October 2010

Welcome to the first edition of Industry Postcard. Each month we will come to you with up to date news of what’s happening in the industry at home and abroad.

We will provide occasional analysis of trends and other material that is relevant to the Irish tourist business. As we begin the long road back to sustainable growth, early identification of trends and exploitation of opportunities that will inevitably arise will be critical.

The plan is that we will be coming your way on the third Tuesday of every month. This is a joint venture, so to speak, between ITIC and TTC-Tourism and Transport Consult . We would particularly welcome feedback on our early issues. Tell us about items which are interesting, or not?

More importantly, tell us about areas that we may not cover which you believe should be covered. Use the email link to let us hear from you.

Eamonn & Noel

> Current Market Conditions & Outlook
> Economic Snapshots
> Access News
> Tourism News
> International Transport News

 

CURRENT MARKET CONDITIONS & OUTLOOK

 

The short-term outlook for travel from each market is based on the best current information available, including economic and other factors influencing demand for travel. The summary presentation, depicted in weather symbols, is intended as a guide to marketers. The monthly series is also intended to highlight any change in market outlook from month to month.

 

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ECONOMIC SNAPSHOTS

 

Global Corporate Confidence Returns…….
Two years after the collapse of Lehman Brothers, corporate executives’ confidence has returned—albeit tenuously—suggesting a better ability to cope with and manage economic volatility. Based on the results of McKinsey’s latest Global Survey (Sept. 2010) 51% say the world economy is in recovery, with most expecting corporate profits to rise this year from their level in 2009, and 38% expecting to hire by the end of the year—the greatest share expecting to hire in the near term since before the crisis. Among the lasting changes that executives say the downturn has produced in their organization are greater attention to changes in markets, improved risk management, and much stronger consciousness of costs.

 

News from Germany & the UK more upbeat…….

The UK

The UK economy grew twice as fast as expected in the third quarter of this year, however, growth is still expected to slow next year as government spending cuts bite and VAT rates increase. The Comprehensive Spending Review and the Budget are expected to result in severe cutbacks in public spending including employment and a further dampening of consumer confidence.

The economy grew 0.8% between July and September compared to analysts’ forecasts 0.4% growth on the quarter. On the year, GDP grew by 2.8% – the fastest annual rate in three years.

Retail sales volume grew by only 0.4% in August, despite low interest rates held at 0.5%, suggesting no signs of consumer credit growth.

The Eurozone

GDP increased by 1.0% during the second quarter of 2010, compared with the previous quarter when growth rates were +0.3% in the euro area and +0.4% in the EU27. GDP growth in the eurozone is expected to go back to a lower pace in the short term with +0.4% in Q3, +0.3% in Q4 and +0.2% in Q1 2011.

Annual inflation in the euro area was 1.8% in September 2010. Under the assumption that the price of oil stabilizes at US$77 per barrel of Brent and that the dollar/euro exchange rate fluctuates around 1.30 over the forecast horizon, inflation should edge down slightly by December 2010 to 1.7%.

Private consumption is expected to flatten (+0.1% per quarter), as the labour market is likely to remain fragile. Eurozone interest rates have been kept low at 1%.

German consumer confidence rose to its highest level in over two and a half years on the back of a stable labour market. Data on Europe’s largest economy over the past week has been bullish, signalling its stronger-than-expected recovery could hold up as business sentiment hit its highest level in 3.5 years in October.

Consumer confidence in France improved slightly during October despite strikes and street protests with fewer forecasting an increase in unemployment. More consumers now expect their savings capacity in the next 12 months to improve.

 

The USA

The recovery that officially began in June 2009 has slowed considerably in recent months, raising concerns about the long slog the country will have to endure before the economy finally starts to feel healthy again, as consumer confidence remains low.

95,000 non-farm jobs were shed in September, with gains in private-sector employment outweighed by cutbacks in government payrolls. The steep drop was far worse than economists had been predicting. The unemployment rate held steady at 9.6%.

Consumer credit continued to contract in August, as savings increased and discretionary spending declined, including retail sales.

 

Around 2% economic growth forecast for main source markets in 2011 & 2012…
Forecast annual economic growth is positive at close to +2% in 2011 and 2012, with the German and US economies forecast to be slightly more expansionary.

France
Germany
Ireland
UK
USA
2010
+1.56%
+3.33%
-0.27%
+1.70%
+2.64%
2011
+1.65%
+2.02%
+2.28%
+2.02%
+2.31%
2012
+1.80%
+2.02%
+2.45%
+2.28%
+3.04%

Source: IMF – ‘World Economic Outlook’ (October 2010)

 

Irish consumers becoming more concerned about their finances……

Irish consumers would appear to have become more concerned about the outlook for their finances, the economy and the labour market over the next year. The overall KBC Ireland/ESRI Consumer Sentiment Index declined in September to 52.4. This compares to a figure of 61.4 in August, and a value of 49.6 in September 2009, but remains above the all time low in July 2008 of 39.6. Three out of four consumers expect unemployment to increase over the next 12 months.

The volume of retail sales (i.e. excluding price effects and motor trades) decreased by 1.4% in August 2010 when compared with August 2009, however, there was a monthly increase of 0.2%.

Prices slipped in September by 0.1% compared to the previous month as measured by the CPI, but were 0.5% higher in September compared with September 2009. Sectors where prices are regulated by the Government continued to see upward pressure on prices. The price drop in September was driven by a decline in transport costs, which fell 1.6% as air fares plummeted 29% due to special offers.

Ireland remained in deflationary territory on the basis of the EU Harmonised Index of Consumer Prices (HICP), which excludes items such as mortgage interest. By this measure, Irish prices fell 0.2% compared to August and are down 1% year-on-year. Ireland is one of only two EU countries to be in deflationary territory, the other being Latvia.

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ACCESS NEWS

 

No increase in air service to/from Ireland

The winter schedule shows little change in the aggregate capacity on routes to Ireland, with almost 270,000 seats on offer each week. Capacity on cross channel routes is up 8%, while mainland European routes are down 16% with long-haul services at the same level as last winter.

With expected depressed demand for outbound travel and a slow recovery in intra-European travel, both major carriers serving Ireland – Ryanair and Aer Lingus – have indicated no increase in capacity on Irish routes for summer 2011. Aer Lingus’ fleet will be unchanged, while Ryanair may further reduce service in opposition to the travel tax.

US Airways launch new Charlotte-Dublin service
US Airways will begin daily service from its Charlotte, N.C. hub to Dublin from May 6th to September 30th 2011, complementing the airline’s daily, nonstop year-round service from Philadelphia.

 

Ryanair further slashes Shannon services
Ryanair is cutting its winter services by a further 21% from 31 to 24 rotations per week, blaming an increase in passenger charges by €1.58 to €6.30 being implemented by Shannon Airport. The Shannon-Paris route is being discontinued and frequency on routes from Shannon to Gatwick and Stansted reduced. Passenger numbers at Shannon fell by 12% to 2.7 million last year while a further steep drop is expected this year. The airport also faces more difficult times in the year ahead with reduced services by Ryanair and Aer Lingus and further cutbacks in US military charter flights.

 

Aer Lingus to start Shannon – Paris service
A new three times weekly service between Shannon and Paris Charles de Gaulle, is being launched by Aer Lingus commencing on 17th December 2010.The introduction of the Paris route brings to eight, the total number of destinations served by Aer Lingus from Shannon Airport, with up to 59 flights per week available on services to London Heathrow, Paris, New York and Boston, and Aer Lingus Regional services to Birmingham, Bristol, Glasgow and Manchester.

 

Ryanair cuts Kerry-Dublin service and forfeits PSO payments
Ryanair is cutting the service from three to one flight a day from 31st October 2010, effectively ending its PSO contract on the route. The decision arises from a dispute between the carrier and the Department of Transport with Ryanair claiming that the Department refused to honour the contract to increase payments to reflect the increased operating costs. The annual PSO support for the route is almost €2 million, and it is now expected to be awarded to another carrier. Aer Arann previously operated the route on a PSO basis.
Galway Airport levies €10 passenger fee
Galway Airport is introducing a €10 departing passenger fee (Airport Facilities Fee) effective from Monday, November 1st 2010.
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TOURISM NEWS
Tourist Arrivals to the UK down 2%

For the first 8 months of the year 2% fewer visitors arrived in the UK compared to the corresponding period last year. The UK received 1% more visitors in August. Visitor expenditure is estimated to be the same as last year.

The number of visits in the year-to-date from EU15 shows no growth, with trips from newer member states down 4%. Visits from North America are down 8%, with visits from other parts of the world down 2% compared to the corresponding period a year earlier. Interestingly inbound visits from Ireland are down 12% year to date.

Holiday visits to the UK seem to have turned the corner with 4% more trips in the three months to August, following decreases in earlier months. Year to-date shows no change. Business visits are also showing signs of recovery with a 3% increase year to date, while VFR are down 6%.

Travel Overseas by UK Residents

The outbound market for travel from the UK continues to be soft with 7% drop in trips and 3% less expenditure for the first 8 months of 2010. This follows on a sharper decline in demand in 2009. So far this year outbound holiday trips are down 6%, with business visits also down 6% and VFR down 10%.

Visits to Europe and North America are down 8% and 9% respectively, with other longer haul destinations appearing to gain market share (down only 2%).

Consolidation in UK Travel Trade continues
Thomas Cook and the Co-operative Group are to merge in the UK to create the largest retail travel network of some 1,204 stores but resulting in the loss of hundreds of jobs.
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INTERNATIONAL TRANSPORT NEWS
Airline 2010 profit outlook improves despite slowing of growth in demand–but not in Europe

IATA earlier this month forecast global airlines will show an overall profit of $8.9 billion this year, sharply higher than its June forecast of $2.5 billion. That figure is expected to drop to $5.3 billion in 2011. The improved outlook for 2010 is down to a combination of increasing demand, disciplined capacity management and stable costs following on last year’s capacity cuts, capacity expansion is lagging behind demand improvements, resulting in higher load factors, higher fares and improved yields. Airlines in Europe are however not benefiting from the recovery as economic weakness and faltering consumer confidence continues to depress European originating passenger traffic.

International passenger traffic in September 2010 was 10.5% ahead of the same month last year, which is significantly stronger than the 6.5% rise recorded for August. Passenger capacity expanded by 7.3%, below the 10.5% growth in demand, pushing global load factors up to 80%. International freight traffic recorded a 14.8% year-on-year increase, which is significantly weaker than the 19% rise recorded in August.

North American carriers saw their traffic climb back to pre-recession (early 2008) levels during the month with an 11.1% increase in passenger demand compared to the previous September, outstripping a 7.2% capacity expansion. European carriers met an 8.4% increase in demand over the previous year with a 5.9% increase in capacity. The region’s carriers reported an average load factor of 82.6%.

Air fares creep up
Air fares are creeping back up to pre-recession levels due to higher fuel costs and an equalling out of seat capacity and passenger demand. Airlines have been slow to re-instate capacity successfully achieving higher load factors and increased yields. In the U.S. airfares have risen by an average of 19% year on year, while flights from the U.S. to Europe shot up 27.6% in the 12 months to August. In the UK, airfares went up 23% year on year to August, though this was partly due to an increase in air passenger duty last November. Airfares ex Ireland have increased by 16% over the past year.
Germany introduces controversial air tax

Germany has introduced an aviation tax that will add €25 on to flights to Ireland as part of a package to help reduce the German government’s deficit.

The tax comes into play with immediate effect on flights booked now and departing from January 2011. Airlines and travel business have been vocal in their opposition to the new tax.

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