Trendspotting The Silver Lining
I've been having a couple of thoughts about the current times we find ourselves in, from various conversations I've been having with the industry, and here's how I see things panning out.
1. Cost is driving everything
Business travellers - the ones that are still travelling - are trading down and changing their habits. How they fly - low cost airlines are picking up the traffic; you can see this from Tiger Aviation's results vs Singapore Airlines'. The low cost carrier reported passenger growth of 50.4% for the three months ending December 31, 2008, compared to the year before. And its third quarter financial year 2008/09 included a 53.4% increase in seat capacity and maintenance of high load factors in both Singapore and Australian businesses.
Contrast that with Singapore Airlines, which reported a 42.8% drop in net profit in the fourth quarter of 2008. If even a premium airline like SIA cannot protect its market share, and it is throwing out special fares, something is fundamentally broke in the market.
Says Tiger's CEO Tony Davis at the Low Cost World Aviation Conference in Singapore, "Tiger Airways is bucking the trend by delivering strong year on year growth of more than 50% for the last quarter, as passengers seek out lower fares across Asia and Australia."
Over in Europe, outgoing EasyJet chairman Sir Colin Chandler said the airline had a "better-than-expected" start to 2009. He observed that there was a "flight to value with European consumers choosing our great value pricing and the attractiveness of our network serving primary airports".
Where they stay - high end hotels reliant on corporate travel are being hardest hit. Picking up the slack are the middle range hotels. Ibis Bencoolen, Singapore, with its "pay what you want" tactic is the one to watch - when you're new and you're low cost, and you're Ibis, you can afford to break the rules.
A marketer working with a fairly premium brand said, "Ibis can get away with it." A telling statement indeed. Premium brands will struggle because they want to "protect" the brand. Yes, some are daring to give away free breakfast and wifi but if that doesn't translate to actual savings at the end of the day, it won't mean much to the business traveller who's been ordered to cut back.
How they plan their trips - executives are now planning their trips better. Instead of three trips, they are combining everything into one extended trip. So more time away in one go, which means lower costs.
Look to the EIU report, commissioned by Amadeus, which points to a new age of austerity for business travellers, which says that executives will make fewer, shorter and cheaper business trips in 2009 and switch from luxury extras in favour of basic efficiency and good service. Fully one-fifth of the 354 executives who responded to the survey in Asia, Europe and North America thought an internet connection was more critical than a quiet room.
When people change habits, they tend to stick around. These could drive fundamental changes in the corporate travel sector.
2. Cost and currency are blurring the lines of competition
This week, AirAsia X launched with VisitBritain a promotion to Britain with all-in return fares of £190 between London and Kuala Lumpur. In India, British Airways did the same with VisitBritain and launched return fares of £125. These are the lowest air fares between these places in history, says VisitBritain.
With such fares, customers will no longer think longhaul vs shorthaul. Perhaps it's time destinations put away that thinking and lock it in a box. Cost blurs distance. The customer will think about what is the real cost to him or her, never mind the distance. The weakest pound in years will also make London a very attractive proposition to opportunistic travellers.
And the opportunistic travellers are the first time and the young - the ones that have always wanted to go but never had a chance, and now they can. They are blurring the lines of competition.
3. It's all about market share - and cost
It's all about fighting for the pie that has shrunk and that's still traveling. Destinations that are still trotting out the value message will have a tough time keeping market share. It's all about how much it will cost the customer in his pocket. You could throw in a bundle of reasons why your product or service offers more value, but the customer's not looking for more reasons, just ONE reason, and that's "what will it cost me?"
Look to yourself. You are the best example.
4. Good companies will emerge stronger
While there are still a lot of people in denial, there are those that acknowledge the situation and are getting on with it. I was talking to recruitment firm TMS Asia Pacific and their business has taken a hit - from too many jobs to not enough candidates to too many candidates and not enough jobs. So they have taken cuts and are looking at alternative revenue streams - training being one of them. Governments are launching training schemes like they are going out of fashion.
An outbound tour operator specialising in high end travel tells me his business dropped 30% in December and 70% in January. He is diversifying into inbound - that's where the money is being spent as governments work to stimulate tourism, vital pillars to their economies in Asia.
Crisis breeds winners. Winners do not panic. They observe the changes in the market, and adapt swiftly.
5. Online shopping will increase
We're seeing the trend in Australia - Travel Trends News tells us that "Australia's online travel sector continues powering ahead in stark contrast to the problems experienced by traditional retailers such as Flight Centre, Jetset and Harvey World Travel"
It says both Wotif and Webjet are performing at record levels, while another major website said that January was a "cracker" with almost 2m site visits.
Talking to online players in Singapore, the pick up's not been so dramatic. Airlines are dumping specials right now - from SIA to AirAsia to Qantas - and the customer is being lured by that.
But you can bet the customer is shopping around. Whether they are buying online is another matter.
6. Watch the quiet ones
City states like Hong Kong, Singapore and Seoul - those dependent on corporate travel and MICE - are being hit hardest in their inbound and their economies. The quiet one to watch is Indonesia. Its inbound is still tracking well, its citizens are still traveling, there have been some relaxations in exit taxes regulations. And compared to Thailand and Malaysia, Indonesia's suddenly the stable giant. Bali remains robust. Now's the time to expand beyond Bali. Vietnam's outbound still holds promise, plenty of first-time travellers.
The ones that made a lot of noise prior the crisis - Dubai and Macau - are being hit hard.
7. People will change the way they work
One of the first things to be cut, other than marketing and travel, is office rental. People will ask questions like, do I really need all this space? Do I really need to be here? And more executives and employees will work from home, and get used to it. Technology makes us virtual wherever we are. Space costs money, money that could be better used on people.
8. Recovery is at best a guessing game
A few major players are betting on some pick-up by second half of the year. Abacus is tipping a 7-9% decline in passenger booking numbers for the region in 2009. Travelport GDS' president and managing director Brad Holman tells me total air bookings across all GDSs were down 13% in Asia in December - of that, Singapore was down 11%, Malaysia 20% and Indonesia 5%. For the year, it is expecting a 13-15% drop for the full year across Asia Pacific while its forecast for just Asia is slightly better, at 9-12%. "We see second half of the year pulling us back," he said, on a visit through Singapore.
Let's hope he is right.