Taylor on Travel

Lawrence Hunt will have pulled off the deal of his life if Silverjet returns to the skies between New York and Luton.

An agreement on Tuesday between administrator Begbies Traynor and the Irish arm of Swiss investment-management company Heritage could be signed off on Friday and, assuming the CAA approves, the airline will be flying within a month or so.

That would be a remarkable recovery. All seemed lost two weeks ago when the carrier ceased flying. Airlines rarely, if ever, return from the dead.

The CAA will judge whether the proffered £50 million is enough to see the carrier through untold months of losses. The big question will be whether customers and the trade return.

Passengers clearly loved flying with Silverjet and the trade had nothing but praise for the airline. It was brought down by the oil price and the squeeze on credit - factors likely to strangle any start-up carrier.

There is no reason to believe an all-business class airline is inherently unprofitable in every circumstance - a fact acknowledged by Willie Walsh when he insisted recently that there was nothing wrong with Silverjet's business model.

However, Lawrence had cause to bemoan the lack of confidence he felt travel agents showed in the carrier once its future appeared in doubt, and the confidence of those booking seats will be a major factor in how far Silverjet mark 11 takes off - because the circumstances that brought down mark 1 have not changed.

There is to be no silver lining for Silverjet, it seems. Administrator Begbies Traynor today pronounced a life-saving acquisition dead.

Airline founder Lawrence Hunt has defied the odds before, but the failed rescue looks like it was the last rabbit out of the hat.

Commiserations to Silverjet's 420 staff - here's hoping they rapidly find work and do not have to wait behind a list of creditors for any unpaid wages - and to Lawrence, who gave his utmost and handled himself with dignity, charm and humour.

Begbies will now look to get the most it can for Silverjet's assets. Shareholders have already been told to expect nothing.

The consolation, if there is any in such circumstances, is that Silverjet came down through no fault of its own. Start-up airlines require a lot of cash and patient investors at the best of times. For airlines, these are the worst of times. Silverjet will not be the last victim. There are bigger failures on the way.

Could the deregulation and end to government subsidy that sparked the boom in air travel be about to hit the buffers in the place where it began?

A report in the US on the state of the country's airlines warns the industry is "heading toward catastrophe" and calls on legislators and regulators to make saving it "a national priority". That sounds like a call for intervention.

US carriers are haemorrhaging cash and jobs and, come October, aircraft will outnumber cacti in the Mojave Desert.

A study by AirlineForecasts and the Business Travel Coalition, released today, concludes the top ten US airlines will spend $25 billion in higher fuel costs this year and need to raise fares by at least 20% across the board to stay afloat.

The study's authors conclude such an increase can't be achieved without a substantial fall in air travel - and they argue individual carriers are not capable of achieving the necessary cuts. They warn: "Absent of direct policy intervention, the likelihood is several airlines will fail."

Of course, airlines going bust would remove capacity - and some will argue 'let the market rip' to ensure exactly that.

But consider three factors. One, the authorities have been highly reluctant to do this with the banking sector.

Two, attempts at consolidation - which would allow major capacity reductions - have so far met with limited success. Delta is to merge with Northwest pending regulatory approval, but United and US Airways have called off a proposed marriage because of the cost and Continental is searching the lonely hearts columns.

Three, the US is in an election year and failing to stave off collapse in what is the only national, public transport system - and among companies that are often national institutions - will not go down well.

So watch out for Obama and McCain on the campaign trail, especially in Atlanta, Chicago, Dallas, Houston, Los Angeles, Miami, Philadelphia, Seattle, Washington . . .

Read the study yourself - Oil Prices and the Looming US Aviation Catastrophe - at http://tinyurl.com/6qhh99

A straw in the wind or first sign of a gale - a YouGov-Sunday Times poll published yesterday suggests 26% of consumers are planning fewer holidays.

Assuming the poll is reasonably accurate, the sentiment is widespread and the economic outlook does not improve, a serious downturn in travel may be in the offing.

The question YouGov posed was in relation to the cost of fuel, but it could apply to any one of a number of factors now squeezing personal spending.

One in two respondents said they have cut spending in other areas already, which fits the industry belief that family holidays will be the last thing to go - but pressure to cut spending on additional breaks is building.

Unfortunately, there appear to have been no supplementary questions on spending.

Polls are slippery things, of course. The core of the survey considered support for Gordon Brown and gave the Tories a 22-point lead over Labour. That is pretty staggering, and a mirror image of the Sunday Times/YouGov poll of last June that gave Labour a 21-point lead. Things change.

You could check for yourself via a link at the foot of this page, except that I can't find it myself. The Sunday Times had failed to post the results by midday today despite directing readers to its website - perhaps proving that a day is not nearly a long enough time in political reporting.

David Cameron's speech yesterday outlining a Blue/Green charter may prove of greater significance than some in the industry would wish.

Cameron called Gordon Brown's commitment to expanding Heathrow "pig-headed" and questioned the economic justification for a third runway in terms that go some way to boxing him in on the issue.

The Tory leader realised some time ago he could outflank the Government on the environment and has shown a willingness to alienate business interests in doing so. But yesterday could mark a step-change - although politicians' speeches must be seen in the context of those they were addressing, and Cameron was speaking to an environmental audience.

Nonetheless, he called into question the economic argument that is the bedrock of the case for Heathrow expansion. "There are increasing grounds to believe the economic case for a third runway is flawed," he said. "Why are they hell-bent on pressing ahead without a rigorous analysis of whether we need it? The priority for Heathrow is making it better, not bigger."

BAA and BA, which would benefit most from Heathrow's expansion, must be wringing their hands and reaching for the phone numbers of their hardest-hitting lobby groups. They believed they had a third runway in the bag, with Gordon Brown and transport secretary Ruth Kelly on board and a green light expected in the autumn.

Cameron went further, implicitly attacking those in industry who have called for a retreat on moves toward carbon-related taxes or a more costly emissions trading scheme when the oil price is so high. Insisting he wanted to make his position "absolutely clear", Cameron said: "We are not going to drop the environmental agenda in an economic downturn. . . Those who say, 'Tough emissions targets will damage our industry' have got it exactly wrong."

Heathrow has the potential to become a major political football. Brown is wounded - probably fatally - and opposition to his Government is growing. Heathrow expansion can rally opponents across party lines and many of those lobbying for it are hardly popular in public eyes.

In practice, Cameron would probably sign off airport expansion plans. He made no criticism yesterday of expanding Heathrow through mixed use of existing runways or of building runways elsewhere. And making a statement in opposition is a far cry from implementing it in government.

But the process of building a runway takes time - the best estimate at Heathrow is by 2018 - and unless something remarkable happens, Cameron is likely to be in Number 10 in less than two years.

Assuming the DfT gives its blessing to a third runway as expected later this year, would the first Tory prime minister in 13 years really cancel it? Or might he say the development was too advanced to cancel or the situation had changed or the decision required an independent review?

There are many ways to retreat on a pre-election promise. Yet between then and now a head of steam can build that changes the ground on which decisions will be made. The clouds are darkening for supporters of expansion.

You can read Cameron's speech at: http://www.conservatives.com/tile.do?def=news.story.page&obj_id=145279

A bad few days for airlines and their workforces - not just the demise of Silverjet with the loss of 420 staff, but 2,000 job losses announced at Air Canada, 500 at Finnair and the airline redundancy total in the US close to 9,000.

Unfortunately, $140-a-barrel oil means it won't stop. The problems are spreading too - as is inevitable. Consider the following:

The cuts at Air Canada reflect the downturn in US demand, a fact European carriers will not escape.

Those at Finnair are among the first significant job losses in Europe and the carrier's explanation that demand for China is down significantly suggest even the world's biggest emerging market is not immune.

Easyjet's consultation with pilots and crew on closing its Dortmund base suggest the low-cost carriers' pan-European expansion may have reached its limits, at least for now. If that is true, what will EasyJet and Ryanair do with the extensive fleets they have on order

Charges for check-in bags are poised to become routine in the US, with American Airlines, United Airlines and US Airways all now imposing a $15 fee.

There, in a nutshell, are the prospects in store - job losses, route and airport closures, and ancillary fees to add to fare rises, fuel surcharges and frequency reductions

Will it be enough?

British Airways' launch of OpenSkies, the business-focused carrier that took off from Paris Orly for New York this morning, may be considered a brave move.

Circumstances have changed since Willie Walsh unveiled plans for the subsidiary in January. The oil price has soared, demand declined and the outlook soured.

BA's focus on the US business market to Paris would be sensible at almost any other time. OpenSkies looks an attractive proposition and BA's reputation in the US remains strong despite the recent history of mayhem at Heathrow, misplaced bags and fines for collusion on setting fuel surcharges.

But US carriers are hurting more than most, partly due to a downturn in domestic traffic, and that may have consequences for OpenSkies.

As Virgin America is discovering, this is a tough time for US start-ups. The airlines may be very different, but OpenSkies and Virgin America share three characteristics - they are new, they offer quality and they trade on an established brand. That has not stopped Virgin America announcing a 10% cut in services after 10 months in the air.

At the same time, price pressure on transatlantic routes - generally among the world's most profitable - will be intense. The open-skies regime that provided the opening for BA at Orly could hardly have come at a worse time in the boom-and-bust cycle of aviation.

More particularly, by establishing a subsidiary employing staff on different contracts to those at BA, Walsh has antagonised the airline's mainline pilots.

Having voted overwhelming to strike in protest, only to be thwarted by an ultimately untested legal challenge, BA flight crews may prove underwhelmed by the airline's enthusiasm for OpenSkies and the innovations managers anticipate trialling and possibly extending to BA. Might a legacy of ill-feeling find expression down the line?

BA has cash to burn, of course - but so does Air France-KLM, with which OpenSkies will go toe-to-toe from Paris. The subsidiary should not prove terribly costly, but the wisdom of sacrificing cash reserves at such a time may come into question.

Walsh says he is prepared to lose money on OpenSkies for three years. He may have to.

Is Britain heading for recession? The retail figures for May confounded all expectations, showing the biggest jump in high-street sales for 20 years - surely a smack in the teeth to prophets of economic doom and reassurance the holiday industry can expect a good summer.

The 3.5% rise in month-on-month sales appears so out of kilter with predictions that it has been suggested the figures are wrong - that the Office for National Statistics miscalculated the seasonal weighting. After all, monthly sales figures usually rise or fall by fractions of percentage points.

But are the stats so strange? The figures reflect the volume of sales across retailing. What were people buying? Asda reported selling 250,000 bikinis at £3 each. Both it and B&Q recorded heavy sales of barbecues. Summer dresses and sandals sold well, as did flatscreen TVs ahead of the European football championship.

Was it the sun what done it?

Other figures are revealing. John Lewis reported the value, rather than the volume, of sales up by just 1% in May - and inflation will be a factor in that. Food retailer Sainsbury's registered virtually no growth despite food costing more.

The British Retail Consortium attributed the sales growth to discounts and promotions, and reported reluctance among consumers to buy more expensive items. The ONS figures nonetheless show a 7% rise in the total value of sales in May - although that is an annual rate not month on month.

So what does this tell us?

There was a binge in May when the sun came out. People spent primarily on staying at home. They largely avoided major purchases. Retailers continue to discount and most are pessimistic about the outlook.

Separately, the consumer price index - the least reliable guide to inflation - hit 3.3% last month. The Retail Price Index, a better guide, hit 4.3%. Food, energy and transport prices are rising by double that.

So the value of sales is rising mainly due to inflation - meaning the pressure on discretionary spending can only increase.

Elsewhere, a survey by financial services firm NS&I backed up industry research suggesting people view their holidays as sacrosanct - to the extent that one third begin thinking about their next trip while away on the last one.

However, NS&I also found one in five fail to consider their cash situation when booking, three out of five overspend while away and one in four return home to financial problems as a result. What happens when the penny drops with the over-spenders, especially with credit now tight?

A lag between the onset of an economic downturn and its reflection in the level of holiday bookings is to be expected. It has happened in the past.

My guess is this summer will prove a fair-to-good one for the travel industry. Next year may not.

BAA did well to get approving articles on the latest security upgrade at its airports into weekend newspapers.

Last Saturday's Financial Times ran a substantial piece under the headline "BAA moves to speed up security checks". No doubt this attracted the eye of weary corporate travellers - although the Monday editions might have made more sense when passengers could have read it as they passed through Heathrow and glimpsed light at the end of the tunnel.

Forgive me, then, for pouring cold water on the latest enhancement to airport security behind the headline - the handheld vapour detector.

Two hundred of these will be deployed "to sniff out substances used in home-made bombs", according to the FT.

Leave aside the fact that dogs and people sniff and most handheld devices do not, these vapour detectors will "add an extra layer of safety", says BAA, as part of a roll out of equipment intended to ease carry-on baggage restrictions.

The Ion Mobility Spectrometry (IMS) technology will test passengers' luggage for traces of explosive material without the need to take a swab for a litmus test. The handheld IMS test will take as little as 10 seconds, which is good.

But the detectors will be used when passengers have already been stopped for a hand-luggage search to identify any liquids or traces of liquid. The detectors will speed up the experience of those detained for such a search, but will make no difference to the general level of queuing or time it takes to go through security.

That is the first reason for caution. The second is that the detectors may encourage security staff to check a greater proportion of passengers in this way. In other words, a larger number of people could be delayed a little more as opposed to a smaller number held up for longer.

When I put this to BAA, a spokeswoman declined to say anything - about the detectors, the proportion of passengers carrying liquids that are tested now, whether the proportion might increase, anything - but this is precisely what has happened following other innovations in airport-security technology.

A third reason for caution is that there is a danger of the detectors giving false readings. They will basically be used to identify hydrogen peroxide, which can be used in liquid explosive. It is also used in hair products.

This is not to suggest that anyone taking 100mls of shampoo through security could go the way of the Birmingham Six - the six Irishmen wrongly jailed in 1975 after traces of a substance on their hands were identified as plastic explosive. It was not until 1991 that the Court of Appeal concluded the traces had come from plastic-backed playing cards. Now that is a serious hold-up.

The point is the detectors may identify a lot of common substances as potentially dangerous and lead to further delays for passengers carrying them while they undergo additional tests.

Oh, and Manchester airport already uses the detectors. Incidentally, BAA insists it is confident of hitting its target of getting 95% of passengers through Heathrow security in five minutes or less this summer and 99% through in ten minutes or under. Remember you read it here.

The Tory position on airport expansion appears to have hardened following David Cameron's speech last week. Shadow transport secretary Theresa Villiers subsequently suggested of a third runway at Heathrow: "The government needs to go back to the drawing board and do its sums again."

We may discount the idea that Cameron's remarks were tailored for the audience of environmental leaders he was addressing - somewhat unlikely in any case. The Conservatives see being anti-Heathrow expansion as a vote winner - which is bad news for BAA, British Airways and most other carriers at Heathrow. It won't please the CBI either, which generally has few problems with the idea of a Tory government. What on earth is going on?

The Tories have taken a leaf out of New Labour's book, which pinched the idea from Bill Clinton's Democrats. Political strategists call it triangulation. Basically, take your core support for granted and appeal to those on your opponent's side.

Cameron has decided Labour is vulnerable on the environment, which heaven knows it should be, and that is to be the ground on which he swipes sufficient of those who might more naturally side with Labour and sweeps into Downing Street. Tony Blair pulled off a similar trick by embracing Margaret Thatcher and her policies - although he probably always did.

The Financial Times suggested the Tory position threatens "a serious rift between David Cameron and business". I doubt it. Business wants stability more than anything. That is part of the reason why the City and the CBI has fallen out of love with Labour - they have been taken aback by the recent gyrations in policy of which the U-turns on tax are a symptom.

The travel industry's fury at the doubling of APD, announced in December 2006 and introduced in February last year, might now be a seen as a portent of the end of the affair between business and New Labour - at least as far as Gordon Brown is concerned.

Thomas Cook's half-year trading figures were sound and its forecasts upbeat, with this summer's trading strong and average UK selling prices 5% ahead of the same time last year.

Indeed, the company reported prices over the previous six weeks 14% ahead, far better than might be expected.

The good health of the second-biggest travel group in Europe and the UK has to be good news for the sector in general and follows a similarly upbeat picture from rival TUI Travel. The key to chief executive Manny Fontenla-Novoa's smile lies in two factors.

First, Cook has clearly got its UK capacity right this year. The overall 9% reduction in summer 2007 capacity conceals a 22% cutback in available short-haul holidays and a mere 2% fall in medium haul, with long-haul reduced by 13%. That has cut the competition with Ryanair and EasyJet and left Thomas Cook with a smaller proportion of holidays left to sell, ensuring prices have held up.

Cook has made a similar 9% reduction in airline capacity in Germany, its other major market.

Second, the group is hedged more thoroughly than Hampton Court Maze. The group has locked in the price of 93% of its jet fuel and 100% of its crude oil requirements for the remainder of this financial year and has options to hedge 89% of its fuel for 2008-09.
It is also 100% hedged against changes in the exchange rates of the euro and the dollar for the next six months, and 75% hedged for the dollar and 67% for the euro next year. That means Cook can set prices with reasonable confidence.

Prices for summer 2009 holidays will be 7% higher than this year, which is a hefty increase but in line with the current oil price and a Retail-Price-Index inflation rate of 4.3% and rising. A further 5% cut in capacity next summer should go close to matching any drop in demand.

The ability of the two major operators to manage capacity has rarely been sharper, at least since the boom in low-cost flights smashed the former trading model in the late 1990s. Both Thomas Cook and TUI Travel have substantially reduced capacity since their respective mergers with MyTravel and First Choice last year - a process made easier by elimination of two of the former Big Four.

The flies in the ointment remain the low-cost carriers Ryanair and EasyJet. The tour operators score big plus-points in their traditional markets - with family friendly packages, consumer protection, transfers, onboard catering and so on - and have cut some of the head-to-head competition by pulling flights.

But price will be a bigger consideration than ever at the lower-end of the market next year and significant numbers of people may postpone holiday decisions due to financial pressures.

That need not be a problem so long as the companies get their capacity right and sell it at the right price. In other words, it will all come down to tour operating. The real pressure could be on hotels.

Willie Walsh did not, to my knowledge, join Stop the War protestors in Parliament Square to oppose the recent visit of George Bush. But the British Airways boss was every bit as angry about the presidential trip that disrupted flights at Heathrow for three days in mid-June.

As ever, BA bore the brunt with more than 50 flights cancelled, 260 delayed and 38,000 passengers inconvenienced.

Not only was a runway closed for the president's exclusive use upon his arrival and departure - a privilege not extended to Britain's prime minister or the Queen - but a practice run by US military helicopters two days before also shut a runway.

Walsh expressed his anger at the "completely unnecessary" disruption in a column in staff newspaper BA News, complaining of knock-on delays of six hours on two of the days.

One wonders why Heathrow was preferred to a US military base. God knows there are enough of them in Britain with an active US Air Force presence - so much so that the country was compared to a US aircraft carrier in the 1980s.

Was the security at Heathrow considered superior? Did the president want some duty free? And why did the helicopter pilots require a dry run two days before Bush arrived - were they rusty?

Walsh was still smarting when he appeared at a conference on sustainable aviation in London on Wednesday. "It was ridiculous," he said. "But it won't happen again."

By all accounts Heathrow operator BAA was not happy either. A spokeswoman conceded the visit, including the "helicopter rehearsal", caused three days of disruption. I suggest the anti-Heathrow expansion group Hacan Clearskies contacts the pilots immediately to take part in future protests.

Indeed, why not go the whole hog and sign up Bush himself. No one else has managed to close a runway three times in as many days and the Texan will be free from January.

Meantime, presumably the Civil Aviation Authority will waive a portion of its monthly fine on BAA for delays to passengers, which ran to £3.1 million in April and May. And we must add a new item to the list of hair-trigger factors - fog, strong winds, cross winds, security alerts - that cause disruption at Heathrow.

Delayed due to the fog of war - I bet it's already on the flight indicators.

It is hard to find good news on the environment, so forgive me that I have not. The latest news is all bad. Some of it concerns Sir Nicholas Stern.

A former chief economist at the World Bank and author of the ground-breaking Stern Review on the Economics of Climate Change, published in October 2006, Stern has been a key figure in presenting the case that global warming can be tackled without damage to the world economy.

Indeed, his report, commissioned by the UK government, argued the costs of not tackling climate change would far outweigh those of acting now. He even calculated the cost of action to avoid the worst effects of warming at 1% of GDP a year.

The Stern Review won admirers in industry and government. EasyJet chief executive Andy Harrison is fond of quoting from the report and urges others to read it. As Stern said at the launch of his study: "The conclusion is essentially optimistic. But the task is urgent."

Less than two years on it has become more so. Last week, Stern warned climate change was occurring faster than previously thought and emissions reductions must be speeded up.

The cost of averting the most disastrous effects of warming has doubled, he said. It would now cost 2% of GDP per year for decades to come.

That is unlikely to be what anyone in this or any other industry wanted to hear, but it could be done.

Unfortunately, there is more. Stern's latest calculation is based on stabilising the amount of carbon dioxide in the atmosphere at a level of 500 parts per million (ppm). The Kyoto Protocol that forms the basis of most climate change forecasts suggests efforts be concentrated on stabilising CO2 at 450ppm. But the consensus among climate scientists is for 350ppm. You see the problem.

There is another. Professor Kevin Anderson, research director at the Tyndall Centre for Climate Change Research, tells me Stern based his calculations on a rise in atmospheric CO2 since 2000 of 0.96% a year. The figures grow exponentially, remember.

In fact, the amount of CO2 in the world's atmosphere rose by 2.8% per year between 2000 and 2006. So Stern - author of the report that informs government policy - was out by close to a factor of three.

If that does not worry you, it should. It sheds an uncomfortable light on Stern's optimism and, one way or another, few of us will escape the consequences.