February 2015

2014 was a really good year for travel and tourism worldwide. International trips reached 1.14 billion, and Europe remained the most visited region, getting 588 million arrivals – more than half the global total. That represented a 4% rise, or an additional 22 million visitors over 2013.

Ireland did even better than that recording a 9% growth in visitor numbers, or 600,000 more than in 2013.

Meeting in New York last month, to consider how 2015 might perform, the Association of Travel Marketing Executives concluded that these are the best of times for all segments of the travel industry. And there was general agreement that 2015 would be a boom year for travel. 95% of members of the United States Tour Operators Association (USTOA) are confidently predicting continued growth in sales and revenues for 2015.

Nearer to home there is a strong level of confidence too. The evident strength of consumer spending over the Christmas period augers well for the domestic tourism market, which is such an important part of the tourism mix.

So what could go wrong? Well hopefully nothing, and 2015 should be the year when we finally exceed the so-called peak year in Irish tourism – 2007.

This first Industry Postcard of 2015 has a brief look back at 2014, and considers some of the issues which will impact on performance in 2015 and beyond. And like the Association of Travel Marketing Executives, we think it all looks pretty good out there.

As always, your comments are most welcome on itic@eircom.net.

CURRENT MARKET CONDITIONS & OUTLOOK
IRISH TOURISM INDUSTRY AWARDS
TRANSPORT UPDATES
ECONOMIC UPDATES

 

 


International tourism growth beat experts’ expectations in 2014

International tourist arrivals rose by 4.7% to 1.14 billion in 2014, with the Americas and Asia posting the strongest growth. Europe remained the most visited region with 588 million arrivals, more than half of the global total recording a 4% rise or 22 million extra visitors in 2014. The level of demand exceeded forecasts thanks to improving economic conditions in many source markets and continued growth in travel from emerging and developing economies. Results in recent years show that tourism has proved to be a surprisingly strong and resilient economic activity. The Madrid-based UN World Tourism Organisation expects that global demand will rise at a slower pace this year, with international tourist arrivals growing 3%-4% as falling oil prices have a mixed impact on the sector.


Ireland outperformed the UK, our nearest competitor, in 2014

Overseas arrivals to the UK, based on the first 11 months of the year, look set to record a 7% increase to break the previous visitor record set in 2013. Holiday visits increased by 8%, with VFR up 7% and business travel up 6%. Expenditure failed to keep pace with the volume increase and is expected to show a 3% year on year growth in receipts. While Ireland and the UK appear to have enjoyed similar levels of growth from across Europe, there is a striking difference in growth rates from beyond Europe. Ireland welcomed a 15% increase in arrivals from North America, compared to 4% growth to the UK, while arrivals from the rest of the world to Ireland were up 9%, the increase to the UK was only 2%. Factors influencing the differentials in performance could include the advantages Ireland enjoyed in terms of increased access from North America and some slight currency advantage, as well as the level of promotion in the marketplace. Ireland and the UK are at varying levels of awareness and development in the emerging travel markets around the world, so Ireland’s performance in 2014 is a very credible one despite the absence of direct access services.

Ireland outpaced the growth in arrivals to Northern Europe and to the UK in 2014, with double digit growth reported in arrivals from the USA, Canada, and new emerging long-haul markets in Asia, the Middle East and South America, and from several European origin countries including Germany, Spain, Italy, Switzerland, Denmark and Austria.

 

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What is the future for Aer Lingus?

The current debate prompted by the IAG approach is welcome and healthy given the importance of the airline for the country and the tourism industry in particular. Given the nature and complexity of the issue it is not surprising to find that unanimity is unrealistic. However, at least some of the debate appears to be founded on an overestimation of the influence of the Government’s minority shareholding in a publicly quoted company, and an underestimation of the business dynamics currently shaping the international airline industry.

The concerns being expressed by business and tourism interests, particularly in the south west and west, and the apprehensions of the company’s workforce are very real and must be addressed in any evaluation of the issues facing the Government in weighing up what is best in the national interest.

Foremost in any discussion on the topic has been ‘connectivity’- which appears to be exclusively applied to the Heathrow connections from Cork, Shannon and Belfast, though for Shannon it is particularly sensitive in that Heathrow is its sole European hub. The assurances recently provided by IAG which would effectively secure the Heathrow services for a period of 5 years, provides a security of services which currently does not exist. Indeed one could argue that given a strong bonding with BA’s global network at Heathrow demand on routes to/from Ireland, including Shannon, will increase as new improved connectivity is opened up.

One need only recall the withdrawal of Heathrow services from Shannon in 2007 taken by Aer Lingus for commercial reasons, to appreciate the value of the security provided by the assurances which IAG are prepared to offer. Many of the analogies cited for BA behaviour on domestic UK routes in the past refer to a different period in time and an outdated business approach. In short, the sale should it proceed would provide Ireland with a global one-carrier network connected to all regions of the world, while securing the future of Aer Lingus as a national brand in stable ownership within the International Consolidated Airline Group (IAG).

Connectivity to markets

Currently Aer Lingus provides over 50% of transatlantic lift to/from Ireland and 42% of short haul capacity to/from Irish airports. Clearly the outcome of any change in ownership could have implications for Irish tourism. However, Aer Lingus, continuing to exist as an Ireland based independent business unit with its valuable brand and personnel intact, could exploit many opportunities with a good synergistic partner. The potential exists to grow traffic on transatlantic routes, as well as a significant improvement in access to new emerging markets via a major European hub. This would provide access to new developing high value source markets for exports and tourism, as well as FDI investment, which is a key consideration for Government when weighing up the proposal. Unfortunately to date the debate has tended to focus on the perceived ‘down sides’ to the almost exclusion of the potential ‘upsides’.

Some alternatives for control of Aer Lingus

Should the current prospective bid not proceed, Aer Lingus as a relatively small former state owned national flag carrier is unlikely to prosper as a stand-alone carrier with a small home market base, although it is probable that the short-term impact on tourism might not be material. Over the past decade several national carriers in Europe have been subsumed into larger groupings or have gone out of business. These include Sabena/Brussels Airlines, Malev, Austrian, Swiss, and Iberia, amongst others. It is likely that Aer Lingus would continue to be a vulnerable take-over target, as the move towards consolidation gathers momentum in the industry. Prospective suitors could include trade buyers such as Ryanair, Lufthansa, Air France-KLM, a less than 50% shareholding by a Middle East carrier, or alternatively a hostile bid for the airline by an investment fund.

Arriving at a decision

Should a formal offer emerge from IAG for Aer Lingus, it is reasonable to expect that it be accompanied by a comprehensive business plan. Among other things this should address the value they see in Aer Lingus, together with an outline of how IAG plan to invest in growing the brand within the IAG Group, and how they intend to commit to maintaining strong aviation links to Shannon and Cork over the longer term. It is hoped this would then provide the basis for a decision arrived at on the basis of what is in the best interest from a national economic perspective.

As with any commercial merger the move is not without its threats to the status quo, but before arriving at a decision one way or the other, the potential threats should be weighed against the potential opportunities.


 

Stena Line consolidates ferry services into Dublin Port

Stena Line is expanding its ferry services from Holyhead to Dublin Port, with the introduction of a new ship on the route, while at the same time withdrawing its HSS Stena Explorer service from Dun Laoghaire Harbour.

The new superferry Stena Superfast X, being introduced at the end of February, will replace the Stena Nordica, and increase capacity available on the route year round. The new ship has capacity for up to 1,200 passengers and provides almost 2 km of lane space to accommodate a mix of car and freight traffic.

The HSS Stena Explorer operated from Holyhead into Dun Laoghaire since 1995, but in recent years the service has been cut back to a seasonal route as demand grew on the Line’s two ships into Dublin Port. The termination of service into Dun Laoghaire, while representing the ending more than 100 years of service between the port and Holyhead, allows Stena Line to invest in developing a stronger consolidated position at Dublin Port. In its peak year 1998 the Stena service carried over 1.7 million passengers to Dun Laoghaire, but this had dropped to less than 200,000 in 2014.

Ian Davies, Stena Line’s Route Manager for Irish Sea South, said: “With two services operating approx. 10 miles apart we needed to make a decision in relation to what operation best serves the needs of our customers now and in the years ahead, and that operation is Dublin Port.”

Gerry Dunne, CEO of the Dun Laoghaire Harbour Company, expressed regret at the departure of Stena but confirmed that the Harbour Company is now seeking alternative providers to operate a seasonal service on the route and hopes that a replacement passenger service will be in place for 2016. Job losses are not envisaged due to the emergence of new commercial activities including the growing cruise business.

The Harbour Company has a detailed proposal with Government in respect of the International Diaspora Centre and like others, awaits a decision. CEO Gerry Dunne suggests that the 80,000 sq foot Ferry Terminal is now available and could make the perfect location for the Diaspora Centre.


New airline services for summer 2015

A record number of air services will operate this year with new routes and additional frequencies on offer from incumbent airlines as well as new airlines entering the market for the first time. The good news is that more seats will be available on air services, a primary driver of tourism demand. Capacity on transatlantic services in the peak months of 2015 will be 13% ahead of last summer, with at least 5% increase in capacity on short haul services. The principle additions to air service routes and frequency during the peak summer months which will benefit inbound tourism include:

From the US

  • Aer Lingus is launching a new service from Washington Dulles to Dublin, while adding more departures from San Francisco, JFK and Orlando, as well as increasing capacity on Boston-Shannon route.
  • United Airlines is adding a new Chicago-Dublin service to its services from Newark and Washington Dulles.
  • American Airlines is adding capacity from Charlotte to Dublin, as well as adding departures on its seasonal service to Shannon from Philadelphia.

  • Delta Air Lines is increasing capacity from Atlanta to Dublin, while adding departures on its seasonal service from JFK to Shannon.
  • Ethiopian Airlines will operate a new service between Los Angeles and Dublin.

From Canada

  • Air Canada’s Toronto-Dublin service will increase from daily to 11 departures per week.

  • A new Halifax-Dublin weekly service by Europe Airpost will operate from July to early September.

From Europe

Germany

  • Lufthansa/Germanwings will offer additional services from Dusseldorf and Munich to Dublin.


France

  • Transavia is entering the market with a new Paris Orly–Dublin service.
  • Aer Lingus is launching a Nantes-Dublin service.


Spain

  • Vueling is entering the market with a new Barcelona-Dublin service.


Sweden

  • SAS is adding a new Gothenburg-Dublin service and increasing frequency from Stockholm.


Luxembourg

  • Luxair is increasing frequency on service to Dublin.


Belgium

  • Ryanair will operate increased frequency from Brussels to Dublin.


Finland

  • Finnair is launching a new service from Helsinki to Dublin.

Iceland

  • WOW, the low cost Icelandic airline, is providing a scheduled service from Reykjavik to Dublin for the first time, starting in June. The airline has also just announced that it will offer flights from Dublin to Boston and Baltimore (near Washington DC) from October, with a stop in Reykjavik in both directions. WOW are promoting a lead price from €149 each way with service up to 3 days each week. Passengers will pay for checked bags and refreshments on board.

 

In addition to the above, Ryanair and Aer Lingus are adding services on a number of established routes; while there will be some tweaking of frequency on other services.

Waterford loses its last scheduled airline service

FlyBe is terminating services to Waterford as of 27th March, 2015. The airline has been operating a service from Birmingham, the airport’s last remaining scheduled operation, while its Manchester service was suspended for the winter. The airport lost its connection to London two years ago.

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Economic clouds over the eurozone and oil prices expected to be major factors in 2015

Despite rising concerns about the health of the eurozone economy, and its impact on global trade, there is confidence that demand for travel will continue to expand over the next 12 months. While airline passenger traffic continued to increase over recent months compared to a year earlier, the rate of increase has stabilised and continues to expand at a rate of 5-6%. This backdrop suggests that growth in passenger volumes in the coming months will continue, but at a slightly slower pace than was forecast earlier, reflecting uncertainty about global economic growth.

However, fresh fears have been raised about the economic outlook after the US economy lost momentum at the end of last year and the eurozone descended deeper into deflation. Figures from the European statistics office suggest that prices fell 0.6% in January on the previous year, the biggest drop since the depths of recession in 2009, and prompted warnings that radical action by the European Central Bank to begin pumping €1.1tn of extra money into the economy through quantitative easing may have come too late to shore up the eurozone’s flagging recovery. Escalating tensions with Russia and the potential for another flare-up of the euro area debt crisis following the anti-austerity Syriza party’s success in the Greek elections have been cited as key risks to the global economic outlook.

From a travel perspective, some early indicators would suggest that the rate of forward bookings for travel may not be as buoyant as in the same period a year ago, even in relatively stronger economies such as the USA.

With the price of Brent crude down 50% since last August, the benefit to consumers in travel pricing is expected to percolate through airfares during 2015, although in many instances it may well be that prices will stabilise rather than increase.

From an Ireland perspective the weak euro should help boost demand from the top source markets of the UK and the US, while also giving Ireland a competitive price advantage over Britain as a destination for tourists planning on visiting these parts.

Currently the dollar is at a 10 year high against the euro, having appreciated by more than 15% since last spring, while a British visitor is enjoying a 5 year high with the pound sterling buying 10% more in euro than a year ago.

 

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