In association with Travelport
Confidence appears to be returning for the end of 2012, but companies should prepare for the ‘new norm’ of a dip towards the end of 2013, says David Stevenson
It’s been a relatively quiet month in the mad, mad world of high finance, with stock markets finally plucking up enough confidence to push to recent highs. This is a welcome change, if only because most investors were mired in gloom over the summer, as worries about the state of health of the global economy took front stage.
Europe also casts its grim spell on the markets but as we move into the last few months of 2012, investors seem to be a tad more sanguine. The Eurozone doesn’t appear to be tottering on the edge of chaos and total break up (yet) although the savage wave of austerity about to hit Europe must surely have an effect on those all-important German consumers.
In recent months investors have also fixated instead on Chinese growth trends with excited talk of a hard landing and a massive structural crisis. I’d personally be very cautious about making any firm predictions about growth rates in a centrally managed economy such as China, especially ahead of its leadership transition in the next few weeks. My sense is that China will surprise to the upside in early 2013, boosting confidence amongst many global investors.
The great unknown is the US which has been the most resilient economy of recent months, with the all important US housing market showing signs of finally bottoming out. Obviously everyone’s attention is focused on today’s Presidential elections. The cautious consensus amongst most analysts is that an Obama re-election will be good for the stockmarket and the economy (more spending and monetary pump priming) whilst a Romney win will probably result in a short term knock to confidence as austerity becomes a dominant theme, although promises of tax cuts and a Republican super majority will probably help to unlock many of America’s log jams.
On balance though I’d suggest that we shouldn’t worry too much about America. Neither the Republicans nor the Democrats really want to put the brakes on growth and the fiscal cliff will probably be kicked down the road (to mix a metaphor) to later in 2013.
Even the UK economy is showing signs of perking up after those slightly suspect summer numbers which suggested that our economy was slowing faster than many of those in Southern Europe. UK consumers are beginning to spend a bit more and if current trends carry on, I’d suggest that summer 2013 could be one of the better years for summer holiday bookings. Many families will be making their key decisions about the affordability of summer 2013 holidays in the next few months, and my sense is that most consumer will be desperate to spend the little extra discretionary spend they have on a sunny, dry summer holiday next year.
In sum, most economists and analysts I talk to are expecting a stronger end to the year than we had first expected, and a more robust set of numbers in Q1 and Q2 in 2013 – although my suspicion is that worries about Europe/China/US Fiscal cliffs will inevitably force their way back on to the agenda around midsummer 2013, pushing markets down, risk levels up, and slowing growth in consumer spending. This fits into a narrative for a ‘new normal’ low-growth world, where the first half of any year shows sustained growth but is almost inevitably followed by a weak summer and an uncertain Autumn.
The key indicator for me should be oil prices which have fallen back by a small amount in recent weeks but are still far too high for the current anaemic global growth rate. We’ve already heard some Saudi officials quietly suggesting that maybe Opec has pushed prices up to an unsustainable level and that energy prices are quietly throttling what little growth there is in the global system. My big worry is that if the first half of 2013 surprises to the upside, we could see oil prices climb back above $120.
Over in the travel sector, it’s certainly been a quiet month amongst the major travel companies reporting, with almost no big news of any note although a slew of trading updates are due any week now. Perhaps the most interesting set of results came from US based internet travel giant Expedia. Wall Street seemed to lap up its recent third quarter results (October 25), pushing the shares up $51 to $59 in just a few days.
The online booking giant continued its remorseless international and mobile expansion and pushed room nights up by 27% – crucially its international (non US) business delivered over half of total room nights in the third quarter, pushing the core US market into runner up position. Ebitda grew 6%, operating income increased 9% and overall revenue moved ahead by 17%. These are impressive numbers which have been echoed by competitors such as Priceline.
These American-based internet travel giants are remorselessly moving forward and my suspicion is that they are quietly investing heavily for any signs of a pick-up demand in the core European markets, whilst also betting the bank on growth in emerging markets where competition is less intense.
This growth of online travel of course validates the big UK companies’ focus on building their own internet-based businesses. Fundamentally Tui and Thomas Cook have no other choice than to invest tens of millions in developing online dynamic packaging operations to complement their still robust high street offerings. The question is how much these new digital operations will swallow up in IT and marketing spend – investors will be particularly worried that building big internet brands will trash the cash flow. Many will also be worried that the UK market leaders will struggle to keep up with the big US operators who have very deep pockets indeed.
But the good news is that there are enormous opportunities as well, especially in the slightly nebulous space of social media. I’ve written before about the growth of social media products in the travel space but we need to be honest about what effect social media is actually having on the bottom line – very little.
Outfits like Expedia may be pumping countless hundreds of millions in the next few years into their mobile and social product offerings but there’s little evidence that it’s actually producing big revenues. Last year for instance many online travel insiders circulated an article by US tech magazine Fast Company based on research by APT (the article can be found here.
This research suggested that the much-vaunted growth of FourSquare and Facebook Places had actually only kicked in about 2 to 4% in extra revenues for hoteliers. In fact I’d go even further and suggest that social media has had virtually no substantive impact on travel revenues to date, although the growth of the review economy (courtesy of sites like Trip Advisor) has had an obvious impact for some companies, largely in a negative sense.
So, in simple terms there is absolutely everything to play for in social media and travel – and the big companies probably have just as much to gain from new developments as the smaller, newer outfits. But where’s the biggest opportunity? My humble suggestion is that the planning involved in buying a main family package holiday will remain firmly old school in terms of technology, with very few knockout technological developments on the horizon. Offerings should be focused on getting the price right, making the whole process easy and effortless, adding on some reviews, and improving digital content (use video). Social media has little impact in this core “Plan the Big Summer Holiday” scenario.
But once a customer is on holiday – on location – everything changes. Largely because tourists don’t spend their time glued to a computer screen, the opportunity for the travel sector to sell in additional location-specific products is huge.
Existing trends in e-commerce tell us that customers are very willing to buy into an ‘offer’ while they are in the location, provided that that offer is personalised and only open to a small group of customers – and it is genuinely a good offer.
Flash sales based on small, select, geographically specific groups of consumers have already taken off outside the travel sector (especially in fashion) and there’s no reason to think that this won’t be the case in travel. Imagine a family travelling to a major city with a big operator and then being notified of special offers that are highly relevant to that family, over the next few days of their trip?
At the moment some of this revenue generation is run by the rep on the ground but my sense is that this is only tapping a tiny percentage of the potential market. Time sensitive, location-specific, special offers must be a huge growth opportunity for the travel sector using social media technologies – with potentially big revenue and margin opportunities for the major operators, yet no-one seems to have made a serious push? Watch this space.