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Special Report

17 Nov 2008 by Mark Caswell
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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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