City Insider: The outlook for travel

City Insider - FT journalist David Stevenson on the travel industry

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City Insider David Stevenson considers how listed travel companies could fare in the coming months

If a more positive assessment of opportunities is right, as I outlined yesterday, what can we expect from the travel sector in the next six months?

My view is the big airlines will have the biggest upside, as both Tui Travel and Thomas Cook may struggle with company-specific issues.

In the case of Thomas Cook there is still a need to develop more differentiated, higher margin product in order to boost top line revenue growth.

There is also a requirement to generate enough additional cash to get debt levels down to sensible levels, although quite how one can invest in new product as well as pay back the banks at the required rate escapes me.

At Tui Travel we should expect steady-as-she-goes growth against the backdrop of that all-important merger with Tui AG.

Tui’s recent numbers ticked all the right boxes, with the differentiated mainstream product continuing to sell well.

I’m not going to rehash all the major numbers from the third-quarter results – a 21% jump in profits, with underlying operating profit on a like-for-like basis hitting £92 million compared to £76 million in the same period last year – but Tui appears to be ‘on plan’.

The big challenge now is to sell the merger deal to investors. As the weeks tick by I would say the chances of securing investor approval are declining dangerously below 50%.

Great numbers on the trading front plus Tui AG’s declining share price makes for a very unappealing mix in my view – an opinion shared by more and more travel analysts.

I’d argue the airline sector should see the biggest upside from here on in – with IAG my candidate for most growth.

The recent second-quarter numbers were especially impressive, with the British Airways/Iberia/Vueling combo raising its pre-exceptional operating profit by 55% over the quarter. At the half-year level, the group swung from a loss of €33 million last year to a profit of €230 million.

The big story here is that group revenues were up around 6% – no scaling back on capacity – while Iberia has clearly turned a corner and is about to see sustained investment in new capacity.

Unit costs are declining sharply, with growth on long-haul routes especially into emerging markets. The only concern seems to centre on the group’s cargo business where revenues, yields and volumes continue to fall sharply.

The key development at IAG is the growth of the fleet – 16 new aircraft will be delivered between 2015 and 2020, with eight new A350-900s and another eight A330-200s.

These efficient new planes will help boost profits, especially as oil prices start to fall back.

The other big beneficiary of a sustained increase in UK, US and even European growth rates should be Ryanair.

Although easyJet has been the clear winner for the last few years, Ryanair’s underperformance based around brand ‘issues’ should mean it benefits most from a turnaround in sentiment as growth picks up again.

Recent quarterly numbers from the low-cost carrier confirm the turn in its favour.

Helped by the inclusion of Easter in first-quarter numbers, Ryanair raised its profit guidance for 2015 partly off the back of higher volumes and lower costs.

Ryanair more than doubled its first-quarter profit to €196 million and operating profit increased 124% to €232 million. Seat capacity remained essentially flat while average fairs increased 9% and passenger numbers were up 4%. 
Crucially, the group should also see the first fruits of its ambitious ‘rebranding’ exercise.

The “Always Getting Better” programme should be powering ahead, helped by the launch next month of Ryanair’s business traveller service plus a raft of technology launches and app updates.

As with IAG, the key factor will be increased capacity – powered by the delivery of new aircraft.

Ryanair plans to accelerate capacity growth over the next few quarters, which should help compensate for increased growth in unit costs (in part to pay for all that marketing).

The big question mark surrounds yield in the second half. Will extra capacity and higher spending result in lower average prices or will Ryanair be able to increase prices to pay for a more friendly service?

My guess is Ryanair will surprise to the upside – perhaps forcing easyJet to retaliate with its own wave of price cuts.

Perhaps the most interesting turnaround challenge will be at Flybe. I suspect the regional carrier was a few months away from a meltdown as losses escalated, cash started to run out and the new management team struggled to cut costs.

A £150-million fundraising among investors helped steady nerves, while new boss Saad Hammad reported some positive trading numbers in June – including a return to profit (£8 million) and an increase in revenue (up 1%).

Investors will now be watching two factors – costs and new capacity.

Aggregate costs were down 4.2%, with labour costs down 17% (helped by a loss of more than 1,000 employees).

But my guess is we are only at the beginning of a long journey on costs. Flybe’s hideously expensive cost base is an open invitation for Ryanair to take a pot shot.

The other issue will be how to manage capacity – by cutting old aircraft and upgrading to new – at low cost.

The 70-strong fleet desperately needs to be upgraded, but I’m not sure how Flybe can afford to pay for more-efficient planes.

Hammad’s focus on the five Ps – performance, positivity, passion, people focus and playfulness – will be essential if the airline is to grow the top line.

But I’m not sure how this emphasis on ‘soft touch’ issues will help with the bottom line and profits, which will be determined by revenue growth, fuel costs and increasing capacity on key routes.

Maybe a resurgent UK economy will help push profits higher – especially as business travellers increase spending – but my guess is Flybe desperately needs to sell more tickets to leisure travellers at lower prices.

Sourced from Travel Weekly


Holidaymakers advised to ‘plan as normal’ despite volcano threat

The travel industry could face mass disruption as millions of Brits prepare to leave for the Bank Holiday weekend.

The Met Office in Iceland has warned that the country’s biggest volcano, Bardarbunga, could erupt in the coming days and potentially cause another major ash cloud.

In 2010, an ash cloud forced the closure of European air space for six days.

A volcanologist speaking to BBC Radio 4’s Today programme this morning said the volcano had been rumbling for many days and could erupt at any moment.

She said the volcano had erupted frequently in the past but had never deposited ash outside the immediate vicinity and had not impacted air travel.

Jo Gillespie, an independent aviation safety consultant, told the Daily Telegraph that the aviation industry was much better prepared than it was in 2010.

However, she admitted an ash cloud and weather conditions similar to four years ago could still create a degree of disruption.

She said: “There would be a delay between the eruption and the gathering of enough data to decide where it was safe to fly.

“Having said that, the chances of a repeat of the exact conditions we saw in 2010 are very small, so I would be planning my holiday as normal if I was about to travel.”

The UK Civil Aviation Authority said it was monitoring the situation and was in contact with Icelandic authorities.

It added that advances in forecasting meant far fewer flights would have to be cancelled if Bardarbunga were to erupt.

Sourced from Travel Weekly


Swissport issues bag pledge but Gatwick’s problem is ‘systemic’

Swissport issues bag pledge but Gatwick’s problem is ‘systemic’ 

Ground-handler Swissport insisted there would be no repeat of problems with passengers’ bags at Gatwick over this bank holiday weekend, but a union official warned the airport’s problems with baggage handling were “systemic”.

Media uproar over baggage delays in late July was followed by Monarch ending its contract with Swissport and British Airways threatening to drop the firm, one of three ground-handlers at the airport.

Swissport responded by drafting in extra staff from other airports, and Gatwick sent in staff of its own to help. Both declared the problem solved.

However, a Gatwick staff member told Travel Weekly this week: “You’re taking a risk coming to Gatwick after midnight if your flight is handled by Swissport. There have been problems the whole summer, with delays of up to five hours in both terminals after midnight at weekends.

“Travellers need to know why this is happening. Most shifts end at midnight and Swissport doesn’t employ enough people after that.”

Ian McCoulough, regional officer of the Unite union, agreed. He said: “It’s a systemic problem caused by low-cost operation and it isn’t going away. Swissport got rid of 60 staff three months ago. It’s short-staffed.”

McCoulough said new baggage-handlers receive “not much above the minimum wage” and “could earn more at Costa Coffee without getting up at 2am on a Sunday”.

He said: “Swissport is losing contracts, but it isn’t just Swissport. All the ground-handlers at Gatwick have difficulties.”

Swissport confirmed it had “made changes in certain areas” ahead of the summer. But a spokesman said: “We have a full complement of staff and we’ve boosted our reserve.”

Gatwick said 52 of its staff would be available to help with baggage this weekend. But a spokesman added: “We have absolutely no influence on airlines and their baggage handlers.”

BA is Swissport’s biggest customer at Gatwick. The airline expects to carry 500,000 passengers and 400,000 bags this weekend.

Sourced from Travel Weekly


Monarch Airlines to lose 1,000 jobs as company restructures

Monarch Airlines to lose 1,000 jobs as company restructuresMonarch Airlines could shed up to 1,000 jobs as the result of a strategic review now underway.

New Monarch Group chief executive Andrew Swaffield confirmed the review of the business last week in an exclusive interview with Travel Weekly.

Swaffield said the review would focus on Monarch Airlines and made clear he hadalready decided to end charter flying and was likely to ditch long-haul operation.

The airline would be transformed into “a low-cost scheduled European carrier”, he said.

Monarch also announced last week it would cease operating from East Midlands airport next April.

The Sunday Times reported yesterday that more than 1,000 jobs are at risk at the airline, about one third of the total workforce.

The newspaper also suggested the airline was likely to lose £60 million this year.

Monarch declined to comment on the story.

In a statement, the Monarch Group said: “The Company has previously stated that the new management team is conducting a strategic review of the group’s businesses, including in relation to their operations, ownership and financing.

“That review is on-going and further announcements will be made upon its conclusion or as otherwise appropriate.”

Travel Weekly understands decisions have yet to be taken on the number of jobs likely to be affected.

US firm Seabury Capital is advising Monarch in the search for new investors and accountancy giant PwC is also involved.

The Sunday Times suggested the group and its owners the Mantegazza family are keen to find new investors by the end of the year.

The Monarch group comprises tour operating and aircraft engineering businesses as well as the airline and both have been reported as profitable.

Monarch has stressed that tour operator Cosmos would continue operating as now, selling seats on third-party carriers including to long-haul destinations.

Sourced from Travel Weekly


Bristol airport eyes long-haul market

Bristol airport is targeting the lucrative long-haul market with the expansion of its terminal building.

Bristol airport

The new development is scheduled for completion by summer 2015 at a cost of £8.6 million.

The airport has recently completed the construction of a new central walkway designed to ease congestion at peak times.

Both of these developments are expected to help the airport in its plans to secure long-haul routes.

Robert Sinclair, chief executive at Bristol Airport, said: “The central walkway sets a new benchmark for passenger facilities at Bristol Airport and the eastern terminal extension will raise the bar higher again.

“This significant investment demonstrates our ambition to become the airport of choice for passengers across the South West and South Wales.

“High quality infrastructure will also make Bristol Airport even more attractive to airlines, helping to extend the choice of destinations available – including long haul services to North America and the Middle East in future.”

Sourced from TTG Digital


Monarch confirms strategic review

Monarch confirms strategic review All parts of Monarch Group’s operations are subject to a sweeping strategic review, which is expected to lead to significant changes in the ownership structure.

The company confirmed that it is reviewing “all areas of the business from operations to ownership and financing”.

The statement came after The Sunday Telegraph revealed that a number of investors, including venture capitalist Jon Moulton’s Better Capital, HIG Europe, Towerbrook and Indigo Capital, are considering injecting cash into the company, which is controlled by the Swiss billionaire Mantegazza family.

Monarch is understood to need as much as £60 million of fresh capital, despite the Mantegazzas pumping £120 million into the group since 2009.

Dean Street Advisers is leading the search for an external investor but the Mantegazzas have also appointed restructuring specialists from PwC, who are working on a rescue plan in case Monarch is unable to strike a deal to bring in fresh capital, the newspaper reported.

Monarch said in a statement: “The group confirms it is undergoing a strategic review under the leadership of new non-executive chairman Sir Roy McNulty and chief executive Andrew Swaffield.

“The review covers all areas of the business from operations to ownership and financing, with the objective of determining the optimum structure to realise the significant opportunity to build on the respected Monarch brand and distinctive offer to its customers in the budget airline market.”

A spokesman for Amerald Investments said the company, which is controlled by the Mantegazza family was “fully supportive” of the new management team’s plans for Monarch, which include introducing “a new investor and the provision of new capital,” according to The Times.

Monarch needs funding to support an order for 30 new Boeing 737 aircraft worth $3.1 billion and its ambition to outdo easyJet and Ryanair on customer service.

Recently departed  executive chairman Iain Rawlinson turned the airline from mostly a charter carrier into an operator of scheduled flights. The airline carries seven million passengers a year to 38 destinations, mainly in the Mediterranean.

Monarch, which operates mainly from Gatwick, Luton, Manchester and Birmingham airports, said in December last year that it was back in the black but competition in the European airline industry has since intensified.

The group made a profit of £5.9 million on sales of £957 million last year.

Sourced from Travel Weekly


Tui’s strategy ‘impossible’ to copy, says UK boss

Tui's strategy 'impossible' to copy, says UK bossTui Travel’s focus on unique products is driving its strong results and is “almost impossible to copy”, says UK managing director Dave Burling.

The Tui group announced strong third-quarter results today, with average selling prices up on a year ago and a rise in underlying operating profit of 21%.

Burling said: “We believe we have a much stronger product offering than our competitors and the strategy is almost impossible to copy.”

He told Travel Weekly: “To do differentiated product properly you have to create real product concepts. It’s not just a case of attaching a name to a hotel and making a few changes.

“It requires expertise, really strong hotel partners and scale. Those things are built up over years and are really hard to copy.”

Tui has developed a series of unique property types – First Choice Holiday Villages and SplashWorld and Thomson’s Sensatori – since the first Holiday Village opened 10 years ago.

Burling said: “Tui Uk is a long-term investor in these unique concepts, which are driving sustainable growth and [are the reason]  we are out-performing the UK market.”

He said: “I liken it to an imitation watch. You might have a watch that looks like the real thing, but it’s not the same.”

Burling highlighted a 2% increase in mainstream average selling prices (ASP) year on year in the UK this summer, saying: “The ASPs are really positive.”

But he said: “Some of our competitors are facing real pressure.”

Rival Thomas Cook reported a 4% decline in UK average sales prices in its third-quarter results last week.

Burling said: “We are looking at increased customer satisfaction, which results in increased customer recommendations and increased repeat bookings and, ultimately, that means increased average selling prices.

“It means people are prepared to pay for the product.”

He reported: “At our Sensatoris, 98% of customers this year have rated the properties as ‘good’ or ‘excellent’ –  80% say excellent, three percentage points up on last year. 95% of Sensatori customers say they will be booking again – one percentage point up on last year.”

Burling said: “We can see there is more capacity in the market and the increased capacity will be making it difficult for people operating in the commodity market.

“But because we have these differentiated products we are less exposed to dips in the market.

“We have customers who are higher value, seek out these products and book earlier. Our strategy is operating at a higher level.”

Sourced from Travel Weekly


Tui ‘outperforming market’ with strong Q3 performance

Tui 'outperforming market' with strong Q3 performanceTui Travel claims to be outperforming the market with a strong third quarter operating performance.

The Thomson and First Choice parent’s third quarter results out this morning show underlying operating profits up 47% to £112 million despite revenue down 2% to £3.7 billion.

Underlying operating profits from the group’s UK and German business are up by 17% and 16% respectively in the period to June 30.

Higher than average selling prices were reported across the group’s mainstream sector for this summer, with 88% of the programme sold.

“Unique’ holidays now account for 71% of mainstream bookings – a rise of 3% over last year.

Mainstream online bookings, which account for 36% of all summer bookings, are up by three percentage points. Online summer bookings are up 4% to 51% in the UK.

However, overall UK bookings are down by 1% as the group reported “an increased level of capacity in the wider market” this year.

A total of 87% of summer capacity from the UK has been sold with average selling prices up by 2%, reflecting the change in mix towards more unique holidays.

Chief executive Peter Long said: “We are pleased to have delivered another strong performance this quarter across the group with a 21% increase in underlying operating profit2.

“Demand for our unique holidays, which now account for over 70% of summer sales, has continued to grow, as have bookings made online.

“Our One Mainstream structure, led by Johan Lundgren, continues to yield tangible benefits across a number of areas as we drive the organisation to deliver a performance similar to that achieved by our UK business.

“We remain pleased with progress in summer trading, despite strong comparatives, and are achieving higher average selling prices across mainstream overall.

“As the trading environment in the commodity space has become more competitive and airline capacity continues to increase, our flexible and resilient business model – focused on unique holidays and our relationship with the customer throughout their whole holiday experience – enables us to deliver sustainable, profitable growth and out-perform the market.”

Winter 2014-15 sales from the UK are up by 3% with selling prices up by a similar level and 23% of trhe programe has been sold.

“We are increasing capacity in selected destinations such as Jamaica and Mexico where we see growing demand, enabled by the expansion of our 787 fleet,” the company said.

“Sales of unique holidays account for 83% of bookings, up three percentage points on prior year. We are also pleased with a strong start to UK trading for Summer 2015.”

A merger between Tui Travel and German counterpart Tui AG was proposed in June with the UK Takeover Panel granting the companies an extended deadline of September 19 to finalise the deal.

The group said further announcements will be made as required.

Leisure analyst firm Langton Capital, responding to the results, said: “Whilst the cumulative three quarters to end-June will always be loss-making and therefore give a limited view as to the outcome for the year as a whole, Tui Travel has put a significantly more positive spin on trading than did Thomas Cook only a week ago.

“The group clearly believes that its more differentiated product will protect its business and it says that average prices are up. Thomas Cook said that they are down.

“The group’s shares, in common with many across the UK’s leisure sector, have fallen by more than 20% since their March highs and the group’s rating is now not demanding.

“However, concerns with regard to a potential for stock-dumping towards the end of this season combined with a lingering disappointment that there is to be no control premium paid by Tui AG in order to effect a full takeover, continue to overhang the shares.

“Whilst the company is likely to lose its independence before the end of this year, until we see greater clarity with regard to the current season, we would be inclined to avoid the shares.”

Sourced from Travel Weekly


Rats found on Air India aircraft

By Phil Davies |07 August 2014 at 07.01 GMT

 

Air India was forced to ground and fumigate one of its aircraft after rats were spotted scurrying around beneath the seats in the passenger cabin.

 

The aircraft was flying from Delhi to Calcutta when staff spotted the creatures and raised the alarm to pilots, The Times reported.

 

Officials say rats on an aircraft pose an extreme danger because they can chew through vital electrical cables, disabling the aircraft’s control systems and leaving pilots unable to steer.

 

“If that happens, pilots will have no control on any system on board, leading to a disaster,” one Air India official told The Times of India.

 

This is not the first time that rats have posed a problem to Air India.

 

A flight to Toronto was delayed for 11 hours in 2009 as staff tried to catch rats.

 

In another incident in Mumbai last year, officials blamed a short circuit caused by rat excreta for a communications blackout that led to the closure of the city’s secondary airport for three hours.

 

An investigation into the incident at Juhu airport by the Airports Authority of India said cables linked to the site’s VHF radio system had been chewed through by rats, whose excreta was then thought to have triggered a short circuit.

Sourced from Travel Weekly


Customers less likely to cut costs on holidays, report finds

Customers less likely to cut costs on holidays, report findsRising consumer confidence means people are now less likely to cut back on their holiday budget compared to 12 months ago, a survey out today (Thursday) reveals.

More than half (53%) of consumers in the UK said last year they intended to cut back on holiday expenditure in the coming months, compared to four in 10 (38%) in 2014.

Households spend on average £1,750 a year on holiday, excluding flights, but only three in 10 people (30%) say they trust the airline and tour operator, according to the poll of 2,086 people for consumer watchdog Which?

It disclosed the top five problems experienced with a holiday in the UK or abroad in the last two years:

  1. Delays or cancellations with your flight (30%)
  2. Long waits to reclaim baggage (25%)
  3. Accommodation being different to what was described (24%) = Unhelpful or rude staff (24%)
  4. Delays or cancellations with other forms of transport e.g. train, ship or taxi (20%) = Accommodation being unclean (20%)
  5. Lack of information regarding delays, cancellations or other problems by staff (17%)

As a result, more than 9,000 people have signed up a Which? ‘Stop the Holiday Hassles’ campaign designed to highlight ‘travel nightmares’ and ’dodgy deals’.

Which? executive director Richard Lloyd said:“It is good news that consumer confidence appears to be on the increase but trust in the travel industry is still low.

“Consumers spend hundreds of pounds on their annual break and deserve a hassle-free summer getaway.

“We’re asking travellers to share their holiday gripes with us so we can expose the dodgy deals and shoddy service to stop the holiday hassles.”

Sourced from Travel Weekly


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