Tag Archives: Economic Crisis

How Long Can This Go On….Low Airfares

Sale Case

The losses are huge, big, enormous and it has hit every corner of the Travel Market and still it hurts, for the airlines it is Judgement day but for how long?

When Singapore Airlines are doing European specials you know life is bad, People will pay a premium to fly the smile high club so what hope is there for anyone else, British Airways have quickly dropped their premium route fare to nothing just to survive with an AUS$1444.00 fare SYD/LON, so Qantas will have to match that and these three airlines have been the big hitters on this route for decades so for them to drop it has to be the very last resort.

For Qantas their other Premium route SYD/LAX (los Angeles), has been decimated by V Australia’s close to as possible $1000.00 return fares, with United chopping fares as well for market share its going to be banging heads on the table in the offices at Mascot and not before time.

And suddenly as a break into a new market, Delta has already dealt in a sword in the ground deal of  AUD$982.00 from Syd with Air New Zealand’s counter offer of AUD $889.00 (including taxes) from Coolangatta is near as damn soil cheap as you can get.

This is a snapshot of just one aviation market in Oceania/Asia and it is being repeated though out many other markets in every part of the globe, the good side is that it has leveled fares that were overpriced on monopolised routes, Qantas’s SYD/LAX route fare $2000.00 was quite simply Sheriff of Nottingham territory and to have it halved showed the bonuses that flowed though the doors of the Geoff Dixon era, economic crisis or not that still had to happen.

So we are in the shit, so to speak and the few cashed up travellers are having a boom time, it can’t last and it won’t but it will not be all bad news.

The cheap fares are there because most Airlines are over productive with too many planes and the staff that runs them, as the airlines shred older inefficient aircraft they will create a newer tighter business, staff will go because you are not going to go and pickup and then go back to normal when the economy picks up again, today you need to be lean and efficient, and a good old shake out of the mattress will help the restructuring of almost every aspect of the Aviation Business so you can now throw out the old model and send in with the new as for the first time in its history except with a few bumps aviation is faced without its stunning growth year after year and so like any other business it will have to adapt to the current climate changes.

The cheap fares will last this year  but for the rest it should settle back down again which means many fares will rise as they have too because.

1. Airline restructuring will be completed.

2. Airlines are not public services they have to make money, break even at least.

That is the bad news…the good news is they won’t go nowhere near the old prices or will again, this is the new new for the business so SYD/LON should level out at AUS$1600-$1800 and SYD/LAX about AUS$1200 – $1300 which is still brilliant value, most domestic traffic will not push those AUS$1 a seat deals t0o hard and put on an average of AUS$20 per ticket price per sector, really low LCC (Low Cost Carriers) will have to improve their bottom lines as the likes of Ryanair (I’ll charge you), Easyjet et all, will not find profit in expansive growth anymore and will have to fall to the realities of the a real business model, and this is all in cattle class as even more changes will come in business class, but these prices do still depend on very stable Fuel costs going into 2010, if they rise then so will the fares by another 5% to 10%.

The only growth area will be in the International LCC (Low Cost Carriers), many have already failed in this new dimension to travel, but some pioneers are paving the trail like AirAsia and Jestar International but once the model is proven many others will quickly come abroad but don’t expect really stupid low international fares here, they will be cheaper than normal route fares but these carriers will want to survive and there is a boundary limit to how far down you can go down with fares as international travel is a completely different model to domestic and short haul travel (European) as you need infrastructure and personal at the other end of the route.

Another factor if it comes to pass is that many countries like Australia are being pressured to drop or reduce their heavy outbound and inbound airport taxes to encourage more traffic, and its these expensive government add-ons that can really make a biggest difference to an airfare price,and that is even domestically and should be curtailed as why should be the airlines that always have to shoulder the costs, these little termites are in many countries a bigger cancer than anything in a good tourism market and if the governments are scared of lost revenue then that is not the case as visitors will still spend more in the country if they are not robbed at the entry point.

..At the moment fares are too cheap and unsustainable and how long they will last is not very long, my guess is the Christmas/New Year 09 period and will not be as severely discounted going into 2010 as they were in 2009 and maybe a few excellent specials will still crop up in the traditionally really low periods, say March and Oct/Nov next year, so with an economic crisis or not airlines will not survive unless they do so, there is also a chance they could even rise sooner to stop the bleeding quicker and once one large influential carrier does so the rest will quickly follow, so the real push from next year for your dollar will be in super economy class with more leg room and better service and higher profitable fares for the carrier, the deals will be there but they will expect you to pay more for them so you win and you lose at the same time.

So if your going to fly on the cheap then fly now..and book quickly because fares will rise, but not enough to break your credit card limit…….

Updated 18th Nov 2009…..
I noted in the above issue that the fare to Europe would be AUS$1600.00 – $1800.00, the recent Fares for early 2010 are AUS$1685.00, and will be basically around AUS$1750.00 late 2010, but we are having the problem of very high fares coming  (USA/European Summer) to try to pull back some profit see current issue Airline passengers are back-so lets get back to work, as this is a cash in to pull back profit it won’t work except maybe in the early (May/June 2010) period, but it will scare more away than bring passengers back into their seats….

Hotels..what now, will 2009 be better, better than what…

london-hotels-small

What do you do?…always you run the house on demand, and occupancy is number one, but these are strange unusual times in between the travel business’s strange and unusual times, cycles come and go, travel demands always go up and down, but unless you have a Mumbai or Thailand situation you can always see or pretty well guess the right strategy for the coming year, but 2008 was like no year before it, and 2009 will be even worse, to a point when a disaster happens there is still focal point of the situation bottoming out, no matter how bad it will stop sometime, from that position you can slowly rebuild and put ideas into place, but 2009 will be very different as trends and surveys or loading times will be completely turned around on their heads, people are lost after the storm, confused, frightened, that the big black monster of the economic climate is going to devour them and their house, no jobs, no money = no travel…well not for the next ten years anyway, which is complete crap..people will still need to travel..life still has to go on.

but 2009 will be a hard hard period, money will not flow, rooms will be empty, but it will take only one or two years to get some balance, so use it to your advantage and not throw the chance away, restructure or renovate, fix your needling problems, even close a wing or two to fix them and clean up problems, yes money will be tight, but maintenance is always spread out over a period anyway, but now you can focus and do everything, and when demand does come back and you will be ready with open arms a new bed and those annoying amenities fixed for them.

Should I lower my Tariff?..yes to a point, the problem in this internet age of bidding online for cheap accommodation is the prices are being blurred, a 5Star is auctioning its last rooms off at $65 or £50 per night is good in one way but really bad in another, It gets to be a normal price fix on the property if it keeps constantly giving rooms away at cost, you have a market and the price is always king, and we have to change that model, if not the costs will always be marginal, people will expect that rate all the time in that market and its not your true PAR, Internet engines will always try to sell the lowest price, and fight each other to get the buyers dollar and that is going to cost you, yes it fills your rooms but it gives you no yield at all, and the more bodies you have at those prices the bigger your problem,s hotels are in business to make money, not be a lovey heart charity as they have the tax breaks and you don’t, so what to do..

get the best price in your market and stick to it, don’t let the Internet engines control you no matter how much they offer, try to put most of the business through your own sites were you can control the pricing and rewards, get the Rack rate and specials to work for you and not turn potential guests off, don’t worry savvy Internet customers will find you if you have what they want at the right price, so there is no need to throw money away of low cost nonprofitable specials, and that is the best way to see past the current climate, keep them coming in, but make a fair profit as well and if the business is very slow you will still make a few dollars on each room, its best to have 60% occupancy making you money than 100% making you nothing, but give rewards to customers if they are loyal..they will come back.

Number one problem with this planet is we have too much of everything, including hotels and airlines, entrepreneurs bless their world domination hearts think that if they keep building these things people will come and come back again, s0 bigger is better and onwards and upwards, 6000 rooms, 10,000 rooms, my wallet is bigger and fatter than yours, so it comes back down to one other thing, usually one upmanship…the biggest bloke on the block wins..

well no not really, because if you have 10 x 6000 room hotels in an area of other 6000 room hotels, then there is no way on god’s earth your going to fill all of them, Las Vegas or no Las Vegas or Macau,my point is that even Hotels built only 4 or 5 years ago are struggling to repay their finance, floors full of empty rooms losing you mountains of RevPAR, so what do you do, you build a bigger better one across the street, I’ve Trumped yours now, so beat that…The important word here is consolidation…no Trump or Wynn knows what the word means or its function, but they will soon, but better still they could even be removed from the market altogether so that managers can do what they are good at, Manage properties, not turn them into sideshow alley of extravagant ego boasting, At least if you are a cruise company and if your market is over supplied like the Caribbean you can send your mega palaces to markets in Asia or Australia, but these mega casinos are routed to the ground, so 2009 will be a disastrous year for these over wrought empty ego building palaces, they will survive, but none more should be built, at least for five years for demand needs to desperately catch up with supply, even then they should be built to real growth demand and not ego.

There is an even bigger oversupply of 5 star Hotel and Resorts as well, some of them will be culled but most are thankfully situated in major cities or major tourist areas that will give them constant if far reduced supply, they will now have to adjust to the new market of abundant cash in short supply, but most of the old school have been there before so they will adapt, in fact they will go back to business as usual, with just a renovation here and there to keep the lights burning, a few have will to down market, some will specialise more to certain markets, but that has been the flavor of the month in last few years anyway so things for them are still to go that way only with now even more focus on their niche.

Its in the low end market it could be the most interesting in 2009, here will it be feast or famine, people shifting down will have to go to smaller cheaper properties, but many chains are already on the very edge of the abyss, they have run their properties like a low cost airline, minimum on everything, mostly staff, and if the occupancy slips a even a slight notch then they are in real trouble, Folio Hotels in the UK have already gone, and far too many are burdened with very high debt, acquiring too many properties the on top of the too bigger bigger unrepayable loans, these quick pop up Hotel Chains are asset huge but very cash poor, it will be here that the market will be hurt the most, and at the time they could have reaped the benefits of their price range, many will close, many will be sold off, large layoffs of staff will happen, and just when we need them the most…consolidation is again a word not in their complex road maps of creating a huge brand, that they forget the basics of business management 101,  too much cash in markets is worse than not enough, when you don’t have enough at least you look at the numbers and the basics to see how you can make the business work, if the numbers don’t work then the buyer will walk away, or wait for a better deal, but in times of abundant, if unlimited funds, the heads of trendy businessmen lose all total perspective of rationality, not just in the Hotel Business but other businesses too, delusions of grandeur abound, upscale is in full swing, some don’t even check if the business is even making money or keep throw unlimited funds at a poor property, they can because its not their money to throw away…or to lose.

…that was the last 10 years, till 2008.

2009 is about firming your ground, knowing your market, and marketing it well, but don’t get me wrong and I love new and trendy, but it needs to happen, the chaf needed to be chaffed, 2008’s economic crisis is a good thing people not a bad one, the heat in the market will be taken away, the poorly managed and over extended will bite the dust, get through this and in a few years your occupancy levels will be steady, demand for your accommodation will be steady, cash flow will be steady, because the demand will be there in your market, the mantra should be to reduce debt and get a good strong cash flow, not the other way around, simple good business sense, and the biggest advantage of all is to invest in good staff, there will be plenty to chose from, so don’t go down again the Low Cost Airline route and get cheap trainable staff, they are in it for the money not for the career, you need good solid reliable staff, cheap staff are cheap and very hard to manage as you have to always manage them and follow up on their mistakes, most in this category are untrainable or not have the personality for hospitality, even McDonalds have untrainable staff, and poor staff  will always lose you custom quickly in face to face contact at the reception, or with poor maintenance, slow room service and sloppy management.

Good staff will manage themselves and make your management role easier,  good staff will keep your guests happy, if your guests are happy, they will come back, and if they come back you will make money….simple really!