Airline executives from around the world continue to paint a gloomy picture for their industry’s short- to medium-term prospects. If you are a travel affiliate or a travel program manager with an affiliate network, you may want to take notice, for the airline industry’s plunging traffic and airfares could hold positive news for the travel affiliate channel.
As TravelDividends has noted in previous blog posts, the global airline industry has been hit hard as a result of the triple-whammy of soaring oil prices in 2008, the ensuing global financial crises and recession, and sudden emergence (and still uncertain future impact and implications) of the H1N1 Influenza virus. At its annual meeting earlier this week in Kuala Lumpur, Malaysia, the International Air Transport Association (IATA) forecasted industry-wide losses eclipsing $9bn this year, with total revenues plunging by 15 per cent, or some $80bn below last year’s level.
The news since IATA’s announcement has gotten worse. The following is a small sampling of the dozens of glum and sobering comments about the sorry state of the industry made by airline senior executives, Wall Street analysts and industry observers within the last several days:
- In the latest edition of BA News, British Airways’ internal employee newsletter, CEO Willie Walsh wrote that BA’s OpenSkies subsidiary “is not profitable, Heathrow is not profitable, Gatwick is not profitable, cargo is not profitable and British Airways is not profitable.”Speaking to reporters at the at the annual IATA meeting earlier this week, Walsh reiterated his pessimistic views about British Airways’ and the airline industry’s future, saying that “our business is under threat,” and promising that he “intends to do everything possible to ensure [we] don’t become the next General Motors.”In May, BA reported a $659.8m loss for 2008, its worst financial performance since the airline was privatized in 1987.
- In an article from Breaking Travel News, in his address to the delegates at the IATA annual meeting, IATA’s Chief Economist, Brian Pearce, said “Transatlantic economy prices are down by an average of 34 percent, and those to Europe 31 percent lower. Premium class fares have fallen by an average of 25 percent during the same period.” Pearce went on to predict that “fares could fall at least another 10 percent over the next year, coming on top over last year’s falls.”
- Lufthansa Chairman and CEO Wolfgang Mayrhuber told ATWOnline in an interview during the IATA conference in Kuala Lumpur, that “…the group expects around a 10% decline in passenger numbers this year and a drop in revenue of some 20%.”
- Speaking at the Bank of America and Merrill Lynch Global Transportation Conference in New York on Thursday, June 11th, US Airways Group Inc. chief executive Doug Parker stated that the airline industry needs to get much smaller to stay viable, and consolidation is one of the keys to bringing the sector back to profitability.
- Today, Delta (DL) and American (AA) announced more capacity cuts and job reductions, on top of those implemented earlier this year and last.Delta’s CEO Richard Anderson and President Ed Bastian said in an address to employees that beginning in September, additional capacity cuts will reduce DL’s overall system capacity 10% for the full year compared to 2008, while year-over-year international capacity will be slashed by15% during the last four months of this year. They went on to say that “… additional capacity reductions mean we again must reassess staffing needs.” DL had previously announced that some 2,500 workers had accepted the voluntary leave program it offered this past January.In Dallas, AA announced it has revised its estimate of the magnitude of its system-wide capacity reductions, saying the airline would now cut full-year capacity by 7.5% compared to 2008, up from the previous estimate of 6.5% announced earlier this spring. Additionally, they will slash another 1,600 jobs, including 1,200 flight service positions.
- Meanwhile, credit rating agencies are not high on United Airline’s (UA) future prospects. ATWOnline noted in another article yesterday that Fitch Ratings downgraded “United Airlines’ credit facility rating, and that the credit rating agency warned that the carrier is facing “full-year passenger RASM declines of more than 10%,” which could cause United to “…report substantially negative free cash flow for the final three quarters of 2009.” Fitch Ratings also raised the specter that “United’s highly leveraged capital structure [is] unsustainable in the absence of a sharp turnaround in industry operating fundamentals.”
Pretty gruesome statistics these. However, buried in this seemingly endless barrage of industry devastation and turmoil is other airline news that could have positive repercussions for the travel affiliate channel.
Here are several other airline announcements to ponder:
- WestJet Airlines Ltd, Canada’s largest low-cost carrier and second largest airline overall, warned the financial markets on June 3rd that they are experiencing a “difficult” second quarter as ongoing economic weakness put a damper on air travel. President and Chief Executive Sean Durfy told analysts in a prepared statement that “A continued weakened economy and aggressive pricing are leading to reduced fare levels, making it a difficult quarter.” The financial markets, however, were not discouraged about WestJet’s prospects: Versant Partners analyst Cameron Doerksen said to Reuters that
“While the second-quarter results will undoubtedly be weaker than previously expected, we believe that investors will look beyond the near-term revenue challenges facing the Canadian airlines.”On June 9th, Travel Weekly reported that “WestJet announced it will reduce agency commissions from 9% to 7% as of July 1, but that announcement was applauded in Canada because the carrier’s original intentions were to lower agent pay to 4%.”
In a separate post later the same day, Travel Weekly also noted that “Last week, Air Canada announced it would pay Canadian agents 4% commission on Tango fares booked directly with the carrier via the Web. Today, in the wake of a WestJet commission announcement, it raised that pay level to 7%.” In May, Air Canada reported an operating loss of $188 million compared to an operating loss (before a provision for cargo investigations and proceedings) of $12 million in the first quarter of 2008.
It is important to point out that WestJet is one of the few profitable airlines in North America, and that it is also one of the few North American carriers to sell its product through the travel affiliate channel.
- ATWOnline also interviewed Emirates Airline President Tim Clark at the IATA annual general meeting. In that interview, Clark said “that year-to-date passenger numbers are up 13% year-over-year but that first and business class traffic have plunged 50% on certain routes,” a dynamic ATWOnline says Clark believes “will alter the industry’s pricing regime in the long term.” However, grounding aircraft is not on Emirates’ agenda. “Maybe if we slow down [deliveries], it would happen over a timeframe of nine months,” Clark added, saying “This is marginal when you look at the fact that we have 100 A350s and 52 A380s on order.” He told the Associated Press that any delay would not take place in 2009.It is important to note that Clark’s comments come on the heels of Emirates $405.5 million profit for the fiscal year ended March 31. Although this represents a 72% drop in profits from the prior year, it is a staggeringly terrific performance by an airline given the severity of the global economic and competitive landscape.It should also be mentioned that Emirates is one of the leading airline proponents of the travel affiliate channel, and heavily depends on travel affiliates in its global distribution strategy.
Back in November of last year, one of the top airlines in the world, Cathay Pacific (CX) made a major strategic decision by signing-up with TradeDoubler, one of the premier affiliate networks in Europe, to launch CX’s first-ever travel affiliate program. As reported in eConsultancy, “Faced with rising fuel costs, growing passenger numbers and the threat of low-cost airlines, Cathay Pacific is among a number of premium airlines that are increasingly looking at more cost-efficient channels like affiliate marketing to drive sales and Internet presence.”
In announcing their selection of TradeDoubler, David Paice, Cathay Pacific’s UK and Ireland Marketing Manager, said: “It is now paramount for any airline to have an affiliate network and we have high hopes for the programme we are putting in place. Affiliate marketing has proven to be an extremely successful revenue generation channel, with the potential to account for up to 20 to 30 per cent of an organisation’s total online revenue, so we simply couldn’t afford not to do it.”
TravelDividends believes that the travel affiliate industry – travel affiliates, program managers responsible for the travel vertical at affiliate networks, ad agency executives that serve the airline industry – should ‘take a page’ from the successes engendered at Cathay Pacific, WestJet, and Emirates and be out aggressively advocating the benefits of the travel affiliate channel to the many airlines currently not distributing through travel affiliates.
By collectively raising the awareness amongst the airlines that continue to bypass travel affiliates, many of the ‘non-believers’ can be converted. In that scenario, all parties will gain materially from the expansion of the affiliate model within the airline industry. Our sense is that if travel affiliates do indeed, generate more traction within the airline industry, then the cruise and tour operator industries will not be far behind them.
What are your views on the state of the airline industry, and what do you believe travel affiliates, affiliate networks and other interested parties in the travel affiliate space can do to build up their presence in airline distribution? What actions, tactics and strategies do you feel would benefit airlines, and their travel affiliate partners? We welcome your sharing your views, ideas and comments with us and our readers. Drop us an email…as always, we very much appreciate hearing from you!
