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Shangri-La Island Hotel: voted best business hotel in Hong Kong for the second year running |
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Airlines and hotels will tell you that last year was very challenging. It was in fact for many airlines arguably the most challenging year ever.
Revenues fell dramatically as the economic downturn and the events of September 11 led to a dramatic fall in business travel and overall passenger numbers. In the first few months after the terrorist attacks, many businesses, including Lehman Brothers, advised against all non-essential air travel.
This dramatic cutback helped contribute to record losses at the world’s major airlines. In the US alone, the eight major airlines reported 2001 losses totalling $9 billion and first-quarter 2002 losses of $2.4 billion. Even British Airways, once the most profitable airline in the world and a big winner in this year’s Euromoney travel poll, suffered its worst financial results since privatization 15 years ago.
The major airlines have also come under pressure from the increasingly intense competition of low-cost airlines, whose cheap fares and low cost structure are fundamentally changing the industry. It’s not just students who are taking advantage of £40 ($58) return flights between London and Frankfurt – even investment bankers are using them these days. Traditional airlines have seen their share prices collapse but low-cost airlines such as Ryanair, easyJet and Southwest Airlines have all enjoyed share price rises.
The major airlines are fighting back, however, by offering more value-added services such as hotel and car rental deals, and aggressive promotional packages. British Airways, for example, lets children go free on flights within Europe.
High-end hotels in major business centres also suffered as businesses cut travel budgets and renegotiated more favourable corporate contracts. This was felt particularly in European cities where in some cases up to 40% of the demand for hotel rooms comes from American visitors.
The UK hotel industry had already been hit particularly hard as the foot-and-mouth disease crisis generated images of burning animal carcasses, putting off many visitors.
Security concerns had a much greater influence on travel decisions this year than in any year before, and not just in terms of the decision to fly. The conference businesses of many hotels in typically favoured locations such as New York and Paris declined as organizers retreated to what they perceived to be safer places. While these cities and others such as Istanbul declined in popularity, hotels in Asian and Canadian cities benefited.
Although the combination of the downturn and September 11 had a negative effect on the global hotel business, sector analysts believe that the underlying health of the European hotel industry remains robust. Hotel operators are much more profitable, better managed and more diversified than a decade ago. According to CSFB, the hotel sector has shown remarkable resilience, and share prices are now only a few percentage points down on September 10 levels, with the best performers up as much as 25%.
In this year’s poll surprisingly only 14 hotels managed to retain their top spots from last year. That’s no doubt evidence of increased competition. Indeed it would seem that the one beneficiary of the industry’s difficulties has been the customer. Although prices have been falling in some of the world’s finest hotels, hoteliers also claim that service has improved. “We have certainly been giving our guests extra special care this year”, says a spokesman for The Westbury, voted London’s top hotel in this year’s poll. British Airways also stresses its added emphasis on customer care. “We invested a lot in security to reassure customers, and of course we always have a warm smile for them,” a spokesman says.
After the gloom of 2001, airlines and hotels can rest assured that 2002 will not be quite as bad. Things can only get better.
