News

Special Report

17 Nov 2008 by Mark Caswell

Text alex

Special report: How the financial crisis is affecting the way we travel

The
airlines

No wonder airlines aren’t publicly celebrating the fall in the oil
price. Not only have many over-hedged their oil exposure, they’ve also been hit
by the appreciation of the dollar (the currency the carriers use for buying
their fuel).

Hedging at the wrong price can cost big money. In a statement
issued at the beginning of November, Hong Kong-based Cathay Pacific said that,
if the oil price remained low, it would lose HK$2.8 billion on fuel-hedging
contracts.

But a more serious problem is emerging: the global financial
crisis. Firms and individuals are cutting their travel budgets: some are
travelling less, while others have started to downtrade.

Of course, the
picture varies from route to route, but statistics from trade body IATA are
discouraging. Director general Giovanni Bisignani said: “Passenger traffic [for
IATA member carriers] declined by 2.9 per cent year on year in September [the
last month for which figures were available]. The deterioration in traffic is
alarmingly fast-paced and widespread.”

British Airways is especially affected
by this trend, as much of its premium business comes from financial firms. The
carrier said its first and business class traffic fell by 9.2 per cent in
October, while overall traffic fell by 4.4 per cent. Load factors were down to
77 per cent, against 88 per cent for the same period last year.

The poor
financial outlook has already claimed a number of routes. Several carriers have
abandoned expansion plans, scrapped routes or downgraded services. Bmi has said
it will withdraw all long-haul flights from Manchester in early 2009. CEO Nigel
Turner said: “Even though we introduced lie-flat seats in business and improved
seating in premium economy, our passengers haven’t been prepared to pay more for
these products.”

Cathay Pacific also said its revenue has started to weaken
through reduced premium traffic. “Corporate travel volumes in all classes are of
concern as corporate clients begin to impose stricter travel policies,” the
carrier said.

For the consumer, it means there are more deals than before. In
the UK, airlines are running continual “seat sales”. But travellers can lose
out. Some carriers are making ad hoc cancellations to save cash – for example,
BA and Virgin Atlantic are dropping under-performing flights on a route-by-route
basis.

Some carriers are switching planes. As many as many as half BA’s
Heathrow-JFK services are now rostered for more economical B777s, which may not have the new-generation Club World product, while Bmi has removed plane details
from its website, to keep any bad news from passengers (see online news, October
1
).

Routes are also being dropped in favour of code-sharing. US airline Delta
has handed over the prime Paris CDG to New York JFK route to Air France. That’s
all very well until you realise that Air France does not offer the latest fully
lie-flat seats, which Delta is adding to its fleet.

The business
traveller

SMEs have long learnt to run tight travel budgets. But now the
cutbacks are being felt by executives of large and wealthy firms.

Staff at
some UK companies are have had the six or eight-hour rule before they can book
business class extended to 10 hours. Other firms have taken the more drastic
step of only authorising business class for a very few top executives. Everyone
else, no matter how long the flight, must go economy.

A few companies have
taken a different tack and granted certain employees their own travel budget.
One such staffer says: “It means I can still take premium class flights if I
shop around. So I now choose different carriers and opt for cheaper inflexible
or semi-flexible tickets. If my company travel department was as good as it
claims then it too could cut costs without forcing staff to downgrade. I know,
because I beat our travel people most of the time.”

Cutbacks are also being
implemented in Asia. One reader who works for a US car manufacturer in mainland
China told us that his travel budget has simply “been cut by 20 per cent”.
Another reader, a business travel consultant, told us that one south-east Asian
bank now mandates its executives downgrade to economy within Asia. Business
class is now only permissible on trips to Europe or the US.

The
hotels

Although the top end properties are loath to admit it, London’s top
hotels must be suffering.

Recent figures show profits and occupancy are down
in London, with Docklands and the City suffering the most. The Four Seasons
Canary Wharf is offering “festive” rates of £195 (plus tax) for one entire month
– its cheapest weekday rate is normally £370 (plus tax).

One reader, a hotel
negotiator for a large firm, said: “The pressure is on for no increases at all
next year. One salesperson visited me recently and said he wanted to increase
his hotel’s rates by 5 per cent in 2009. I told him we won’t have a deal if you
do that.”

Jonathan Langston, MD of TRI Hospitality Consulting, says hotel
profits are also suffering in cities like Amsterdam, Paris and Vienna.

Booking patterns are also changing. Hotel reservation service HRS has seen a
growth in bookings because it can offer firms a larger range of properties.
Grant Appleton, HRS’ commercial director, says: “Corporates are looking for more
choice and trying to find better deals than the standard options presented by
their existing agent.”

Executives are still making trips but they are
downgrading. Appleton adds: “Our clients are telling us they are implementing
stricter travel and expense policies but they are still travelling and booking
hotels, albeit in a lower category or at a lower cost. Saying that, we are
seeing four and five-star hotels dropping their rates to hold on to the fickle
corporate traveller.”

The customer is king once again.

Report by Alex
McWhirter

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