Taylor on Travel

British Airways' change of policy on refunding fuel surcharges has agents hot under the collar, and quite right. After all, they have to explain why a fuel surcharge is shown as though an addition to a fare but not repaid even on a non-refundable ticket when a client does not fly. BA repaid it in the past, right up until December 22. This is plain money-grabbing, surely?

Well, yes - and BA admitted as much in its notice to the trade in December, which explained: "Although we have refunded the surcharge on our best-value fares in the past, we are no longer able to do this in the current economic climate."

As a BA spokesman told me: "We have to make savings where we can. We are not particularly happy about it. It is not a decision taken lightly."

We are not talking about a small amount of money. The fuel surcharge on a £338 ticket between Heathrow and New York JFK is £136. Now you see it, now you don't.

However, BA does have a defence. It is perfectly within its rights. More, it did not need to repay the fuel surcharge on non-refundable fares prior to December 22. The fuel surcharge is part of the fare - the UK Office of Fair Trading insists on this - and as part of the fare a fuel surcharge on a non-refundable ticket is non-refundable.

So why does BA - and it is not alone - insist on showing a fuel surcharge as an element of a fare? In the aid of transparency, it says. Hokum, a fuel surcharge does not cover the full cost of fuel on a flight so what is revealed by this supposed transparency? When I asked, BA declined to give me even an average figure for the proportion of fuel covered by surcharges. What is transparent about that?

Bu there is a rationale. The retention of fuel surcharges despite the collapse in the oil price is partly to do with marketing - a way of saying 'We are not responsible for this price being this high." It is partly to do with regulations that restrict fare rises in some markets, for example Japan.

And it is partly to do with the complex structure of fares. It is far simpler to change the surcharge element of a fare than to change the fare itself. That would mean updating rates worldwide every time there was an oil-price shift and doing so across IT platforms.

BA suggests doing so would "be problematic for the travel trade as it is logistically difficult for some to manage". Most of you will know better than me whether that is the case. So what do you think?

The industry mantra that consumers won't forego their annual holiday had better weave its magic - because the screw is tightening on spending.

Latest figures from the US - where the downturn and popular awareness of it is in advance of the UK - show consumer spending fell at an annual rate of 3.1% between July and September. That is the sharpest fall since 1980, and the annual fall in purchases of big items - furniture and cars - was 14%.

The figures surprised economists - though what does not these days? Yet the contraction in the US economy, at 0.3% over the quarter, was lower than in the UK where GDP fell 0.5% in the same period. Consider the relative size of the two economies - the world's largest against one considerably smaller than Germany's - and you get some idea of the problems facing Britain.

UK house prices are now falling at the fastest rate since the early 1950s, making a mockery of previous claims that the current house-price decline would not be as bad as the early 1990s - remember those? The real decline of 18% in the past year, allowing for inflation, is worse than the headline rate of 14.6% according to Nationwide figures. That compares to an 18.8% fall spread over four years from 1989 to 1993.

None of the above figures include the last month, remember - when the government nationalised the banks, Iceland went bust and the world's financial system lost $2.8 trillion.

Economists increasingly predict recession through 2009 and stagnation for 2010, which sounds like small chance of recovery before 2011. In the meantime, a Credit Suisse analyst suggests, "households are spending on things they need, not on things they want".

The Chartered Institute of Personnel and Development reports one in four UK employers are preparing to make staff redundant, warning of "a torrent of bad news" for the labour market. Managers, white-collar professionals and skilled non-manual workers are "most likely to suffer redundancy" says the CIPD - the kind of people who generally holiday abroad, maybe more than once a year.

Verbal repetition or chanting to ward off danger and bring reward has a long tradition. Unfortunately, so do recessions - and mantras have yet to be shown to help.

The latest Ascent Marketing Intelligence figures for travel trade sales are good - very good in the circumstances.

A 2% year-on-year decline in sales this summer, when TUI Travel and Thomas Cook - the two biggest companies, controlling around half the market - reduced mainstream capacity by more than 10%, is remarkable.

It meant the average rise in prices exceeded the headline rate of inflation. That is not great news for bargain hunters, but late-discount deals have been the bane of the industry for as long as anyone can remember.

The collapse of XL Leisure Group in September removed another 7% of capacity - a body blow for the staff, a shame for the minority of holidaymakers who were unprotected and a headache for agents and tour operators, but no disaster for the industry's outlook as a whole.

Also remarkable, overall bookings for this winter to September were 1% up year on year - and bookings for September itself were up 3%.

In both seasons, it has been the low-price business that has been lost while more costly sales have picked up - suggesting those with less cash are trading down with Ryanair or no longer flying. That conclusion appears borne out by latest UK air traffic figures suggesting a 5% fall in passenger numbers in September compared with a year ago.

Summer 2009 remains too far off to call. Ascent reported a 3% drop in September bookings on a year ago - which would leave demand ahead of capacity in the coming year. But how many people would commit to a holiday next August at the moment? The post-Christmas sales will provide the first real picture of what to expect.

Two notes of caution are in order.

First - many smaller travel businesses will struggle to find airlines seats as a result of XL Airways' collapse and the resulting prices may deter a proportion of clients, hitting next summer's market. Yet this is no time for start-up carriers to jump in. Tour operators would be wise not to pin hopes on such an outcome.

Second - the Ascent figures take us up to the end of September. But the world economy - and the outlook for the UK in particular - took a decisive turn for the worse in October. The recession penny has only really dropped since the government nationalised many of the high-street banks on October 8. We are in a new situation.

The squeeze on finance is feeding through to major travel suppliers. US giant Marriott became the first hotel group to warn of cancellations and delays to new properties this week, putting tens of thousands of jobs at risk. It is unlikely to be the last.

Only this summer, Marriott was complaining of a crisis in human resources as demand for hotel staff outstripped the available workforce. Now it is compelled to warn of reduced investment and cuts at its Maryland headquarters, announcing it has called on $900 million in credit to cover a cash shortfall.

The reason is a sharp fall in revenue per available room (revpar). Having reported a 5.6% increase in revpar in the second quarter of the year and 3.4% increase in the third, Marriott forecast a 3% fall in the final three months of the year and flat or falling revenues per room throughout next year.

Elsewhere, Airbus has agreed to pay French aircraft-parts manufacturer Latecoere in advance for work on the A380 superjumbo owing to a "temporary liquidity problem" at the company. In other words, Airbus is injecting cash to keep the parts-maker going. According to an unnamed source: "Nobody can afford to see Latecoere in difficulty." Production of the A380 is already way behind schedule.

Back in the US, Virgin Group is ready to inject an unspecified sum into US domestic carrier Virgin America, which began flying last year and in which the group holds a 25% stake. Virgin America has already sought an additional $100 million this year.

In the circumstances, those hoping the UK can escape the worst of the economic showdown might want to consider the following. While US politicians have fought over a $700 billion bail out of the banking system - about £390 billion at the current exchange rate - the UK government and Bank of England have so far spent £350 billion if you total the injections of liquidity and nationalisations of Northern Rock and Bradford and Bingley.

This is the estimate of The Guardian economic expert Will Hutton, not me - and the Treasury is reportedly working on plans for an even bigger rescue.

Given the relative sizes of the US and UK economies, the proportion of gross domestic product these sums represent and the likely impact on public spending and taxation, which economy faces the bigger hit do you think?

Alastair Darling did not dare say it. The Bank of England has not dared yet either. But the OECD has stomped where the Chancellor and the Bank fear to tread.

Yesterday the Organisation for Economic Cooperation and Development forecast recession for the UK this quarter and next - i.e. now.

The recession will not officially be identified until next year, of course. In UK economic circles a recession is defined by a contraction in two successive, three-month periods.

This definition is not an iron law and you can pick another - rather like the inflation rate. The official rate is defined by the government's Consumer Prices Index, which provides a fairly limited guide to what is happening to prices. Check the official rate against your quarterly supermarket or fuel bills if in doubt.

So the OECD says the UK's economy is shrinking as we shelter from the current downpour and will suffer a sharper decline in October-December.

Combine this with Darling's astonishing suggestion at the weekend that Britain faces potentially "the worst economic conditions in 60 years" and you will understand the plunge in the pound against the euro. You may even think you would rather be in New Orleans.

We already know the economy stagnated in April-June and grew just 0.3% in the first three months of the year - the Office for National Statistics has told us.

Last week, the CBI reported the retail sales figures for August were the worst in 25 years. The Office for National Statistics did not tell us that - its most recent figures suggested a small recovery.

We are in dangerous territory when economists do not trust government figures. Yet Darling has been roundly ridiculed for his comments.

Britain clearly is not experiencing its worst economic crisis in 60 years - although why Darling chose 1948 for the comparison is beyond me. There was still rationing in 1948, but this was the year the NHS was founded and the Marshall Plan was in swing across Western Europe - not signs of deep crisis. Did he simply wish to avoid saying "for 75 years"?

It is not even clear yet that this is the worst economic crisis since the early 1980s. The situation is almost certainly worse than the early 1990s.

However, possibly the most disturbing of Darling's comments attracted less attention. It was his warning that the downturn could be "profound and long-lasting". The Chancellor was basically saying - 'whatever the government does, things will get worse for the foreseeable future'. 

Can it be only a fortnight since the British Chambers of Commerce was solemnly warning that the UK may enter a technical recession in six to nine months? "We expect growth to be slightly negative or zero," said the BCC.

Most economic forecasts tend to be over-optimistic - sometimes hopelessly so - although the British Chambers of Commerce appears more hopeless than most.

Darling has not endeared himself to anyone, but it least he was fairly honest. Reshuffle anyone?

Alitalia has filed for bankruptcy protection. This has to be the least-surprising development in the accelerating downturn in aviation.

The airline has long-term debts in excess of Euro1.1 billion, swelled by half-year losses of Euro400 million, and has been on the canvas for a decade. It barely got back on its feet following a post-2001 battering, and its footwork in the current bout with the oil price and banking crisis has been laboured. Alitalia is in no condition to go 14 rounds with a recession.

The board counted to ten and out on Friday. Now comes the tricky bit.

The liquidation and rebirth of the carrier in a merger with Italian domestic rival Air One may sound like a neat solution, but could be fraught.

We can assume most of the investment is in place from a 16-strong Italian consortium - a major consideration in current circumstances. Air France-KLM has expressed an interest in taking a minority stake, Lufthansa may do likewise, and the government in Rome will not drive a hard bargain in relinquishing its 49.9% stake. Think sweeteners more than smelling salts.

But wait - what scuppered the proposed takeover by Air France-KLM, aside from the opposition of soon-to-be-PM Silvio Berlusconi? It was the unions, which objected to thousands of job losses and threatened strike action - something in which they have experience.

Now the liquidation masterminded by banking group Intesa Sanpaolo threatens 7,000 redundancies from a workforce of 18,000. I make that more than one in three. The threat of being axed could demoralise or unify opposition to the plan. We will soon see which.

The remaining workers will be on new contracts. We can assume the new owners intend these to be less generous than the old. We can also assume those expected to accept the new contracts won't like it.

The plan is largely seen as the work of Berlusconi, who only recently returned as PM, but whose two previous terms of office have ended badly following waves of strikes and popular protest. Alitalia could form the terrain for the first battle of his new premiership.

If it does, Intesa Sanpaolo's announcement that formation of the new airline will take four weeks may prove optimistic.

The law of unintended consequences could kick in if the Competition Commission sticks with its preliminary conclusion and orders a break up of BAA next March.

The Financial Times quotes analyst Paul Hickman of KBC Peel Hunt suggesting a sell off of Gatwick, Stansted and Glasgow or Edinburgh airports could adversely affect the Restaurant Group - the company behind the Garfunkel's and Chiquito eating chains.

The group runs 44 airport concessions, 30 at BAA terminals. The FT points out new airport owners might bring in other companies to run these. Heaven forbid.

"The implications are not positive for the Restaurant Group, which has built up its concessions business largely on its relationship with BAA," says Hickman.

Depending on your view of Garfunkel's food this might be a reason to insist the airport operator divest.

However, there is a contrary view that may yet belatedly enhance BAA's reputation - and it comes from Restaurant Group chief executive Andrew Page.

He says: "BAA limits how much exposure a retailer can have in its airports, while other airport operators do not." So a sell off will not faze Garfunkel's and Chiquito. "We see this more as an opportunity than a threat," says Page.

Surely this is grounds enough to call off the Competition Commission and uphold BAA's monopoly?

Can British Airways finally achieve its aim of merging transatlantic operations with the world's biggest carrier, American Airlines?

The joint business agreement between BA, American and Iberia will require anti-trust immunity and Virgin Atlantic wasted no time in firing the first shots against. In fact, it fired a volley - with letters to the leading US presidential hopefuls and almost daily press releases. Given the carriers' previous, this could be a fight fit for Madison Square Garden.

Richard Branson labelled the proposed alliance "a monster monopoly" that would cut competition and push up fares. BA's Willie Walsh would expect nothing less. Naturally, Virgin fears being squeezed. But if Branson is right, the regulators could be expected to give the proposal short shrift.

BA has been here before - although not with Iberia in tow - in 1997 and 2001. The second of these applications would have succeeded if the pair had been prepared to give up 16 daily departures at Heathrow. BA balked at that and probably would do so again.

There is no reason to suppose the competition regulators will rule out the partnership this time - the question will be the price.

Walsh believes the situation has changed enough for him to win this time or he would not have applied for immunity. He has already said a third failure would rule out a further application.

So what has changed?

Continue reading "Willie, won't they?" »

Ryanair's capacity to antagonise is as remarkable as its love of publicity. Small wonder the two came together so beautifully in the "we'll-turn-passengers-away at-check-in" story taken up by the media at the weekend.

The first thing to be aware of is that this is the silly season, so even stories that are not of the "Freddie Star ate my UFO" variety can take up more column inches than they might otherwise deserve.

However, the facts here appear straightforward. Ryanair insists it can, will and has cancelled passengers' bookings made through screen-scraping websites - including sites the BBC identified as "internet travel agents".

This could affect up to 1,000 passengers a day across Europe - Ryanair admits that. We can guess how those affected feel about it. If I was among them I certainly would not conclude that next time a direct booking with Ryanair was the way to go.

Strangely, on Tuesday a Ryanair spokeswoman told me no passenger had, in fact, been turned back from check in. However, the following day a different spokeswoman refused to confirm this, insisting only: "Cancellations have been made. Cancellations have been made."

Continue reading "Ryanair ate my hamster" »

The charges of price fixing levelled against four past and present executives of British Airways by the Office of Fair Trading are bad news for them and pretty bad news for the airline.

It is bad news for the individuals because they could go to jail - lawyers say for up to five years. The OFT appears keen to make an example of senior company figures following a spate of high-profile investigations into alleged cartels across a series of industries - tobacco, construction, supermarket retailing.

Of course, being charged is not the same as being found guilty. It provides an opportunity to establish innocence. But there is a sizeable risk. Careers and personal lives are on the line as well as liberty.

It is bad news for the airline because mud sticks and because the current head of sales is among those charged, not just those who left in the immediate aftermath of exposure. It is bad news because a line that had been drawn under the affair has been erased.

BA boss Willie Walsh acted swiftly when the collusion with Virgin Atlantic on fuel surcharges first became public. The carrier admitted the offence and paid its fines - totalling £270 million here and in the US - while maintaining a thinly veiled hostility towards Virgin for spilling the beans.

The collusion, between 2004 and February 2006, began before Walsh's time. But he was shadowing outgoing chief executive Rod Eddington from May 2005 and took over as head in September that year. The acts of collusion only ended five months later and were made public in June 2006 after Virgin went to the OFT.

Continue reading "BA in a fix" »