16 September 2008

The Downturn - where will it hurt next?

We have been looking at some of the more interesting fall out of the downturn in Air Travel and its likely impact.

I firmly believe that the downturn in domestic US travel is going to be in excess of 15% by Q4 2008. The likely impact on the US Lodging industry will be dramatic with spot losses in a large number of places. Combined with a reduction in non-air traffic and we are likely to see reductions of between 7 and 10% in occupancy rates across the country. Las Vegas just reported a perfect down turn for every month this year through the end of July.

There is an axiom of lodging that above a certain level pricing goes inelastic (upwards) and below a certain occupancy level it goes inelastic downwards. From the mid 2006 time frame until the first quarter of this year we were in the north territory. Now chaps we are in the variable level. On September 1 we go into free-fall. The Galileo/Travelport numbers as reported a few weeks ago if extrapolated to lodging for the last 4 months of 2008 make for some very stark reading. Worse the rates docent seem to be doing a thing as the ADRs fall so does occupancy. Hoteliers according to PKF will be looking at a revenue drop in excess of $4 bn. Ouch!

But what of international. We are seeing a significant softening in the European market. This translates into a number of interesting issues. The European biz sector who power premium traffic are WAY off. This will hurt the big boys like AF-KL, LH and BA. LH’s traffic numbers for July are already off as a result of the ongoing industrial action which has a truce but no permanent solution. BA’s Terminal 5 troubles have translated into a total reduction in LHR traffic. While Ryanair and other LCCs are still growing nicely thank you – this winter they are going to reduce the total number of seats available and park aircraft.

Even Asia is catching a cold. The Beijing Olympics have not brought the blockbuster revenues that were expected. Other markets are no doing real well other.

The only areas growing are Brazil, Russia and the GCC and a few spot markets. I am being very bearish on the overall situation and its not getting better any time soon. So cosmetic changes and tweaks are not the way out of here. Dramatic efforts to cut costs are urgently required. If you have not already done so – your September is going to be rather ugly.


No comments: