This year promises to bring with it very difficult and turbulent times for the Travel Industry. If I was managing a travel business I would have major concerns on three fronts – currency exchange, fuel prices and the general downturn in market conditions due to the “sub-prime” fallout.
Since Summer 2007 Sterling has dropped 10% against the Euro while remaining reasonably stable against the Dollar. Larger travel firms would have hedged against currency movement for the current year and will even now be looking forward to covering their position for 2009. Smaller firms who have neither the expertise nor the financial ability to materially hedge therefore are faced with a severe disadvantage particularly if their destinations are European centred. Long haul companies and cruise businesses have less exposure as most of their costs will be dollar based. 10% reduction in gross margin could equate to 10% off bottom line – not an optimistic outlook.
Planes, trains and ships all need fuel so the current surge in fuel prices does not bode well either as one of the major cost centres for travel businesses. Costing holidays and the thorny subject of fuel surcharges and the limit in their application by wide ranging legislation will tax most travel managers and will cause a regular review and reappraisal of budgets pricing and projections.
The general pessimism from most economic commentators on the state of the economy will also cause difficulties. While of itself this will not mean people will not buy holidays it will make it less predictable when they will book. If you feel your financial position has any element of uncertainty this will generally lead you to defer a major purchase until you have a clearer picture of events.
What should travel managers do faced with these uncertainties? Firstly seek the advice of your bankers and see if you can position your company more advantageously when it comes to foreign currency exposure. Secondly ensure that you are aware of the legislation and contractual “small print” in relation to fuel surcharging both from a purchasing and selling viewpoint. Finally ensure your systems are robust and can gauge market movement and demand while also giving you the ability to monitor and control variable cost as well as overheads and don’t bury your head in the sand hoping you will “catch up later”.