2009 Predictions, Prognostications and Other Views into the Future – Part III
So in my last part of the year in review – lets look into the future for the next 12 months, Its not pretty.
Let's start at the top and look at the world in general. 2009 will be a Challenge. There is no easy way to look at it. The Recession will be longer and deeper than anyone ever imagined. We do not see any improvement other than a slowing of the decline until Q3. This means that we have an awful Q1 to look forward to. There will be continuing layoffs and cutbacks. We shall see other programs (such as Delta's) offering early retirement to large swaths of the Aviation, Travel and Tourism community.
Conflict on Open Skies will emerge between the EU who will push for more liberalization and the USA who will question the advantages. With the current round of Open Skies not showing much advantage to the US carriers – there is going to be a lot more reticence with the new Administration to open the US market. So I would see that the chances for advancement will be slow in that arena.
On the airline front, there will be a new battle for supremacy in the skies – LH will be fighting to absorb what they have already ingested while AF/KL and BA will get feisty. The biggest prize on LH's radar is SK currently one of the sickest in Europe. Their ability to retain their independence is highly questionable. While they get sicker – Norwegian will get stronger. The battle in the Southern part of Europe will see some minor skirmishes occurring (in order of importance) Iberia, Alitalia and Olympic.
The standoff between IB and BA will not progress very far unless BA backs down from its partial high horse. The collapse of the pound against the Euros and even worse against the dollar makes the deal a lot more expensive. Alitalia will continue to be long in recovery. Whether it is off life support yet is open to debate. But we will see a strong Aeroflot as well as the big 3 take turns at saying they do/do not want the Italian basket case. If the Etihad + Olympic deal goes through we should see Qatar and Emirates look at some European airlines. Could there be a Virgin + a GCC airline marriage? Could be possible. In Asia I see a great degree of sickness continuing at the Chinese mainland airlines. Even CX will be under pressure as the pivot of mainland access moves to Taiwan. For Singapore airlines the current climate will provide them with some relief as the Indian Airlines struggle to consolidate their expansion and will likely retrench (as Kingfisher has) as well as form groups.
Sick watch for the year comes to the following: Alitalia (again), SAS (struggling), United (aging ungracefully), Virgin Blue (in search of new direction), Thai Airways (suffering with the collapse of the Thai market), Chinese Airlines (all of them need significant bailouts), Indian Airlines (the depressed economy and the withdrawal of outsourcing contracts from India will see a downturn), Mesa Air Group (how these guys survive is a feat of wonder) and other ACMI/contract carriers. I see that there will be at least one mega merger and/or collapse during 2009. However those carriers who are well managed will emerge stronger for 2010.
For the LCC market RyanAir and Easyjet continue to grow albeit at a more modest pace. Ryanair will look for longer haul activity…. Will Air Berlin turn the corner? The gap between the successful LCCs and the also rans will widen. In the Americas market expect to see the confederation of LCCs (Westjet, Southwest and Volaris) perhaps add another member (Gol?).
The Alliances will face major challenges to justify their existence. The grouping by certain key players will make the Alliances less relevant. Look for at least one major defection.
ATC and Airways performance will improve although governments will not be looking to spend more on these infrastructure projects except perhaps for the USA who is in dire need of good direction and investment – some Stimulus package investment will go here in order for Obama to meet his election pledges. The real improvement will come in the form of less traffic. The danger of VLJs has receded for the near and mid term so the FAA can focus on a reasonable plan.
More fall out from Boeing and Airbus delays – fortunately for them their order books are huge. 2008 will go down as the year of the downturn in the order cycle. Look for 2009 barely to add to the order book tally with many delays and cancellations. Airbus will find quite a few people looking at the A350XWB as the later customers for the smaller 787s look for upsizing and indeed the possibility of earlier delivery positions. Boeing's short term cash flow may have some hiccoughs in the new year but nothing major. Sentiment will probably flow towards Airbus unless the Unions cause more problems. The 787 WILL FLY in 2009 however it will be later than even the current projections.
Oil – Ah the big wild card. It will rise modestly – project 2009 to end with oil in the $70s-90s per barrel level. Hedges will start to right themselves by mid year. Look for China to stockpile oil early which will drive up oil from the current low numbers. Sadly the grandiose talk of alternative energy will die away unless there is a mandated form of taxation to fund new oil replacement projects.
Being Green will not be as strong as it could have been – but it will be a formal part of everyone's agenda. Let's just hope that this is more than the lip service we have seen in the past. We all need to move first to energy neutrality and then to a zero footprint impact. For travel this will be hard but it is achievable. We should look for more replacement and care.
In the area of distribution and product marketing, I believe that Distribution faces significant challenges. For many years I have said that the Distribution Systems are obsolescent. The locked in nature of the GDS and the commercial and technology platforms will be eroded. We face a triple witching hour for the market in Q3/4 with the GDS/PCAs up for renewal. Initiatives such as LH's PFP program will have significant impact and if successful in Germany will spread out rapidly. The GDS and airlines will unbundle their products which in turn will result in greater evaluation of alternative channels and platforms. The airlines focus on Unbundling will not be a happy result although they will continue to look at this as the savior in 2009. More unbundling and less happy customers will only become apparent in 2010 but the backlash will be significant.
In Technology – the OTA at 10 – it is hard to think that the Open Travel Alliance was formed 10 years ago. What next for the travel industry will be a critical question that many will ponder (The Professor included). My sense is that innovation will come from some unexpected quarters. We will see that the big project solution to Airlines PSS next gen systems will be viewed with skepticism following the less than fast implementations of Altea and CITP. Cloud Computing as a platform will take hold with more and more ATT businesses renting applications (SaaS) so they can focus on their core businesses. One thing is for certain – change will be constant and more fragmentation not less will be the order of the day. Controlling your own destiny even with rented apps will require more tech savvy people at every level. Big Consulting companies will face a pinch and cut back their staff as mega projects are postponed and cancelled in favor or interim and stopgap measures. Expertise will still be a strong currency.
In other sectors of ATT – we see that the Hotel companies will suffer disproportionally than the airlines. And there will be no one to bail them out. Look for massive layoffs worldwide in the Hotel and Restaurant sector labor force. Particularly hard hit will be some of the upscale 5 star businesses. For example the mega projects in Las Vegas, Macau and the UAE will start to look very risky as the worldwide recession takes its toll. Too much supply chasing too few customers.
On the tourism side we see that Hawaii and Mexico will be badly hit. Ditto Thailand. Macau suffers due to too rapid an expansion. Transatlantic travel will be flat at best. The Cruise industry will be affected by the double whammy of traffic declines and lack of sufficient air lift to the ships/ports particularly in the USA. China's engine of growth for Asia Pacific tourism will stay depressed.
One guarantee – people will be booking later so the market will become highly dynamic. This will boost meta-search and real search companies. Consumers will get smarter and will definitely spend more time searching. Personally I don't hold the view that there will be a shift to agents. Rather we will see a slowing of the online adoption but more likely the channel form will be less relevant. Woe betide anyone who doesn't understand the transparency of the web. And yes Facebook will continue to grow.
So here's to a great 2009 – just keep your head down and like a pig searching for truffles – you will find that there are many opportunities – just make sure you have the right tools, the right attitude and definitely the right friends to help you on the way.
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