Economics, politics, and travel.

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

Foxtrots – leading the industry in a dance.

September 13 2012

Economics, politics, and travel.


HE following ran in the June issues of the Travel Business Analyst newsletters. Although events have bypassed some of these comments (such as the election of a new president in Egypt), most if not all of the remarks still seem relevant.

I do not normally reproduce paid-for reports in the newsletter for Foxtrots, I hope the newsletters’ subscribers will accept this, three months after it first appeared.

“Developments in economics and politics are often important for the travel business. Activity at present may or may not be more than normal, but we note some significant factors about current developments.

Unfortunately, we cannot say what will be the net result of all these developments – because if one happens, will the other happen as well – and at the same time, and to the same extent?

But we do note that travellers who may be turned away from one destination do not necessarily turn to another, or in the same way. Some might replace their car instead of taking a family holiday, or take a holiday in their own home, or go to Australia instead of Spain even if one is 10-times further away.

The WTO and others talk of travellers switching from, say, Tunisia, to Spain. We don’t see that. We believe there is more of what Barrack Obama might call a ‘reboot’ – start thinking again from the beginning.

Our analysis:

[] Egypt. See also North Africa.

The second round of presidential elections is due this month. The choice is polarised, but we believe whoever wins, the visitor business will lose. This is because the rejectionist islamic element (rejection of much of what is western, which includes leisure/pleasure-seeking tourists) will make its voice heard, in whatever way, and whether it follows presidential thinking or not.

In other words, we see nothing good for Egypt’s visitor business until this phase is over, which could be as short as three years if we start hearing good news tomorrow, or as long as 20 – indeed, even longer.

For those travellers wanting similar destinations (which we term ‘culture, soft adventure), we believe the choice would vary from the Caribbean, Africa, to India and Thailand. Normally other parts of North Africa and Greece, but see below.

[] Greece.

This month new general elections may indicate whether Greece will not remain in the Euro zone. Most bets seem to be on it leaving, voluntarily or otherwise. That would likely mean a substantial fall in its replacement currency – economists talk of at least 50%.

Greece’s outbound market (probably about 12mn trips) would fall greatly, at least 25%, and would be directed, at least for leisure travel, to nearby destinations whose currencies have also lost value, such as Egypt.

However, inbound travel to Greece could do well – if there was social peace, meaning no more violent street protests. Unfortunately, with the pain the economic hardship would cause, there seems likely to be some public protest.

[] India.

We have said India’s outbound travel market has been longest at the top of the ‘great potential’ list. We have also constantly noted that its growth has been out of sync with commentary on its value. India outbound is a small market, growing at reasonable percentage rate – but its small size ‘over-emphasises’ those percentage growths.

Current economics – a sizeable fall in GDP growth from around 7-8% to around 5-6% – will slow outbound travel growth. However, the partly-related fall in the value of its currency could help bring good growth in inbound travel. Also, there may be some small diversion from travellers considering North Africa, and now looking elsewhere (although many other destinations, as well as other industries such as car makers, may benefit from the fall in travel to North Africa).

[] Indonesia.

Incidents of religious intolerance are either growing, or there are more reports about them. For the visitor business, either reason is bad.

At present the violence, although shocking, has not come close to the visitor business. If it does, with something similar to a Bali bombing, then the effect will obviously be serious.

But if not, the affect would be slight, and not noticeable – say 7% growth instead of 8%. And Bali may not suffer at all – because many do not see it as part of Indonesia, not necessarily out of geographical ignorance, but culturally.

[] North Africa – Algeria, Egypt (see separate section), Libya, Morocco, Tunisia.

We have grouped these together, and many would-be travellers will also – however unfair or unrealistic.

We believe Libya and Tunisia will be treated with caution. And if there are no violent incidents, or they are minor, and the governments make friendly comments about tourism and foreigners, they may pick up some visitor business. As Libya was not on the tourist circuit before, it may actually see quick and sizeable (in relative terms) growth.

Morocco may benefit from the turbulence in its eastern neighbours. And the fact that it has a king will bring some confidence to travellers, whether justified or not. But it has had some violent incidents, and if these are repeated then it will quickly be slotted into the same category as others in North Africa.

Algeria may also gain from losses in Egypt and Tunisia. Earlier there were attempts to develop tourism in the destination, this has not been successful. Now, like Libya but for different reasons, there could be unexpected growth, or at least not stagnation.

[] Spain.

There has been talk of Spain losing visitors because of its economic difficulties. We cannot see the connection – as long as there are no violent public disturbances as there have been in Greece.

In fact, given economic conditions, prices in Spain will fall, making it a ‘good-buy’ for visitors. And if Greece does fall into a negative violent spiral, then Spain may gain from this (both destinations have a strong sun-n-sea element in their visitor business).”


The Fox


Qantas: adjustments to make.

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

Foxtrots – leading the industry in a dance.

September 4 2012

Qantas: adjustments to make.


S I have said, Qantas is about the only airline I know that has got its structure right. So I am obliged to comment on its latest full-year results (through July), which show an after-tax loss of A$244mn. (All $ figures in this report are in A$; US$1 is A$0.97)

[] The group’s profit before tax was A$95mn. In general, I view this, an operating profit, as the key figure because taxes are so variable.

[] A special cost during the year was an industrial dispute. management puts its cost at A$194mn. There are others, such as additional fuel costs, and corporate restructuration costs, which I regard as normal ‘costs of doing business’.

[] Qantas International lost A$450mn, but this, for me, is one of the areas that the group is turning around – and putting more of that airline activity to Jetstar International, which is what I call a LCA – low-cost-airline, not the same as a low-fare-airline. Confusingly, some of the Jetstar airlines are LFAs.

[] Qantas Domestic made a profit of about A$400mn and Jetstar Domestic (that’s Australia) about A$203mn.

[] Jetstar Japan was launched five months ahead of schedule. (Interestingly, when the original date was announced, I said this was too late, and it should be six months earlier.) JJ plans international routes in the first half of 2013.

[] Operating rights have been requested for Jetstar Hong Kong, which is a joint-venture with China Eastern. (I expected it would be called Jetstar China; I also believe JHK is the wrong name for an airline operating into the China mainland.)

[] The disastrous Jetstar Pacific has been reworked, with the previous partner dumped, and a new deal with Vietnam Airlines. This may still not survive, as I am not convinced that VA wants a low-fare competitor.

[] What will happen with Qantas International is still a relevant question. It has cut routes. will more be turned over to Jetstar International, leaving QI just a few high-yield routes, such as Los Angeles, New York, London, Frankfurt, and a few in Asia?

The airline might not even have thought this deeply, but could Qantas become not much more than the name of the group holding company?

Management, for its part, talks of returning QI to profit in three years. Also, it describes its strategy in Australia as a two-airline strategy, “with a premium and low fares model”.

I find it odd to say it has described its own operation wrongly. It actually has three airlines operating within Australia – Qantas, Qantas Link, and Jetstar (the domestic airline). As for its international operation, it actually needs three types of airline for Australia – FSA, LCA, LFA (full-service airline, low-cost-airline, low-fare-airline).

Qantas is the FSA and Jetstar Domestic is the LFA. The LCA, not yet operating on domestic Australia routes, is Jetstar International. That is why I said earlier that Qantas needs to find another name for JI. It could of course use a name it acquired earlier – Australian.


The Fox