Long-haul leisure travel could be the big loser if the price of oil stays high and the UK economy turns down.
That is the view of Advantage Travel Centres chief executive John McEwan, who took part in a 10-strong round-table debate hosted by Barclays, which is compiling a report of how businesses are planning for the future.
He said: “We are getting into the realms of long-haul travel being unaffordable for a section of the market, with fuel supplements in hundreds of pounds.
“The economic environment is putting pressure on middle-income families and a lot of people are going to see a material reduction in their income.”
Monarch Airlines chief executive Peter Brown agreed, saying: “Our long-haul charter customers are asking whether they can pass on hundreds of pounds in fuel surcharges to customers and some are saying no.”
Brown warned airlines could react to a downturn in long-haul demand by increasing capacity on short-haul routes to the sun. He said charter carriers would switch some of the bigger, widebody aircraft normally used on longer routes to shorter European flights.
“Charter airlines will keep their widebody aircraft flying, since they are the most expensive, and move some on to short-haul routes,” he said. “It will shift the problem by increasing short-haul capacity.”
McEwan added: “If the fuel price continues to rise, even a weekend break on a low-cost carrier could be quite expensive.”
Brown said: “People on a stag weekend could go to Brighton instead of Amsterdam, and the low-cost carriers will look to refocus services on holiday destinations.”
Moving capacity
That could further increase capacity to package-holiday destinations just at the point major tour operators are looking to tighten availability to maintain prices.
Brown said: “Capacity this summer was broadly in line with demand. It is next summer that is going to be a challenge.
“EasyJet is moving capacity from Stansted to Gatwick to operate to more Spanish destinations and that will increase capacity. It will compound the woes [of other airlines].”
Civil Aviation Authority consumer protection group director Richard Jackson said: “We have not seen demand fall off a cliff, but it is difficult to know the real price of oil [airlines are paying] with all the hedging.
“The question is: when does oil hit a price where demand falls, and when does it change the way tickets are sold?” Jackson suggested: “We are close to a tipping point.”
Trailfinders managing director Tony Russell said: “The fuel surcharges are having an effect. You could say the fall [in sales] since January has been dramatic. January was fantastic. February and March were good. But the market has been falling away since May.”
However, McEwan insisted: “The market is not booming, but it is certainly not contracting.”
He identified two early trends for next year. “There is a focus on more-affordable, non-euro destinations such as Turkey and a shift to 10 to 11-night holidays, where before people might buy 14 nights,” he said.
‘Resilient’
There was broad agreement the industry does not yet face a crisis. McEwan argued: “This is a resilient industry. There have been crises over the past 30 to 40 years and there will be casualties. But we have always been a growth industry and travel will continue to be a growth industry. There is huge growth in emerging markets.”
However, Brown said the current situation could develop into the most serious crisis the industry has seen.
“Few airlines are paying the spot price for oil. Most are probably paying $100 a barrel or less. If the fuel-hedging of airlines expires and people have to start passing on the current price of fuel, and there is a downturn and unemployment rises, there will be a crisis,” he said.
“People will continue to want to travel, but maybe not in the numbers we have now.”
Brown also warned of the danger of charter airlines and low-cost carriers putting too much capacity into growing destinations outside the eurozone, such as Turkey.
“There is a history of us all piling into somewhere. A destination can only hold up for a while.” Brown advised: “Do not put all your eggs in one basket.”
