ITB: Travel industry divided over recovery prospects

Views on how the sector will respond to the crisis among those at German travel trade show ITB diverged widely.

Dieter Semmelroth, head of structured finance at TUI Travel parent TUI AG, said the German market is about 10% down year-on-year. “There is no expectation of a great recovery,” he said.

However, he suggested capacity cuts could make holidays more expensive and maintain profit margins.

“Tour operators are cutting capacity – first in the UK, now throughout Europe. Maybe travellers will not be able to travel so easily this summer,” he said.

However, Raimon Kaufeld, travel equity analyst at German bank WestLB, warned: “There is an increase in the supply overhang for hotels, airlines, travel agents and tour operators. So there will be an increasing amount of offers.”

Analysts and chief executives united to warn against price wars. Auliana Poon, managing director of German-based analyst Tourism Intelligence, told industry leaders: “Hold your price and give value. Once you drop prices it is difficult to get them back.”

Andreus Deuber, real estate deputy director at Swiss bank UBS, agreed: “Price reductions do not mean you achieve any more guests. The only impact is on turnover.”

Accor Germany chief executive Marc Hildebrand said his hotel group intends to increase room rates across its brands, arguing “Every euro we go down in price takes six months to get back. We want to preserve what we have achieved and not make the same mistake as in the past.

“We are implementing price increases in every segment and are going to continue with that. We will lose 4%-5% of customers, but we do not want to take years to get prices back up. We want to start at a higher level [when this is over].”

Hildebrand also argued against cutting costs by making staff redundant. “If we lay off 20% of staff we have to talk to the trade unions and pay severance and the effects will not show until 2010. So it is no good,” he said.

“What we can do,” he added,  “is reduce working hours, move to a four-day week without redundancies, give longer maternity leave, ask staff to take unpaid leave and offer sabbaticals, maybe paying one-third of salaries.”

However, UN World Tourism Organisation assistant secretary- general Geoffrey Lipman was more pessimistic. “We all say ‘do not cut prices’ until customers go elsewhere,” he said. “It is going to happen. The crisis is going to get worse.”

Jorg Frehse, managing partner of the Frehse Hotel Corporation in Munich, agreed prices will fall. “There are good times ahead for consumers,” he said. “The industry has been living in cloud-cuckoo land the past few years.”

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