The Impact of the Recession on the Travel Industry

The Impact of the Recession on the Travel Industry

As stated in the Deloitte Executive Report of Winter/Spring 2009, 2008 saw a significant slowdown in revenue per available room (revPAR) in most world regions, particularly in the final quarter. North America ended the year with a 1.6% decline, while Asia Pacific and Europe saw growth of less than 2%, in US dollars.

Average global revPAR has suffered further during 2009 and a recovery is not expected until 2010. In the UK, Deloitte's Hotel Market Outlook has forecasted the regional UK to begin recovery during the first quarter of 2010, whereas London is not expected to see a recovery until the second half of the year. The hotel market is still struggling to overcome the downturn and we are therefore likely to see operators continue to offer special deals and two-for-one packages over the Christmas period and into the New Year to entice consumers into taking that winter break.

The 2009 World #Travel Market Global Trends report, has also forecasted 2010 to see the emergence of new, 'pop-up' hotels. The report states that 'with the housing market down and foreclosures way up, new pop-up hotels create an opportunity for travel accommodation providers to offer affordable, quality yet unique hotel experiences. These temporary hotels are pre-built units, incorporated into a steel frame which can be easily demolished, where construction time is reduced by almost 50% compared to traditional methods. Temporary hotels are expected to change the face of UK travel by attracting a larger consumer base with their affordable pricing and sustainable living.'

The damage caused by the recession to the airline industry has been equally, if not more severe. As the Deloitte Executive Report states: 'The credit crunch, wildly fluctuating fuel prices and exchange rates, together with the deepening global economic downturn are combining to turn a difficult market into one of extreme turbulence.' Between January and September 2008 30 carriers failed globally, including Silverjet, Zoom Airlines and XL Airways in the UK market. Mergers and acquisitions within the industry are now becoming increasingly likely as operators take strides to significantly reduce their expenses and increase buying power.

Numerous airlines, including some high profile 'flag carriers,' that are now in a precarious position are looking to larger competitors to take them over. This can be seen with speculation surrounding Alitalia, Olympic Airlines and SAS Scandinavian Airlines, the proposed merger of BA with lberia Airlines, the continued attempts of Ryanair to acquire Aer Lingus, and Lufthansa's acquisition of bmi and its purchase of significant stakes in Brussels Airlines and Austrian Airlines.

Despite the economic gloom, summer holidays are a luxury that the British consumer is simply not willing to sacrifice. Passenger numbers for Ryanair and easyJet have continued to increase and load factors have remained above 80% despite the fact that Ryanair's 3rd quarter results for 2008 showed a loss of EUR102 million, a swing of EUR147 million compared to 2007, and easyJet's 2008 year-end results were down 45% to £110 million (figures from Deloitte's Executive Report). Customer demand is therefore clearly still strong but, during these difficult economic times both leisure and business passengers are seeking clear value. Given the strong cash positions of both Ryanair and easyJet, there is evidently plenty of life in the low cost model to see this recession through.

The hardest hit have been the 'flag carriers' who have suffered hugely due to the slump in premium and business travel, coupled with the sharp rise in fuel prices. British Airways Plc in November posted a larger than expected first-half loss and predicted revenue would slump by one billion pounds by the end of 2009. Germany's Deutsche Lufthansa AG in October provided a gloomy outlook for the airline industry and reported that its third quarter operating profit fell 21 percent. Air France-KLM posted a current operating loss of 543 million euros for the six months ended in September, compared with a current operating profit of 592 million euros for the same period a year earlier. First-half revenues for the company declined 19.9 percent to 10.775 billion euros (all figures taken from Reuters.com).

Nonetheless, in a statement to Reuters Chief Executive Pierre-Henri Gourgeon said that the group's performance improved in the second quarter compared with the "deep losses" it experienced in the first quarter, which he attributes to the positive impact that cost cutting measures are having. Regardless, as the Deloitte report summarises, 'the next six to twelve months are likely to see further significant changes, losses and failures within the industry. Winter is traditionally the period when airlines, in the Northern hemisphere at least, burn cash rather than fuel. Those that are already in financial difficulties may struggle to survive a winter that promises to be longer than usual.'

Those who are taking a break this winter should take advantage both new and old foreign exchange comparison sites, such as The Currency Exchange Site and Moneysupermarket.com. With consumers continuing to focus on getting value for money while ensuring that the summer holidays are not lost, these sites allow a valuable opportunity to ensure you don't stumble at the final hurdle. The sites compare cash, travelers cheques and travel from multiple online providers. Buying you travel money online is likely to save you pounds anyway, and using a comparison site will help you stretch your budget that bit further. So, wherever you decide to go, now or once we start to see light at the end of the recession, there are many opportunities online to help you save money.

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Sholto Thompson is the author of 'The Impact of the Recession on the Travel Industry' and this article is the second in The Currency Exchange Site's series of topical articles analysing the state of the Travel and Tourism Industry. Read the original article at http://www.exchange-currency.com/index.php/news/travel-industry-and-recession.html
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