The race to the bottom
“Never let a good crisis go to waste’ has been a quote cited by us on several occasions over the past months but without over playing it, the expression has never been as true as it is now across many aspects on the world stage and that particularly applies to the travel and hospitality sector.
In a pure simplistic form, a good crisis provides the perfect opportunity to reduce costs which often starts at reducing head count. Reducing head count and thus in theory reducing cost theoretically drives or maintains a profit for the shareholders; keeping both the Chief Accountant or CFO happy as well as the shareholders. What also happens, regardless of the sector within the travel and hospitality sector you are involved in, is it also has the habit of driving down standards, service levels and satisfaction amongst clients. The satisfaction of your clients is merely something that companies pay lip service towards and is followed invariably with “your comments are highly appreciated and we are sorry that……etc etc” before being quickly ignored.
Without realising it and despite our kicking and screaming that we would never do so, we now pay for: our suitcase to travel on the same plane as ourselves; to pay to sit next to our wife/husband/child when the finely tuned airline software system defaults to enforced seat separation at the time of booking; the pleasure of buying a cup of rancid tea or coffee for the three hour journey: but whatever we said we would never do, we now do just that. The system won, the voice of the travelling public lost; we are at the point now where we almost expect service with a grimace when travelling and we should be lucky that these underpaid and over worked staff belonging to or working on behalf of airlines, are there at all to offer that grimace. All in the interest of “our safety of course”. The journey to the bottom is where we are at and there is no sign of that stopping. In the meantime, airlines generally like to boast about their superior quality compared with their rivals and indeed, its more than likely airlines across the board would prefer to compete on quality, but every time an airline tries to do so it runs into a barrier: cost. Passengers nowadays are price conscious and not quality conscious, they don’t care if they don’t get a meal but they do care that they think they have the lowest fare, that they have a convenient timetable or schedule and even a good frequent flyer offering; anything else is viewed as being of negligible benefit.
The hotel industry, initially slow to see the same trick, seem equally to be desperate to get in on the act and reduce their own costs using the pandemic as camouflage. AI (that’s artificial intelligence apparently) is now greeting us at receptions, we may well be expected to check in before arrival and get a key to enter our rooms via mobile applications, we are asked if we want our room cleaning at all and if we want to have clean towels. Food and beverage is often served either remotely or from behind Perspex screens: is this really hospitality? What is missing from all this process provides an obvious answer: it’s people.
Perhaps as a surprise to many, especially the CFO, people value human interaction, that’s why they travel for business purposes and for pleasure. The world has a habit of turning full circle and whilst it is unfair to assume that every five-star hotel will reduce its standards to fit the aforementioned scenario, it’s clear that many hotels down the pecking order are doing just that. It wasn’t so very long ago that butter was an evil to the human diet, then it was discovered that it actually benefits the human body in a positive way. The world constantly changes and evolves and it may not be long before those supplying travel and hospitality services find the human mind set has also changed and cost is not the be all and end all but service is. The question is then will they have the skill sets to provide it.
Jamadvice Travel | BCD Bulgaria
An opportunity Wizzing along
Amid all the doom and gloom that the media like to associate with the travel industry, not all participants in the sphere of travel are quite so pessimistic and just as where a threat exists; so too does an opportunity. Wizz Air are well known locally and are fast expanding into a major player across Europe; this expansion is now gaining serious traction. The airline has just announced it has placed a new order for 102 new A321 aircraft which takes its total order book to 429 planes.
What is interesting is not that “more planes are being ordered’’ but rather the type of planes that are being obtained. The A321 are the largest in the family of 320’s and typically carry around 230 passengers. Of the 102 planes, 27 will have an extended range which effectively makes them more akin to a Long-Haul aircraft than a short haul one. This therefore opens up some interesting scenarios for Wizz.
The airline has recently opened a base in Abu Dhabi and is in the middle of obtaining operating rights to fly between the Emirate and India; a massively lucrative market and the fastest growing in the world. It is estimated that Indian airlines alone would not have the total capacity to satisfy the demand for seats by 2030, that therefore opens a huge potential market. Further, the range of the new aircraft would enable flights from Abu Dhabi to China, Japan and Korea: an interesting future option.
Wizz are well on the way to being a 500 aircraft group, a feat that if achieved would have been accomplished in a very short, even bewilderingly short, timeframe.
The media channels were recently ablaze with what was being said at the Glasgow conference on climate change. Everything from stopping the use of plastic, to reducing meat eating, to making sure travellers felt guilty when taking an aircraft made the news print. No doubt then the activists will be having sleepless nights as plane manufacturer Airbus announced it calculates that some 39,000 new airplanes will be required in the next two decades. Of these, 15,000 will be replacements but this still means some 24,000 extra machines will be needed to satisfy demand (unless demand can be forcibly stopped!).
The growth in air travel is estimated to rise by 3.9% annually with a growing middle class being responsible for much of this growth. Certain regions such as Asia and Africa are seeing their middle class grow significantly. Europe will also see a huge increase in demand with Russia, the CIS and Ukraine needing 1540 new aircraft by 2040.
Its the smaller end of the scale that will see most of that new demand with an estimated 29,700 small aircraft ( A320/B737 etc) with around 5300 mid-sized mid-haul aircraft needed together with 4000 larger long haul type aircraft. Interestingly, a surge in air cargo recently has seen demand for dedicated air cargo planes increase and the forecast is that another 2400 of these will also be needed of which 880 will be extra machines
Not a good time to be arguing to stop/restrict people from travelling is it!
What’s in a Euro
Adding the word “’Euro” to something seems to be “de rigueur” for airlines, first we had Lufthansa’s Eurowings and now BA has announced it is naming its new Low (er) cost subsidiary operating out of London Gatwick as “Euroflyer”.
One wonders if in marketing sphere’s, the travelling public will know who is who and which airline is which at the end of the day. In reality though, the actual branding of such operations remains close to the master brands i.e. Lufthansa and BA, with the new entity’s simply deployed to reduce operational costs by their new staff working under new and hence less rewarding contracts.
On the bounce
Anyone who has been lucky enough to travel recently will surely have noted that planes and hotels seem just as busy as they were pre – pandemic. Hotels in particular have had the opportunity in many cases to attract domestic visitors rather than rely on visitors from overseas. Aviation is still being restricted somewhat by reduced capacity from airlines but what capacity is out there is being filled. This is great news for the airlines as increased demand with reduced supply means higher fares which in turn means higher revenues. This would then lead – in theory at least – to making profits. This would appear to be the case at the Lufthansa Group.
The Lufthansa Group, which includes Lufthansa, Austrian, Swiss, Brussels Airlines and Eurowings has made an operating profit for the third quarter 2021, its first profit since the pandemic started. Amongst its group, seat capacity is now at 50% of pre pandemic levels which is twice as high as the previous quarter. The extended forecast is that by the end of 2022, capacity will be around 70% of what they were in 2019. With this, the group made a modest profit of 17m Euro compared with a 1.3 billion loss the previous year!
Whilst it is true that the performance of any airline or travel business anywhere in the world can be cited, the relevance of this particular example is that this probably reflects how Europe is shaping up and what the true sentiment to travel is in our region and that’s a positive one.
Get more cash ready on long haul
Lufthansa is about to try set a precedent amongst the traditional airlines in this region by starting to charge economy passengers for snacks and drinks on Long Haul flights. Passengers travelling in economy will still receive a main meal with drinks free of charge, but any additional snacks or drinks will have to be purchased. Not surprisingly the spin around the move suggests “passengers wishes in-between meals are very individual(!). Indeed, they are, but what has that to do with charging for a pack of nuts on a twelve hour flight?
This move would, on the face of it, smells of an accountants input where a calculator has been pressed into service. No doubt the thought process is: multiply the number of long-haul flights x the numbers of passengers in economy class x a random Euro currency figure (based on the numbers of drinks and packets of nuts et al served on the average flight) and hey presto, extra income is generated to keep shareholders happy and bonuses intact. Except that is, most people with some degree of sense ask why would you choose Lufthansa for a long haul flight when all of its rivals offer these for free? Of course, the retort will be that ‘lead-in’ fares will be lower to attract the passengers in the same manner that Low Cost Airlines operate, but anyone hoping fares will lowered as a result may be a tad overly optimistic.
No doubt the people responsible for such a questionable decision will find another job when the concept bombs. Hopefully.
Croatian Airline ETF Airways plans to sue Bremen Airport for damages after its Boeing 737 plane was put out of service due to a – wait for it – rabbit strike! A rabbit was sucked into its engine on the runway during take off which rendered the plane useless for 12 days whilst it was repaired.
The CEO of the airline, which operates most of its flights out of Kosovo, spent five hours walking around the perimeter of the airport photographing holes where the rabbit could have entered. He also put out a PR release saying (quote): “apparently the airport think they are not liable but will be surprised when they enter court and see what we have in store for them. They also tried intimidation but they don’t understand that you can’t scare a team of people who spent the better part of their childhoods in a bomb shelter!”
The claim is for 1m Euro in damages to cover aircraft repairs (500,000 Eu), leasing of replacement aircraft (400,000 Eu) and miscellaneous expenses for crew accommodation and overtime working (100,000 Eu).
Finally on the subject, the airline managed to continue operations without cancelling any other flights by leasing a 32 year old MD 82 plane together with a 26 year old Surinam Airways Boeing 767.
One assumes the passengers were unaware of the latter fact.
Flexibility is key
One of the characteristics of the ongoing pandemic has been the ability of airlines to change the habits of a lifetime when it comes to scheduling. Usually, the travel season from an aviation perspective was split into two seasons: winter and summer i.e. winter being from the last Sunday in October to the last Saturday in March and summer being from the last summer in March to the last Saturday in October. These were set in stone and airline timetables, adverse weather excepted, didn’t alter. As Low Cost Airlines appeared on the scene, they tended to upset the apple cart slightly by increasing frequencies for peak periods in summer and winter but there was still a feel of winter/summer. Now though the landscape has changed.
Airlines of any type, traditional and Low Cost, will bin a flight frequency or even a route with just a few week’s notice – if that long – if they feel they will lose money on it. BA for example have decided that they will only operate flights between the UK and Sofia at weekends to try capture the ski market during the winter scheduling season, even then, when the schedule kicked in at the end of October, they dropped several flights during November and early December as they feared there would be a low demand for seats. Wizz Air announced in early November that it will suspend flights to some 27 destinations in the Western Balkans for the same reason; again, at the drop of a hat.
What this all means is that whenever travel plans are being made, travellers have to be mindful that nothing these days is set in stone and flexibility as well as patience and understanding are the order of the day. Plus, its wise never to book anything that’s non-refundable and that includes hotels and car hire as well as seats on planes.
It’s getting pricey
Logic is always a dangerous thing to engage and any notion that things will be “cheap” in the travel sector during the current pandemic would be a foolish approach. As we have discussed in previous editions, many business owners in travel seem to have the mindset that they need to recoup lost revenue as quickly as possible and of course they easiest way to do this is simply to whack their prices up.
It has not gone unnoticed already how more expensive airfares are than they were one and two years ago. Hotels, often despite having low occupancies, seem reluctant to encourage activity by reducing rates to incentivise a hotel visit and prefer to hold on to pre-set room rates, though this could partly be justified by the extra costs incurred in ensuring its facilities and cleaned and sanitised regularly.
Car Hire rates have gone through the roof in many cases, a move that seems illogical as its difficult to understand why they should unless it’s because there are less hires per month as travel struggles to re-establish itself which means when they are hired, they need to get in the same income from less rentals. The other explanation given in the car hire sector is that there is a shortage of hire cars due to supply chain issues and hence demand outstrips supply; surprisingly! This latter argument can also be supported by the fact that companies in countries where domestic travel is high, now prefer their staff to travel domestically by car rather than by plane or train where the risk of contracting Covid is higher.
There is likely nothing in recent memory that has changed the way people think and act in City and Town dwelling environments than what Covid has. As once teaming office blocks closed down and mask wearing became the norm and not something one did whilst attending a fancy dress party dressed as a cowboy, a new way of existence has developed. This transformation that now finds itself stretching across the globe, may well be something that remains with us until eternity. Back in the early 1900’s when Spanish flu was wreaking havoc, some 14% of the world’s population lived in cities, today that figure is 57%. As a result, towns and cities have been in the firing line in terms of vigilance and the roles they are being tasked with in coping with the ongoing pandemic. However, which cities are regarded as being the safest?
The well respected Economist Intelligence Unit recently ranked 60 cities based on an index taking into account 76 safety factors across infrastructure, digital life, personal security, environmental factors and of course health and covid readiness including mortality rates. Based on these factors the top five were: –
So, all good then and digital nomads et al will know just where to head next. The only thing that might dissuade then is that many of these cities also just happen to find themselves at the top end of the most expensive cities to live in the world category!
One year on
Where there is a political will there is always a “way”, but far too often politicians play their own game and to hell with the free market and obliging what the masses want. Not so very long ago the mere suggestion that flights would operate between Dubai and Israel was as remote as seeing a penguin shopping in a supermarket. Indeed, religious interests would suggest a harsh custodial sentence for acknowledging the notion. Just one year ago, to many people’s surprise, flights started between Dubai and Tel Aviv operated by Emirates Airlines sister operation, Fly Dubai (who also fly to Sofia). Big brother Emirates will itself start flying the route in December which will bring the average daily number of flights to 10 per day!
The passengers travelling between the two tend to be originating in Israel and are taking advantage of the leisure options in Dubai. Indeed, as a destination, Dubai is now the number one in terms of frequency for flights departing in Tel Aviv.
Clearly there was huge pent up demand to visit Dubai and one that is proving amazingly successful. Clearly commercial logic outweighs political obstinance.
Another season approaches
The winter ski season in Bulgaria will soon be opening and the forthcoming season in many ways resembles last year at this time when no-one was quite sure what would happen in the weeks ahead. Charter flights had disappeared and a large marketing focus was made on the domestic market and neighbouring countries as potential sources for tourism.
For this winter, its almost a cut and paste scenario with package tours likely to be a token offering from historical source markets like the UK and Germany. Anyone thinking about taking a ski holiday is likely to be waiting until much closer the time to see how the situation is before committing themselves. That means there will be a dependency on flights using traditional airlines like BA or Lufthansa as well as the Low Cost Airlines like Wizz and Ryanair. The problem with airlines these days though is they are not adverse to simply binning flights if they feel the risk of losing money is too great. The other side of the coin is that airlines may also be inclined to change their own business model to try make a buck. BA for example are running their entire winter schedule of 3 flights a week to Sofia based around weekends to try attract people travelling for ski holidays. They would simply have turned their noses up not so long ago at the mere thought.
So, will the domestic and regional business turn up again this year as it did to some extent last year? No-one really has any real clue as the belief last year was that it was a one off so they could live with it. Last year was a tough one and this year may not be any easier.