Special Report: Barclays Travel Forum

Special Report: Barclays Travel Forum

The 12th annual event saw 300 senior travel delegates hear from industry experts at the British Museum. Lee Hayhurst reports

Pickett points to debt and GDP as concerns for travel

Signs that household expenditure is being squeezed and consumer debt is rising are concerning for the prospects of the travel sector.

Graham Pickett, Deloitte lead partner for travel hospitality and leisure, gave an economic update full of foreboding for travel.

He accepted some economists got it wrong predicting a post‑Brexit vote crash, but he described the UK economy as “precarious” and asked: “Are we running on borrowed time?”

Pickett pointed to stagnant wage growth and rising household debt, while economic productivity in the UK remains stubbornly low, 18% behind other G7 countries.

Figures show Britons have £270 per person more credit card debt than in January 2016, inflation is creeping up and unemployment fears are rising, said Pickett.

“All statistics are showing that things are tighter at home,” he said. “Inflation risk is definitely there. Unemployment is being mentioned again. House prices are not going up as they were.

“We need to reflect on that impact, albeit to be careful not to talk ourselves into recession.”

Pickett said the impact of Brexit and political uncertainty was feeding through into economic uncertainty. A 16% post-referendum devaluation in the pound is behind many cost rises.

“There is definitely going to be a bumpy ride as headlines hit the press day in day out as we go in to Article 50 negotiations.”

Despite the challenges for the UK and internationally, Pickett said the travel sector globally was seeing a number of positive trends.

He said the sector’s share of GDP and employment was continuing to rise, adding: “We need to make it clear to government we are playing a bigger part in our economy.”

Rissbrook urges agents to shout about their value

Travel agents were urged by business travel specialist Anthony Rissbrook to do more to talk up the value they offer to combat moves by suppliers to go direct.

The chief executive of Hillgate Travel said: “We need to get across that our sector, in particular, can deliver higher yields. The people likely to spend most are business travellers.”

Rissbrook said “constant noise” from suppliers about breaking up the distribution system should be countered.

“We are strong supporters of the GDSs (global distribution systems) and believe they will move to keep up with the times in terms of the distribution model,” he said.

“Our industry needs to be proud of what it achieves.”

He welcomed changes in the corporate travel sector which has seen agents increasingly charge clients for their services rather than rely on suppliers’ commission.

But Rissbrook warned that a recent rise in override rates from suppliers who appreciate the benefit of promoting their product through third parties had reversed that trend.

“When agents get to a position where well over 50% of income comes from suppliers, that will change and they will have to charge again,” he said.

“Clients have never had it so good in terms of fees, but at the end of the day they have to pay somehow.”

Hillgate Travel has “made a success” of payment term changes by airline industry body Iata that saw agents in the UK having to pay fortnightly rather than monthly.

He said the change to Iata’s Billing Settlement Plan had been one of its ‘five big risks’ but the firm had been able to get its customers to pay it more often.Rissbrook said all agents will have to stop offering credit as Iata’s aim is to bring in weekly remittances.

“Our businesses cannot operate as a bank,” he said.

‘Strong airlines keep fares low to hurt rivals’

The benefit of lower fuel costs is being used by budget carriers to keep prices down and put pressure on less-efficient airline rivals, the forum was told.

Deloitte’s Graham Picket said although airline passenger numbers were rising, margins had not seen a comparable lift as competition and overcapacity suppressed prices.

Aviation consultant Jonathan Strickland said carriers such as Ryanair were using their considerable cash reserves to put pressure on rivals.

He said: “In some markets there certainly is overcapacity. That’s forced prices down, but lower prices are a double-edged sword as much of the benefit is given back to consumers.

“Ryanair can do that with the cash pile they have to put pressure on their competitors. I do not think we will see prices going up.

“The best-managed airlines are going to be ultra-focused on operating costs and putting pressure on those airlines which are much weaker and not as well financially managed.”

Christine Ourmières-Widener, chief executive of Flybe, said it would reduce the size of its fleet as it was in “stabilisation and consolidation mode”.

‘Cybercrime and data breaches are major risks’

The risk of cybercrime is the number-one concern for the travel industry, Deloitte’s Graham Pickett told the forum.

“The crime guys are getting smarter and smarter by the day. What is our industry doing? We are getting more and more into big data and we are outsourcing more of our activity, particularly in IT.”

Pickett said the sector was becoming more reliant on technology, with new European rules due to come in next year under which firms will face huge fines for breaches of data security rules.

Firms could be fined €20 million or 4% of global turnover, whichever is higher, from May 2018 under new General Data Protection Regulations.

Pickett said he feared things were “going the wrong way”.

“We need to focus as an industry to combat cyber risk,” he said.

Meanwhile, growing levels of gastric illness compensation claims against travel companies were “fraud”, Pickett said.

He warned the image of the industry risked being damaged if it did not do something.

Survey finds 73% are upbeat about outlook this year

A survey of the 300 delegates who attended the 12th annual Barclays Travel Forum found optimism remains high in the sector.

Nine in 10 (90%) of respondents said they expected their business to grow this year, up from 83% a year ago.

Three-quarters (73%) were confident about the outlook for their businesses this year, also up on last year’s figure of 67%.

Regions expected to see increases in bookings this year were Asia and Europe, while North America and Africa were expected to see decreases.

Cruise was tipped as a sector that will see growth, while Brexit, followed by exchange rates, topped the areas of most concern for respondents.

Chris Lee, director and head of travel at Barclays Corporate Banking, said: “There’s plenty for the travel industry to contend with at the moment, and it was great to hear from so many key players about the opportunities and challenges facing the sector.

“The survey results are very encouraging, as they show that the vast majority of businesses remain confident about their prospects this year.”

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