Travel. The world changed last week.

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Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning. 

Foxtrots – leading the industry in a dance.



2008 July 07

Travel. The world changed last week.

As I have noted, there were two significant travel industry developments last week.


1. The fuel surcharge on a Europe-Australia flight has just about reached US$1000.

2. Charter flights China-Taiwan started this past weekend.



On Saturday, I wrote about the fuel surcharge on Europe-Australia. Now China-Taiwan.


There will not be a sudden substantial change. There are hundreds of flights that currently fly the main evasive-routes – via Hong Kong and Macau. And capacity added on the new direct China-Taiwan flights will hardly touch 1%.


I have assumed that politics will not interfere again in the development of routes China-Taiwan. That is probably a foolhardy assumption, but needed for any plausible analysis.


The routes will develop, steadily. From the three main cities in China – Beijing, Guangzhou, Shanghai – to Taipei, then from those three to Kaohsiung at the same time as additional routes from other centres in China to Taipei. And so on. There is a big demand, and there is no reason to think other that in five years there could be 30-40 routes between Taiwan and China.


What will that do to the rest of the market?


Many airlines – including Air Macau, Cathay Pacific/Dragonair, Eva – have done well out of the ban on direct flights. Certainly they will lose substantial traffic as the direct flights develop. But most of this will be over a few years.


Broadly, the percentage of transit traffic must be at least 50%. Some traffic will be unchanged for various reasons (travellers might prefer to fly to Macau, for instance, gamble a bit before heading on to Guangzhou).


In terms of visitors, 8% of Hong Kong’s visitors come from Taiwan. But there is substantial double-counting in this. (A traveller arriving in Hong Kong is counted, and after his return from China, he is counted again as an arrival in Hong Kong.)


So perhaps the loss will be greater, say 60%. Although it is a big figure, it is unlikely to turn Hong Kong’s growth into a decline, and may not even be visible – because it will happen over a few years.


Macau might have a better chance of maintaining more of the Taiwan-China traffic because of the attraction of casinos in Macau – particularly for ethnic Chinese. Currently, the Taiwan market counts for about 5% of Macau’s visitors – a share that is already falling – but because of the fast-growing traffic into Macau from China.


As for Hong Kong, the gradual reduction of this traffic is not going to noticeably affect overall totals. If Macau loses 25% (but there is double-counting, as explained above for Hong Kong), then this would be around 1% of Macau’s total count in 2007. And as the decline will be spread over a few years, it may be difficult to spot the change.


All that said, and there is the great unknown – how much new traffic will direct routes attract? Costs, primarily air fares, should be lower (not a given, in view of market factors, but likely). But how many China nationals will want to visit the rebel province? I guess a big chunk, particularly those that are relatively close – not just in terms of friends and relatives, but geographically.


Again, air fares, capacity, and other factors will decide the figure, but I would guess a high 500,000 in the first full year, 2009. Although even a ‘guess’ may be too strong; what capacity will be added, and when? That 500k would make China the third-largest market for Taiwan after Japan (1.1mn) and Hong Kong/Macau (500k).


The Fox

Travel. The world changed this week.

Leave a comment




Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning. 

Foxtrots – leading the industry in a dance.



2008 July 05

Travel. The world changed this week.

Two significant matters happened this past week.


1. The fuel surcharge on a Europe-Australia flight has just about reached US$1000.

2. Charter flights China-Taiwan started this weekend.



This level of fuel surcharge does not affect traffic on just these routes, of course. Other longhaul routes will be affected – and longhaul more than shorthaul because the amount of the fuel charge is so much larger.


But firstly Europe-Australia.


That fuel surcharge will weaken discretionary travel over those routes. A visible number of would-be travellers will surely say that “we do not need to go now; let’s wait and see if the surcharge falls”. Imagine what that will do to the travel destinations that get many of their visitors from longhaul markets.


The marginal destinations (Fiji, Tahiti) may be decimated. But seriously threatened also will be Australia and New Zealand.


Both Australia and New Zealand get around 35% of their visitors from longhaul markets. On the assumption that one-third of that is discretionary, it seems reasonable to say that those destinations will lose 10% of their visitors over the next 12 months – if there is no change in those other macro factors.


Some will be diverted from markets closer – so the traveller from Singapore will not go to Europe this year because the fuel surcharge is so high, but will consider Australasia.


And some will just sit at home.


The World Tourism Organisation says early 2008 figures show a 5% increase, 1% above longterm trend. That seems hard to believe (although I am not questioning the data, just wondering if there are any qualifications to that raw figure), but as the year goes on, surely that will fall?


For Australasia, I reckon a 5% fall this year because the slowdown will take some time to kick in.


Apart from the destinations, think what this will do to the airlines themselves. Even with such a chunky fuel surcharge, they are still struggling. Qantas takes delivery next month of its first A380. That looks like it is just the wrong time, but actually, it may help save the airline. Even if the original plan was to augment frequencies, this may (should?) change, and Qantas should replace two B747 flights with one A380.


There is another threat, to those in-the-middle airlines like Emirates, Etihad, and Qatar. Their businessplan was based on attracting longhaul travellers. If that market segment is under threat, then surely the potential of those airlines must fall?


Etihad has just reported 41% growth in first-half seat sales, so it seems all is well there. But watch that space.


(China-Taiwan comments after the weekend.)


The Fox