Travel industry blossoms in gale of recession

The travel industry seems immune to oil price hikes, general economic gloom, recessionary fears and consumer caution.
There are 1.1m package holidays on the market place this summer and the expectation in the industry is that all of them will be sold.  Ten different European cities will get more than 100,000 Irish citybreak customers this year.


That's the good travel industry news. The bad news is, this is the latest booking season for holidays there has ever been. Irish travellers are delaying until the last moment to book holidays, availing of the panic-driven discounts by the airlines and the holiday companies.

Airlines were bullish about the advantages of moving distribution to the internet, because it enabled them to cut out the 10 per cent that they were forced to pay to travel agents in the bad old days.

At first the internet sales model worked entirely to the airline's advantage. Customers had to book early to get the best prices. The airlines got their money earlier than they had ever done before, the entire fare as well, and had more control over load factors. Then load factors began to drop spectacularly as they added too much capacity and low cost airlines were forced to discount later in the booking cycle. They began staging more seat sales and late discounts to fill their planes. Legacy airlines were drawn, against their will, into the cycle of low cost seat sales.

This works to the public's advantage until airlines panic, start grounding airplanes and pulling routes. Fuel price hikes give them the “cover” for this. Aer Lingus has dropped its service to Los Angeles. All the major airlines are talking about standing down large numbers of planes in the quiet winter months. 
Every time a double daily flight from Heathrow becomes a single daily, that reduces the number of seats that the Irish customer has available to fly to the distant African, Caribbean and Asian destinations, which the Irish have been visiting in increasing numbers.

Next year's charter options too are unlikely to be as exciting as they have been in recent years in each of which a few holiday companies started new services in search of the next big thing.

There will be no major new destinations, and recent innovations such as Sunway's service to the Azores are unlikely to be back in the brochures next year. To add to the pressures on the market place, there are huge changes in the ownership patterns of holiday companies. Budget used to be owned by the German giant TUI, but the company was forced to sell off one company in Ireland by the Competition Authority when it acquired Falcon holidays to avoid ending up with 50 per cent of the entire package holiday market.

Budget Travel was sold off, to Icelandic company Primera meaning the company no longer has access to TUI owned resorts in newer markets such as Bulgaria and Egypt. Also, Panorama and Sunworld ended up under the same international group, as a result of which Ireland's third largest tour operator was effectively subject of a reverse takeover by a smaller operation.

At first glance this should not make much difference. Most travellers scarcely notice which tour operator they book with unless they have a chain of retail shops, as Budget does. But it means the choices for the Irish holiday maker are still controlled by a small number of people.

If an entire country disappears off the holiday brochures, as happened with Cyprus for winter 2008-9, there is nothing the public can do about it. For your average two by two holiday in an apartment this is an inconvenience. If you own a holiday home in Cyprus or elsewhere abroad, which many Irish people do, it is a catastrophe.

The last fortnight in August is looking particularly soft. Transatlantic fares remain resolutely low. Cheap autumn breaks in NY now look very attractive.
Michael O'Leary of Ryanair has described coming airline events as the perfect storm, which will drive some of his main competitors out of business and make Ryanair stronger. That perfect storm will be an ill gale for the consumer, who needs lots of competing airlines and holiday companies to keep prices down.