2008 Predictions

So here we are the last day of 2007 – and so what are our predictions for 2008.

We have already given a podcast on the subject – but here are some of the more detailed items we believe will occur in 2008.

CAUTION – we have been frequently correct in our predictions however we have frequently been premature in our predictions. So think of the timelines when considering our views.

1. Economy. The US economy will continue to suck during 2008. We have a long time to wait until the outcome of the election. Then after that it will still take some time to emerge. I don’t think its going to matter who wins with regard to the general ATT market sector. Other economies will continue to be business as usual. One possible disruption could occur in Asia driven by China’s actions.
2. Open Skies. Initial euphoria will be replaced by some of the cold hard realities that the US-LHR market is not that robust enough to support all the new service. There will be at least one carrier who downsizes their expectations on the routes into LHR from the USA. REMEMBER that the slots that are being replaced with Transatlantic also happen to be some of the most cross-feed flights. Thus the reduction of feeders into the LHR will result have a knock on result. The surplus capacity on the routes will result in some pretty good deals. Future waves of new flights across the pond will not occur until end of 2008 probably 2009 season.
3. Mergers and Consolidation. We will see a lot of merger interest particularly in the USA carriers. Depending on the make up of the USA Congress (clear mandate or not) will determine whether the 25% rule for foreign ownership of a US carrier is allowed. We believe that unless one party sweeps Both Houses and the Presidency that this rule will remain intact. We do believe Southwest will attempt to grow via an acquisition. Westjet and AirTran both look likely candidates. Should that occur we should see also an AC foray across the border. United is looking very inviting. Elsewhere – we do believe that some more European consolidation will occur but with the big event being AF/KL’s acquisition of AZ – nothing will come close unless SK and LH finally stop the dance and merge. AF/KL is going to be a very big player. More than most people understand. Air Berlin might add another player but in general we believe the LCC market is healthy.
4. Amadeus and Travelport will both go IPO – they will likely be the big Equity events during the mid part of the year.
5. The GDS model will continue its transformation. Although the Travel Agent base will continue its unit decline. More and more players will be seeking direct relationships. We expect to see further splintering of the options in distribution
6. Commission cuts and fee increases. Lots of these.
7. ETS – Emissions Trading will be a hot topic but not a big impact in 2008 – that comes in 2009.
8. Far out predictions:
a. One major player will exit
b. One model will undergo radical transformation
c. One major player will eat another
d. Private Equity action will be at the lower pace than 2007