bankruptcy, though how it kept operating until that date is a mystery as bail out had followed bailout for many years with funds going into a bottomless pit.
One part of the issue for Alitalia was the uptake of high-speed rail travel on its high-volume domestic routes such as between Milan and Rome where rail passengers increased from 1 million in 2008 to 3.6 million in 2018. Fighting a losing battle on the domestic front was also matched by a battering on international routes, given out by Low Cost Airlines such as EasyJet and Ryanair who had marched into Alitalia’s territory.
The new airline will start with a fleet of 52 aircraft with hopes to increase to 105 aircraft by 2025, although one can’t help but question the viability of this and ask if whether the new entity is simply following the old one down the same disastrous route. Confidence will not be enhanced when the new entity bravely announces that its “future development will focus on long-haul destinations to bridge the connectivity gap in the country”. Swiss tried the same game and failed.
Just for the record, the new operator will commence flights to Sofia in summer 2022.
A means to an end
In our editorial in this issue, we touch on the two different approaches to setting air fares that we saw this past summer. It is of course hardly a secret that the Low Cost Airlines of this world tempt you with low fares then gradually build on that with “add ons” that passengers are enticed with. Wizz Air have been highly successful in all facets of their operations over recent years and thus it probably comes as no surprise that 41% of all their revenue comes from these “add ons”.
The top and bottom of this is that the actual air fare the airline puts out as a starter is largely irrelevant and likely comes without too much scientific thought. If they can get bums on seats then there is always a way to make money from this.
Is Robocop next?
Munich based rent a car firm Sixt has announced plans to test new driverless “robotaxi” services in the city from 2022. The longer-term intention being that the service will become available across Germany and other European cities later this decade.
The project has been made possible by a change in German law which now permits autonomous driverless vehicles in normal traffic albeit in designated areas but with the requirement that the vehicle be overseen by a human! This is thus the first federal law worldwide that allows this to proceed.
Just what it means to be overseen by a human is subject to clarification.
The only way is up
“Never waste a good crisis” was an expression cited by Winston Churchill and Ryanair are certainly not missing their chance. They have upped their growth forecast to a target of 225 million passengers by 2025, a figure that is 25 million more than the previous forecast.
The figure Ryanair now tout is derived from the new opportunities the airline feel have been created due to older legacy carriers (traditional carriers) withdrawing operations in cost cutting exercises from many primary and secondary airports across Europe.
However, the verbally prominent airline did add a caveat to their bluster with the addition that the forecast was dependent on no adverse covid developments and a vaccination rate of around 90%+ across Europe.
Obviously, he hasn’t seen the Bulgarian figures yet.
Frankfurt Hahn bankruptcy
Closures and enforced bankruptcies have surrounded just about all travel sectors from airlines to hotels, from car hire firms to tour operators. What people probably didn’t think about was bankrupt airports.
Frankfurt Hahn Airport is probably not the first airport in the world to declare itself bankrupt, as it did on 20th October, but it certainly raised eyebrows as to just what happens next.
Ryanair and Wizz use/have used Frankfurt Hahn with its flights from Sofia and indeed the airport was a significant Ryanair base in the past before the airline started to move its operations to alternative airports. Frankfurt does have its main airport, Frankfurt Am Main, not too far away but the costs of operating flights out of Germany’s main hub airport will be far greater than they were at Frankfurt Hahn and costs are the bottom line for Low Cost Airlines. Not forgetting of course that the main player at the main Frankfurt Airport, Lufthansa, will hardly be offering welcome arms to potential rivals forced out of Hahn.
Porsche moving into beds
The Porsche Design Group – the luxury lifestyle brand owned by the car group – has partnered with Germany’s Deutsche Hospitality to launch a new hotel brand. Deutsche Hospitality is the parent of well known German hotel based chain, Steigenberger.
The pairing plans to open some 15 hotels in global cities including London, Singapore, Dubai and Shanghai, each with around 150 rooms and the usual trappings of an upmarket hotel.
Amsterdam Airport has launched a project that goes back to nature: sort of. 20 foraging pigs are being allowed on two hectares of land at the airport where sugar beet has been recently harvested. The idea or hope is that pig activity will scare away birds that have the potential to cause catastrophic accidents around airports. As an example, think back to the US Airlines plane that had to land on the Hudson River.
The activity of birds is a long-time issue at most major airports and other trails across the world have included the use of sirens and dogs to scare birds away from aircraft.
Ignore the experts
This article about planes that carry cargo is hardly the most interesting but one, but it does also create a laugh at its punch line (don’t read it yet).
Many planes today are able to carry a small amount of cargo as this is lucrative extra income for airlines which couldn’t be derived from passenger or passenger bags alone. Not so long ago, planes referred to as “Combi Planes” were specially designed modified aircraft that would carry considerably less passengers than usual for its aircraft type, but would also carry significant amounts of cargo in the modified hold. However, an article written by a Yale student and featured in a magazine in 1960 questioned whether this was an efficient process or not as the movement of cargo was dependent on the movement of people. The suggestion from the author being that cargo should be moved by dedicated aircraft.
The students professor gave the student a polite C for his efforts and noted it to be “infeasible”. Not to be deterred the student, a boy by the name of Fred Smith bided his time and then set up his own company using planes to move cargo. The company he founded was named “FedEx”.
Getting to grips with rail
Travelling by train around Europe should be as easy (in normal times) as it is by air; sadly, that has never been the case. The European Union, the bastion of “’people’s rights” has itself struggled to loosen the knot that individual countries and their proxy operators had kept a tight hold of, to the point that fiefdoms were (successfully) created and good luck to anyone who tried to break these monopolies. Indeed, why the EU could enforce its wishes on the aviation sector but not on rail was an interesting issue; if of course they actually wanted to change the status quo. If anyone doubts this opening gambit, they should try booking a multi sector rail journey using different operators and across different countries in what would be the ultimate test of endurance.
Having said all the above, it finally looks like things may be happening within the rail world which signifies the start of a new era; where competition is allowed and indeed allowed where, like in aviation, European rail operators can put their footprint across the region and is so doing stimulate this demand via direct competition and thus create new potential for the whole rail industry. France was always a big rail user and it can be argued that their TGV High Speed rail network was the template for others to follow. It can also be argued that like much of French industry, competition is frowned upon and hence its lack of openness and its geographical position whereby rail needed to run through the country to connect others, meant that connectivity not so much stagnated but was in effect stopped. So what’s changing?
Italian Operator Trentitalia applied in 2019 to operate trains between Paris and Milan but that request was successfully slowed down until recently, but finally, two trains daily will soon operate between the two cities. This will be in direct competition to the TGV’s that currently operate between the city pairing and the Trentalia trains will actually be faster. As a by product of this, SNCF has amazingly decided to upgrade its TGV offering on the part between Paris and Lyon, which is one of SNCF’s most important sections and which will now see both it and the new Trentitalia battling for a piece of the lucrative cake.
Spreading the train word also comes with the combination of European Rail Operators NS (Holland), DB (Germany), OEBB (Austria) and SBB (Switzerland) who will enable the Austrain OEBBs new Nightjet train to operate between Amsterdam and Zurich with stops en route at Duisburg, Dusseldorf, Cologne, Bonn and Basel. It doesn’t end there either, Nightjet trains will also commence between Paris and Vienna (which was part of the Orient Express Route). They will also stop in Strasbourg, Karlsruhe, Munich and Salzburg; the operation on this route being a joint one between OEBB and SNCF.
Aside of the realisation that you can’t monopolise forever and being a part of a new era is better than being left on the side, one wonders if the argument to go Green in the world of travel has finally started the light flashing at railway operators across Europe, a huge potential market exists for rail travel that only needs an infrastructure to satisfy it.
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