The outlook for beleaguered airlines and hotels seems to grow bleaker by the day, with a sagging global economy now threatening to undermine purchasing power and further increase resistance from consumers already unwilling or unable to pay prices sufficient to cover traveler suppliers’ costs.
For the 10 largest U.S. airlines, September traffic fell 5.7 percent over last year. And that was before the global economic crisis had gained full momentum. Even perennial profit-maker [[Southwest Airlines | Southwest]] has been affected, suffering two downgrades of its debt rating by Standard and Poor’s in the past 14 months and reporting its first quarterly loss in 17 years.
“The industry crisis is deepening, and no one is immune. Urgent measures are needed,” warned Giovanni Bisignani, CEO of the International Air Transport Association (IATA), an industry trade group. IATA is projecting a $5.2 billion loss for the year.
But the bad news roiling the industry is actually good news for those with the temperamental and financial fortitude to continue traveling amid the turbulence. Following are some of the bright spots.
1. Less Is More
It’s a fact of travel life: Full flights are uncomfortable flights. In recent months, with planes routinely filled to 80-plus percent of capacity, flyers have enjoyed neither legroom nor elbow room. Overhead bins have been full to overflowing. The lines to the lavatories have stretched halfway down the aisles.
With demand falling faster than the airlines can pull seats out of circulation, [[Load factor | load factors]] (the percentage of seats occupied) should ease somewhat, alleviating coach cabin congestion.
We’ve already seen a falloff in traffic on some routes. Through the first half of this year, for example, the [[Delta Air Lines | Delta]] and [[US Airways]] shuttle flights between New York, Washington, and Boston flew only 36 to 54 percent full. Hint: An empty row of seats in coach is almost as comfortable as a budget-buster seat in first class.
2. Let the Promotions Begin
The airlines’ capacity cuts, designed to restore their ability to raise ticket prices, were planned when jet fuel prices were high and consumer demand was fairly robust. Today, fuel prices, which peaked at $147.27 a barrel on July 11, have fallen almost by half. That’s a positive for the airlines’ bottom lines. But it’s likely to be more than offset by plummeting demand, as consumers cut back on non-essential spending, including travel. Result: Ticket sales will underperform the airlines’ projections, forcing them to deploy frequent flyer incentives to maintain sales volume.
The hotels, too, have an overcapacity problem. And it’s harder for them to shed rooms than it is for the airlines to cut flights. Marriott International, for example, reported a 28 percent drop in third-quarter profit, indicating declines in both average room rates and occupancy. As a result of such softening demand, this is already one of the most [% 2663847 | | promotion-intensive falls %] ever for hotel customers.
3. Upgrade Prospects Improve
The decline in airline traffic is expected to be especially dramatic in first and business class, as the global recession forces companies to downgrade their business travelers to coach or forego travel altogether.
[[British Airways]], as a bellwether example, reported that its September first and business class traffic dropped 8.6 percent from the same month a year ago. And October will be even worse.
For elite-level frequent flyers entitled to status upgrades and travelers hoping to redeem their miles for upgrades, the slump is a plus—fewer paying customers up front means better odds of snagging a first-class seat.
4. The Dollar Flies Further
On October 1 of last year, a traveler’s dollar bought .700279 euros, the currency used in 26 European countries; just over a year later, that same dollar is worth .742335 euros, a 6 percent increase in purchasing power. Things are even better for U.K.-bound Americans, where today their dollars can be exchanged for almost 20 percent more British pounds than they bought last year. Canada? There too the dollar will go 20 percent further. And looking even further afield, U.S. visitors to Australia will find their currency converts to almost 37 percent more Australian dollars.
The dollar’s rise isn’t universal, however. It has remained flat against the Singapore dollar, and lost about 14 percent against the Japanese yen.
5. Welcome to the Airport
As anyone who has flown from the same airport during both peak and nonpeak times knows, the airport experience varies directly with the volume of travelers herding between curbside and departure gates, and back through baggage claim. More travelers means more backups at check-in, at security checkpoints, in the boarding area.
While airline managers and airport operators may be dispirited by the thinning crowds in airport departure areas, it will be a welcome change for flyers.
6. Ryanair to the Rescue
Here’s a bonus bright spot …
According to a recent story in the Daily Telegraph, Michael O’Leary, chief of Irish discount carrier [[Ryanair]], plans to take advantage of the atrophying industry to buy discarded aircraft at fire-sale prices and launch a new transatlantic airline with fares as low as 10 pounds (about $13). According to O’Leary, “The only time to set up an airline is when they are parking planes in the desert. We are not very far from that at the moment.”
One airline more or less wouldn’t normally significantly alter the travel landscape. But much the same way Southwest’s consistently low fares keep domestic ticket prices in check, a low-cost carrier flying across the Atlantic could help moderate international fares, which on a per-mile basis are significantly higher than domestic prices.
If O’Leary is successful in getting his new discount operation off the ground, travelers will have the industry’s malaise to thank for lower international ticket prices. In this and other respects, the travel industry’s pain may be travelers’ gain.