Travel Convention 2016: Abta's Travel Convention in Abu Dhabi looks beyond the next year or two. Ian Taylor fills in the gaps

Travel Convention 2016: Abta's Travel Convention in Abu Dhabi looks beyond the next year or two. Ian Taylor fills in the gaps

The Travel Convention opened in Abu Dhabi yesterday with at least three major questions hanging over it.

Will Monarch survive to the end of the week? Will the government finally announce the site of a new London runway – a decision widely reported to be this week or next?

Will the pound hold steady after last week's flash crash or is this how things will proceed through two-plus years of manoeuvring over Brexit?

Abta pitched the Convention as squarely about the future – not next summer or 2018, but the future trends which will shape the sector.

I confess I take this with a pinch of salt. Recall every industry event of the decade to 2007-08 and whether there was the merest hint of a possibility of the kind of financial crash and recession which wiped 20% off the outbound travel market from 2008 to 2010? There was not.

To paraphrase the economist John Maynard Keynes, to whom Theresa May appeared to turn last week, we know what will happen tomorrow (we'll get up), we know what the long term holds (we'll be dead), it's the bit in between that is impossible to predict.

So I'll stick to the near future. The exchange rate will shape not just the cost of overseas holidays but general UK inflation.

The runway decision will send the clearest signal about the government's intentions regarding business and international trade.

Monarch's survival or surrender will have consequences beyond the immediate requirement to repatriate and refund passengers.

I certainly hope Monarch continues flying. For what it's worth, I think it will. For one thing, investor Greybull Capital needs to demonstrate it's more than a buyer of fire-sale goods – not least to the government given Greybull's investment in the steel industry.

Yet I fear Monarch will continue to find the going tough given the competition from Ryanair, easyJet and now Norwegian, and the overcapacity in the short haul market.

The pressure is squeezing bigger carriers than Monarch with its six million-odd passengers last year. Nowhere is this more stark than in Germany, where Lufthansa is shifting all but its hub capacity to its 'low cost' Eurowings subsidiary and Air Berlin looks like requiring a reincarnation to survive.

Germany is Europe's biggest economy by a wide margin. That makes it Europe's leading market for leisure and corporate travel, and Air Berlin is the country's second-biggest airline, carrying in excess of 30 million passengers last year or five times more than Monarch.

Yet the airline has struggled for years. Partly that is because low-cost carriers and the de-regulation which spawned them came later to a united Germany than to the UK and Ireland, meaning Ryanair and easyJet were able to steal a march. Air Berlin was squeezed from the start in its home market.

The airline also adopted a hybrid strategy, mixing short haul and long, scheduled and charter in a way not dissimilar to Monarch's former strategy. And a bit like Monarch, one restructure followed another – only on a grander scale.

At the end of September Air Berlin announced yet another. A move to a "new business model" will see it separate off its charter business, lease 35 aircraft and crew to Lufthansa's Eurowings and a further five to Austrian Airlines, and cut its fleet to 75 aircraft none of which it owns.

Last week, TUI, Etihad Aviation and Air Berlin confirmed they are in talks to create a new leisure airline using Air Berlin aircraft, Etihad "expertise" and "Tui's distribution".

In this case 'expertise' stands for 'investment' as Etihad would be a key stakeholder – indeed, the German press reported Etihad would be the majority stakeholder, although that would contravene EU law which limits holdings by non-EU companies to 49%.

Subject to agreement, and to regulatory approval, this would mark quite a development.

TUI would relinquish control of TUI Airlines (or TUIfly) and its fleet of 41 aircraft in Germany, a prospect which sparked a wildcat strike at the airline last Friday. What might it mean for the UK?

Etihad and TUI are eminently successful in their respective areas, so where might a joint venture take them?

But the talks have not come for positive reasons. Air Berlin has a problem surviving. Etihad has a 29% stake in the carrier, acquired in late 2011, which has yet to realise any value. TUI has 14 aircraft leased to Air Berlin which it needs to make money from.

In the words of TUI Airlines chairman Henrik Homann last week: "We have too much capacity of our own and we are producing it well above market prices."

The pressure in Germany is no different to that afflicting Monarch and it's not about to ease.

What of the exchange rate? It will be subject to flash crashes or similar for the foreseeable future. That is the reality.

If it's any consolation, a renewed banking crisis in the euro zone appears increasingly likely – which would improve things for the pound.

Should Donald Trump win the US presidential election, the dollar would also tumble, though the other consequences are too awful to contemplate. Space tourism might become attractive.

And what of runways? The government will opt for Heathrow. Anything else would be absurd and damaging in the current climate. Expect confirmation any day, followed by demands for a judicial review and who knows what other barriers (and that will just be from Gatwick).

Comments

This is a community-moderated forum.
All post are the individual views of the respective commenter and are not the expressed views of Travel Weekly.
By posting your comments you agree to accept our Terms & Conditions.

More in News