Budget carriers may not have brought the benefits to destinations they at first seemed to proffer, writes Noel Josephides, managing director of Sunvil Holidays
When the no-frills carriers arrived on the scene 12 years ago and internet use by consumers exploded, hoteliers believed the combination would herald a new era of profitability and the end of being under the thumb of tour operators.
Little did they know that the transparency afforded by the internet would damage their margins and signal an end to rack rates and the stability of back-to-back bookings traditionally provided by tour operators using weekly charter flights.
A decade on, the jury is still out as to what benefits, if any, the no-frills carriers have brought to destinations. In fact, after the initial euphoria, the anticipated benefits are difficult to discern.
First, destinations began to buy their tourism. By offering advantageous landing fees and marketing subsidies to the no-frills carriers, destinations believed they could boost their tourism figures.
It’s hard to see what these marketing subsidies have achieved as airlines do not extol the beauty or attractions of the destinations they fly to – they simply want to fill their aircraft, and the only obvious airline marketing of a destination is an advertisement linking that destination with a cheap flight deal.
It also seems that once the money stops so do the flights. The last few weeks have seen a handful of withdrawals by Ryanair from traditional destinations in Europe and the Eastern and Western Mediterranean and I am sure many more will follow.
Destinations are running out of money and can no longer fund airlines which simply fly during the lucrative summer months and then cancel their flights during the winter. The main aim of all holiday destinations is to extend their seasons and, if an airline simply flies in the summer, then it can hardly be called a scheduled service.
Have we seen growth in arrivals from the UK to destinations like Spain, Portugal, Greece and Cyprus? In fact there has been no real growth, simply a substitution of the original charter-based tourism by that provided by the no-frills carriers. And if growth has been static, then why are hoteliers complaining their beds are empty?
I understand Ryanair represents about 30% of traffic into Porto in Portugal, but the hoteliers there are complaining that their occupancy levels are falling. So where are all these people who are evidently filling the aircraft staying?
One thing is certain – the person paying £5 for a flight is a person who cannot afford to pay much more and would not travel if the price was higher. Such travellers certainly cannot afford to stay in four-star hotels.
It is a myth to believe that by lowering the price of the flight you enable a visitor to spend the money saved in good hotel accommodation. A knock-on effect if hotels are not filling is that the local authority’s tax take also declines.
The last 10 years of low interest rates and irresponsible expenditure by governments and public alike has led to an enormous building boom. Everyone has friends who have property abroad and those friends are anxious to let their properties via the web. Do they pay tax on their earnings? No, of course not.
Are the destinations where these properties are located any richer from tourists staying in these properties? Again no, as they cannot tax the income derived from these rentals.
The no-frills carriers – and the legacy carriers which have been forced to cut their seat rates in order to compete – have helped smaller and newer tour operators put together packages using their services without the risk of chartering aircraft.
We must remember, however, that it is charter-based tourism that fills hotel beds and generates employment. The rapid rise of Russian tourists in Cyprus – who are currently saving the tourism industry on the island – is due to old-fashioned tour operating and not to no-frills flights from that country.
Travel agents in Cyprus also report that Ryanair flights into Cyprus from various European airports are full of Cypriots using the opportunity to holiday – and spend their money – abroad, when otherwise they would have holidayed in Cyprus. Who is benefitting and who losing? The only clear winner is Ryanair, recipient of the marketing money thrown at it by the Cypriots.
Many destinations are now having second thoughts about the benefits brought to their economies by no-frills carriers. Several are asking tour operators to resume charters, but there are no tour operators of any size left other than TUI Travel and Thomas Cook, and these two are increasingly asking the hotels they use for exclusivity guarantees.
What will happen to the rest, the hundreds of hotels that have been built during the boom years? The no-frills carriers have destroyed the tour operating industry but may not, it seems, have brought the benefits to destinations they at first seemed to proffer.