Cuts of 25% – Will this flow through to travel?Back to Forum
Anonymous23 Jun 2010
With the Budget yesterday, is there a greater financial implication ahead for Business travellers?
Government Department cuts are set for around 25%, & this will flow through all Business in the chain of supplies or services. Air & hotel costs are being severely cut back already in Central & local Government.
What potential does this have to affect your Travel?
This has a huge potential to affect the business of Airlines & Hotel groups, for anyone based or employed in the UK, perhaps more than the other elements in the Budget.
What are the BT’s members views on the consequences?23 Jun 2010
It does depend on what your business is and the market you sell to or serve. It will have some effect on all forms of travel not just air and hotels.
My view is that it is not going to be doom and gloom, there will have to be belt tightening and reviews as there always are. It is up to the private sector to innovative to grow the economy. Remember we didn’t have a bloted public sector ten years ago.23 Jun 2010
I agree NTarrant.
People are all to easily being tempted by the media to paint these as doom and gloom “end of the world” style cuts.
But it should be remembered that government expenditure is predicted simply to return to (inflation adjusted) levels last seen in 1995; at that stage business was healthy, as was business travel.
Rather than seen to be reducing business travel to almost non-existent levels as some doom mongers predict, it will simply return to the long term average.
And the reduced value of the pound to US markets should make tourism and trade more attractive to the large part of the world pegged to the dollar.
In fact, as the bloated, inefficient and non-value producing public sector contracts I would expect a greater expansion in the value creating private sector. This also with an emphasis on value creating smaller businesses and manufacturing. All of these private sector industries will have to get out on the road and sell their products, both domestically and internationally, and I would expect that would generate more travel from (and to) the UK.
While there has been a general contraction in Premium Travel, that is not the same as a contraction in business travel; in my personal experience it is simply the case that more of these business trips are being made in the back of the bus (although I have flown every week for business in the past few months, all in premium cabins, and my colleagues and I are making considerable use of the LCY-JFK service, the new “Concorde”).
My experience is that although loads were modest during January and February, there has been a marked pick up in loads in the past three months and CE cabins are often 10-12 rows back on my regular European routes, WT+ is always packed to the gills and Club World maybe has one or two spare seats but rarely more.
So it is fair to say there is some pain to come in the short term, but the medium and longer term outlook is positive.
A guiltily 1970s Prawn Cocktail (don’t tell the neighbours!) followed by poached salmon.23 Jun 2010
In the hotel industry, May 2010 UK figures showed solid improvements across the board on a year-on-year basis.
Consultancy PKR reports an 8.9% strengthening in rate per occupied room, a 3.3% rise in occupancy and a 12.4% rise in yield per available room in the capital. Nationally, the picture is also positive:
May is, of course, a month that benefits/suffers from two Bank Holidays, which traditionally depress business travel and room rates. This particular May also saw the UK General Election, which depresses public sector activity. The market is being driven by a weak Dollar and Euro, by renewed rock-face confidence amongst businesses, and by the change in political regime which no longer rewards the suggestions by business that times are hard with handouts from Lord Mandelson’s department.
Indeed, the overall effect of public sector spending reviews, most of which will not in practice impact on prevailing spending to anything like the extent suggested by some of the wild percentages being bandied about in certain sections of the media, is likely to be at best marginal on the UK travel industry. Although it’s true that there is a significant bed-night business from the public sector, it’s not business that hoteliers particularly seek as on-sales are usually weak (sometimes even weaker than leisure customers). It’s the private sector that drives F&B and other ancilliary takings and, as the private sector breathes again, it’s likely that the industry will reduce its exposure to the public sector yet further.
And where some headline policy changes are executed, it’s likely that the impact will be somewhat perverse; the embargo on First Class rail travel being a prime example. Any reduction in revenue (if any actually occurs in practice), as long as the Train Operating Company is subsidised by the DfT, will simply result in the DfT having to increase the level of subsidy to compensate.
Meanwhile, the actual costs of travel could actually rise as under-capacity Standard Class accommodation, which is subject to the industry-wide dynamic pricing model, ends up with higher fares than under-occupied First Class. That there is currently an imbalance between the provision of the two classes of travel on many services is set to be made worse by the new administration’s DfT moratorium on the purchase of 1300 additional carriages for the network as a whole.
And as pressure on Standard Class accommodation inexorably rises, with demand outstripping supply, so will the cost of travelling by train for the majority of working taxpayers.
Meanwhile, politically expedient decisions to delete R3 at Heathrow; to pursue a limited point-to-point High Speed Rail proposal (with or without reference to Heathrow) and in so-doing attempt to deflect attention from the dire need (and infinitely cheaper opportunity) to upgrade the existing, comprehensive, network; and APD proposals which would favour offshore carriers and reduce customer interline protections are the real issues that will potentially compromise the country’s long-term growth prospects and our ability to service and reduce the debt that we face.
On the whole, then, I tend towards the opinion that tactical budgetary announcements, and the attendant tabloid and partisan press headlines of yesterday’s kind, are probably about as relevant as the England score.
Grilled chicken and sliced grape artisan roll with tarragon dressing and a pot of Earl Grey.23 Jun 2010
The short answer is yes it will, If people do not feel that they can afford to spend money then the private sector will not be able to sell its goods and services to those now unemployed members of what VK describes as ………. the bloated, inefficient and non-value producing public sector…….. Health and education are part of this and I can assure you from personal experience, that education is not escaping these cuts. Oreover I do not consider that health and eductaion could ever be described as no value producing.
Windsor and Maidenhead council recently cut council tax by 3% hoooray. The did so by making 100 people plus redundant. Now try getting through to anyone, try getting something done. Cuts in costs mean cuts in staff….. as the advert for insurance says….”simples”. Cut to many staff you get national unemployment at 4 million again. No one can buy because no one is earning. Welfare will soar not because of the feckless, but because of government ideology.
The public sector had to grow to keep the economy moving through capital works and investment. All of which is now being turned off like a tap.
What was announced yesterday was the tip of the ice berg. The real hurt is to come when the middle class see their salaries frozen, child allowance frozen and the loss of all tax credits by 2012 and rising interest rates. There will be other tax hikes and people will have to tighten their belts. Spending will slow, if not stagnate, and then where will the private sector be. Who will be buying wide screen TVs, new homes, cars, washing machines or even air travel. If no one is buying, who will be traveling to sell it.
There is no doubt that our economy is in difficulty and that debt must be repaid. But I am far from convinced that the 23 millionaires around the cabinet table, none of whom will be impacted by these measures, have got this right. Time will tell, but my fear is for those who can only dream of flying never mind doing so in Club and First. No one should be out of job because of the greed of a few bankers and the ideology of one party. People must have hope and opportunity and not shunted into serving an elite few with their favourite poo.
We are all the poorer in such a world and not simply financially.23 Jun 2010
A sound and sensible posting.
Whilst the public sector does indeed offer scope for cutting out waste, it should not be treated as a homogeneous unit to be constantly singled out for criticism. Also, let us not forget that it wasn’t the public sector that got us into the current global economic mess.
What will be extremely interesting in the UK over the next couple of years is when the cuts filter down to service delivery. I guarantee that once voters become critical of the poor quality of residual local services, Central Government (whoever is in power) will conveniently forget about the reductions in funding and accuse the public sector of being incapable of keeping its house in order. This is what has always happened (under all colours of Government).
Would you take the risks that policemen face everyday? Would you be a fireman or paramedic who attends a fatal road, rail or air accident and has to literally scrape up body parts (I’ve been there and seen it when I was in the public sector and had an Emergency Planning responsibility)? Would you be a nurse who has to tend to a terminally ill patient in their last moments of life?
The public sector, for all its faults, is generally under-resourced and undertakes functions that all of us rely on. It should not be treated as a single “bloated” or “no value producing” unit. Or as a derogatory term, which it seems to be becoming.
It also doesn’t pay huge bonuses to inefficient and bloated Chairs, Board members or Chief Executives who have led the organisation to ruin, such as dear Sir Freddie of RBS fame.
Regards, Simon23 Jun 2010
Thanks for yr comments guys, very interesting perspectives.
I have a business in Sydney as well as here. Australia being so remote, Video Conferencing is taking the place of much travel. The Aussie economy is robust, with the mining & agriculture based business keeping them high, especially as they are linked into China’s demand. The AU $ is exceptionally high, at a 60 yr high against the £ at the moment.
The £ as we all know, has fallen by almost 40% against many currencies, not long ago it was US $2- £1. Even weak currencies like the Thai Baht, ZA Rand, & others such as the AED & SIN$, values have slipped dramatically. Try buying flights form other gateways in local currencies now, it simply is no saving but more expensive, unlike 2 yrs ago. But the £ is starting to rise with the now considered secure coalition in power, & starting to deal with the economic problems.
The associated business links directly or indirectly, to Government, local of national, not just the obvious Consultancies that have now been frozen, but all those business linked in, including the Governments budget for travel for all Departments. It will be good to see some of these self interested qango’s being disbanded, such as the office of Euro preparation that has gone, the Government Wine committee etc. The NHS needs the entire tier of Supermarket Managers with no training in any aspect of health, removed. They are not needed & a huge waste of money
The Impact is set to be huge in the Public sector. None of us on here can say we are not affected by this as we all use local Government services, health, rely on the Police & justice systems, & many other departments that we may not be aware of but run in the background of our daily lives.
Police Forces are set to lose 25% of their budgets. Magistrates Courts are going to close, 50 County Courts could be abolished, & 16,000 Police officers. That is just in the one sector. (I heard from a colleague that the Chief Constable in his area was told this in Downing Street yesterday.)
Private healthcare is losing a huge amount of business, Policies from Companies are being cancelled, individuals are deciding they cant afford to pay…The Priory’s are empty!!!
They access finance to purchase the buildings, shareholders to pay, supplies & services…etc
( I was an Operational Director with the X Chairman of The Priory group in another Company in his earlier days).
Ordinary people especially with the 20% VAT, will feel the pinch, over publicised or not, & i think it will restrict more leisure travel. Companies are going to feel the effects of this, & people are going to lose their jobs in small & large Business. All of these sectors in one way or another will be linked, even if it is remotely, to our own roles. I agree, Generally people will spend less.
Some Companies may well leave or scale down the UK..it really is not important where the people are with IT advances & they will choose the most cost effective options. Look at the move of the call centres in the last 5 years to India?
China & India grows, all Airlines are trying to tap into these markets. Asia has the Populations to fill planes…& the Middle East Airlines like Emirates, aim to steal European Airline Business. They have the investment & the low cost base, which Europe cannot compete with- (Look at Emirates).
When there is such huge growth in other regions outside of the EU, when the Euro is on the demise, as is the EU economy, & the UK in a really awful position. GFC apart, the last Government have wasted much of our resource & reserves, where as other countries such as France, germany, Australia did not.
Logically, regardless of “scare mongering”, that this will not be felt, in every one of our areas of work. Certainly the cuts we shall see in our everyday services, but all those suppliers & services linked to them, will be Noticeable. The trail will be never ending in the links…
The Nation seems to agree, we need (as would a household), have to restrict & manage on a tighter budget, as will employers & our roles at work. Reductions of 25% will have a huge impact on every sector in the UK, & it already has, & will, in pension funds, which we all have don’t we?
Australian Superannuation funds have grown & set to grow by over 14% in return this year by comparison! Interest rates for savings are 7-8% today. Big difference to the UK.
I feel this will affect travel. Already capacity has been reduced by many Airlines. I read in the International herald en route back from Amsterdam on Monday, that capacity has been cut in the US by 8% on domestic flights, fares have risen. The article stated we have to get used to paying more for less when we travel. That’s why on the aircraft we travel on, perhaps they are full in certain classes & on certain routes, as there are less flights. PE is being considered by Airlines who did not want or feel the need for it, whilst First Class is becoming obsolete.
Hotels – well i have never seen sales like Hilton, Accor, Starwood to the extent that we see at the moment.
Change is here, has been around for a good 2 yrs, & I don’t see that the UK economy will be able to sustain or maintain its current need for Travel, leisure or business.
Perhaps, his time next year, we shall have seen a dramatic impact in the UK, & on travel in every aspect & all the companies supplying & servicing the travel related.
Sadly, the base figures of the Governmental cuts in these departments will touch every one in Business, in one way or another.
Grab your Mileage accounts, & spend them whilst you can. In the current climate of higher fares for less, they have increased in value for sure.23 Jun 2010
So then Mark, does this mean that you will sell up here in the UK and consentrate on your Australian business? Judging by what you are saying is that it is all doom and gloom, so rather than moan about it, get out whilst you can.
We have not had 4 million unemployed in the UK before Binman. Having been involved in local politics and our local council, I remember Compreshensive Performance Assessment set up by Labour, tens, no hundreds of thousands of pounds wasted for what? That is the sort of thing that bloats the public sector and needs to be removed.
I was in travel when there was 3 million unemployed, travel was much more expensive then than it is now, beleive me we still had year on year growth and the company opened new branches.24 Jun 2010
NTarrant….you state…””We have not had 4 million unemployed.” I beg to differ. It is generally accepted that the official headline rate was fiddled by the Tory government at the time to massage the figures. People were put on disability benefit or in some cases simply not counted as unemployed. You had, for example, to be claiming unemployment benefit, so anyone moved to any other benefit did not show up in the headline figures which were officially at 3.5 million. In the words of someone a great deal wiser than I “Those who cannot remember the past, are condemned to repeat it,”
Travel is cheaper today because of mass travel, the advent of Ryan air and Easy Jet and the fact that even those on modest incomes have been able to afford to travel. If you now cut their income, make them unemployed and also raise their taxes; those businesses which depend on them and which operate on the margins of profitability, will fail. This will lead to higher unemployment and probably less choice and higher fares for everyone else. I simply cannot see how the country can benefit from the manner in which the deficit is being cut.24 Jun 2010
Levelled points Simon…
I can tell you as a Senior leader in my Profession, in touch with other leaders in the Professions, that every profession is going to be affected here. If the 25% + cuts go ahead, this will reach into every business in this country. Ordinary people will not buy.
In terms of Travel & Hotels, there are many low paid workers who run the behind the scenes services that enable yr trip.They clean the rooms, prepare the airline meals, ensure safety in the airports, ordinary everyday people. The sometimes obnoxious & snotty comments the odd person makes here, shows a class distinction we could be well to be rid of in this Country. Without these people you would not have yr travel enabled. The least we could do is value & consider them.
Emirates are poised to steal much business from EU carriers with their large new fleet, low costs, yet high standards of travel. I see clearly some carriers will not survive, there is not the new business for all existing Airlines, & the like of Emirates to make them all viable. LH, AF/KLM are so huge, with assets to support they will stay & compete. Others will be unable to.
Consolidation of the Airlines has been the theme for the last 5 years, & it is these who will survive. (KLM / AF , Northwest / Delta, Continental / United)…& closer Alliances feeding domestic & regional to Inter-continental services between Airlines.
These changes, when Every aspect of daily life will be affected in the UK, with severe cuts (needed & have to be carried through with no doubt), will affect the travel industry as a whole in every aspect of business.
For those so out of touch with everyday people & reality, so cocooned in their own little private world of travel, they will soon come to realise this, perhaps when they themselves no longer have a work role suddenly, or business no longer needs them.
Paying more, getting less, fewer frequent traveller benefits, greater Consolidation, in Airlines & hotels… it’s here already.
This is why the posts on here reflect this in the last 18 months, & in the UK at least, probably the EU as a whole, it is by the events we are about to undergo, set to worsen. I hear & listen to what goes on in every & many aspects of life, this is not scaremongering but being in touch, & hearing what leaders are being told to Manage ahead.24 Jun 2010
I have been a Deputy CEO of a Local Authority and also a Councillor (Independent, I hasten to add) in the fairly recent past. You make some interesting points about CPA. The problem with that, as was the problem with Best Value before it, was that the Government intended it to be a deep inspection regime, with regular reviews of all services. Clearly, the cost of this would have been enormous (as you rightly say, it wasn’t cheap in the event anyway). However, Government simply could not recruit (it never got as far as asking the question of whether it could afford it) the army of CPA Inspectors that would’ve been required. As you know, the CPA regime became the CAA regime which, in turn, is likely to be abolished. My point is that we need some form of benchmarking if public services are to be held to account; however, I have no easy answer for what that should be.
When I left Local Authorities, as a consultant I went into ‘weak’ or ‘poor’ CPA-rated Councils and as an interim manager I initiated and (I think successfully) implemented comprehensive change programmes, particularly in Planning and Building Control Departments. No names, but I dealt with some pretty dreadful Councils…..which is why I am not giving a blanket defence for all public services. There are some truly awful public services out there which could do with a dose of private sector reality. Equally, there are also some excellent and committed people and organisations too. There are many superb Councils, and the quality does not correlate with political control either – there are excellent and awful Councils of all political creeds.
To return to the thread. One of my main projects at the moment is to manage the preparation of the largest Local Transport Plan 3 in the country. I can tell you categorically that the 25% in-year cut (as a minimum) and the freeze on Major Schemes WILL have a material effect on our transport infrastructure. Immediately. Transport is one of the Government’s lowest priorities now, and I forecast that both capital and revenue grant will be reduced by up to 30% or even more between now and (at least) 2014/15. This will affect major road schemes AND public transport investment, pretty much equally. However, public transport schemes may well suffer more as it is easier to produce “bigger” Benefit Cost Ratios for road schemes than for PT projects.
These are my views, of course, and not the views of any of my Clients…..
PS Hope the Waldorf Hilton is OK – stayed there a while ago. Thought the Exec Lounge was pretty good, but the rooms were extremely varied in size etc.
PPS As far as hotel investment is concerned – every morning I pass the 25%-completed concrete hulk that (possibly) will one day be the Westin Birmingham. Work stopped a year ago and there seems to be no prospect of an early restart. I’m sure this is not an isolated case by any means.
A very late indonesian stir-fry in a moment, whilst watching Wallander (the Swedish version, of course), washed down with a few bottles of Old Speckled Hen.24 Jun 2010
With regard to the Westin Birmingham situation, it is reported that the property developer behind the construction has suspended work on Three Snowhill as a result of ‘investor financing issues’.
It would be incorrect to suggest that the delay is in any way the result of a desire on Starwood’s part to commence operations; Starwood are likely to be as keen as anyone to receive the keys and to start making money from what will be central Birmingham’s sole five-star hotel.25 Jun 2010
CC – I wasn’t suggesting for a moment that Starwood wouldn’t want to see it finished. Mind you, although it’ll be Birmingham’s first five star hotel, the choice of view will be either the Sally Army hostels by the side of St Chad’s Cathedral or the multi-storey car park of Snow Hill Station. I wonder which side of the building will command a premium for the outlook……
I should know – I have to tolerate similar views most days as one of my bases overlooks the site!
Regards, Simon25 Jun 2010
Seems to me that UK is not going through problem (though it is) so much as readjustment.
Too many people in country, too few working, oil reducing, mean reduction is lifestyle for many.
Here in Saudi Arabia (not literally, as I in Paris today) we have similar challenges with too few working, but we have big oil stock that reduces impact.
However King is trying to get more Saudis to work, spending big money on education and giving Saudization targets to government and commerce.
UK is good country, will stabilise, but will not be like past again.25 Jun 2010