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What Trends Might Disrupt ‘business As Usual’ in 2014? December, 4 2013
Looking into 2014, the travel, hospitality and leisure (THL) sector outlook remains positive due to improving demand side drivers. While there is potential for renewed growth both domestically and internationally, companies should consider ways to effectively leverage the power of technology to enhance customer experience. Adam Weissenberg, vice chairman and U.S. Travel, Hospitality and Leisure leader, Deloitte LLP, shares his perspective on the THL industry and some thoughts around managing and growing amid the transformative landscape.
What are some of the biggest challenges facing your industry in the coming year?
Travel, hospitality and leisure companies — seeking growth at home and abroad — look to respond to the challenges of an increasingly multi-channel environment, where options are many and customer loyalty is at a premium. As companies grow, managing a talent pool that ensures superior customer engagement and personalized experience remains a key focus area.
- Attracting and retaining talent: Travel and tourism industry is expected to add more than 70M jobs over the next decade, with two-thirds of those jobs to be created in Asia.1 With this growing global demand and geographic expansion comes the ever-increasing demand for more talent. CEOs will likely be challenged in finding, training, developing and retaining talent. Given the sophistication of international travelers, successful hospitality employees will need to understand how to cater to customers of different cultures. Training and retention of talent will likely require a significant investment from hospitality companies, but is important to success.
- Building customer loyalty during the upturn: Hospitality companies should consider building enduring customer loyalty and delivering a differentiated brand experience during this phase of gradual economic recovery. While many companies appreciate the importance of loyalty programs, only a few have managed to derive significant returns, indicating the need to reengineer loyalty programs.
- Expanding beyond Brazil, Russia, India and China (BRIC): Although disposable income continues to rise in the BRIC countries, growth in these regions is sluggish.2 Hoteliers should consider focusing on under-utilized, “beyond the BRICs” markets such as Burma, Cambodia and Vietnam, as well as other high-potential countries such as Turkey, United Arab Emirates (UAE) and South Korea, with well developed infrastructure. Still, the BRIC countries continue to provide good growth opportunities for players within various THL sectors, especially China. For example, a number of leading restaurant brands view these markets as key to their future global growth plans.
What trends might disrupt “business as usual” in 2014?While recent health care reform and increased taxes may impact the industry’s profitability in 2014, companies need to be ready as new market opportunities across geographies arise.
- Health care reform likely to increase companies’ costs: The recent health care reform mandates employers to provide health coverage to their full-time employees who log in more than 30 hours per week. This provision comes into effect in 2014 and may lead to cost increases that travel, hospitality and leisure companies should consider in their plans.
- Increased taxes may dampen travelers’ plans: In 2013, the UK government increased the Air Passenger Duty (APD) tax to a maximum £188 per person (vs. £92 in 2012) for long-haul premium flying. Similarly, Spain introduced a nearly 19 percent average hike in airport tax. These higher taxes are expected to be passed on to customers, and could ultimately redound negatively to those U.S. airlines that serve those European markets.
- Potential market opportunities driven by new regulations: Companies should consider planning their market entry strategies as new markets open up, especially in the gaming sector. There are recent developments around legalized gambling in countries such as Japan and Vietnam; when such opportunities materialize, many companies will look to quickly develop the needed infrastructure. In addition, several Asian countries such as Taiwan, Philippines and South Korea are building casino resorts to position themselves as popular gaming destinations (similar to what Macau did in the past decade) to attract tourists.
What are some steps companies can take to foster innovation and/or growth?Digital innovations and social media play an increasingly important role as hospitality, airline, leisure and other companies look for ways to engage customers and build long-term relationships. Many companies are deploying analytics tools to gain insights about consumer preferences — and deliver a differentiated experience — which could eventually motivate customers to visit frequently, stay longer and spend more.
Sustainability continues to be a key focus area — while airlines are working toward fuel efficiency amid volatile oil prices, many restaurants are focusing on low-calorie and organic food to bolster consumer confidence and reinforce their brand image.
In addition to their core Gen X customers, companies should consider focusing on millennial customers (typically aged 18-34) as they present a significant growth potential. Millennials’ spending will likely only increase as they step into their prime earning and spending years in the next decade. A few hotels are launching new brands while others are revamping their existing facilities with the latest technology features to appeal to young, tech-savvy customers.
These innovation and growth strategies may drive THL companies to realign their legacy structures and processes to the constantly evolving marketplace.
US Airways-American Airlines to merge
By Chris Isidore @CNNMoney
US Airways and American Airlines are joining forces in an $11 billion deal to create the world’s largest airline.
The new airline, which will use the American Airlines name, will beef up American’s network, particularly along the East Coast, where US Airways (LCC, Fortune 500) is a major player with its Washington-New York Shuttle and hubs in Philadelphia and Charlotte.
The proposed merger of US Air and American parentAMR (AAMRQ, Fortune 500), which filed for bankruptcy in November 2011, is the latest in a series of moves that have combined what were 10 major airlines in 2001 into four mega-carriers.
The combined US Airways-American joins United Continental (UAL, Fortune 500), Delta Air Lines(DAL, Fortune 500) and Southwest Airlines (LUV,Fortune 500) as the industry’s dominant players in the United States. Together, they accounted for 83% of U.S. airline passengers last year. The consolidation has meant fewer choices for the nation’s fliers, who have only one non-stop choice available to them on about a third of the nation’s major routes.
But even as competition has dwindled, fare increases have remained in check, inching up less than 2% a year in the last decade. And most experts don’t expect this deal to trigger a surge in ticket prices. There are only 13 routes served on a non-stop basis by both American and US Airways, according to JPMorgan Chase analyst Jamie Baker, and eight of those routes will be served by the one airline after the deal.
However, passengers will probably experience a lot more travel disruptions — from lost luggage to flight delays — as the two airlines combine systems, which is typically the case when airlines merge. The deal still needs the approval of the bankruptcy court and federal regulators, a process that will take months to complete.
US Airways has been very public about its desire to acquire American ever since AMR filed for bankruptcy, although American management had hoped to remain independent. But the three major unions at American pushed for the merger because their members were unhappy with the contract concessions and job cuts that American management was demanding.
Indeed, when American used a bankruptcy court ruling to impose a less favorable contract on the pilots, management said the number of pilots calling in sick increased, as did the number of maintenance reports they filed before flights. Flight delays and cancellations soared, prompting some of American’s business customers to start using other airlines.
The combination could vault the new airline into first place in terms of passenger traffic. American, which was the world’s largest airline ten years ago, has fallen to No. 3 in miles flown by paying passengers, the reading most often used to rank airlines, and No. 4 in terms of the number of passengers. But adding the traffic from US Airways and its feeder airlines could put the combined airline in the lead in both measures. Between them, the airlines operate 6,700 daily flights to 336 destinations in 56 countries.
The combined airline will be part of the Oneworld alliance of global airlines, which includes American, British Airways and Japan Airlines. It will pull out of the Star Alliance, which includes US Airways as well as United and Lufthansa. The frequent flier plans of the two companies will be combined.
Doug Parker, the CEO of US Airways, will hold the same position with the new airline, while AMR CEO Tom Horton will serve as non-executive chairman. The deal is essentially a purchase of AMR by US Airways, as US Air shareholders will receive a share in the new company for each of their US Air shares. But the US Air shareholders will hold only 28% of the shares of the combined company, with most of the rest going to AMR creditors.
This would be the second time that US Airways, the nation’s No. 5 air carrier, has bought a larger rival out of bankruptcy court. In 2005, what was then known as America Westbought US Airways out of bankruptcy.
One year later, US Airways launched a hostile $8 billion bid for larger rival Delta, which was bankrupt at the time. But Delta was able to hold off that effort.
Expert Tips for Snagging the Cheapest Airfare
by Ed Perkins / Smarter Travel
Lots of ink and pixels have been devoted to the quest for an answer to the question, “When is the best time to buy airline tickets?” My pat answer has always been, “When they’re on sale,” but colleague George Hobica of SmarterTravel’s sister site Airfarewatchdog says—and I agree—that you can’t predict the next sale. Nevertheless, folks keep trying. The latest data from a new report byCheapAir.com might provide some answers to this often-debated conundrum.
When to Buy Domestic
The information from online travel agency CheapAir.com focuses on how far in advance the optimum time to buy might be. The data are based on CheapAir’s extensive mining of their own purchase records.
CheapAir found, on historical average, that the ideal time to purchase a domestic ticket is 79 days, or seven weeks, in advance of departure (when the average fare for the sample was about $400). The earliest data were for seven months in advance, where the average fare was $475. The fare decreased slowly and steadily until the 49-day point; after that, it increased slowly until 11 days in advance, when it spiked to more than $600 on the day before the flight.
What About International?
For international tickets, the “sweet spot” was a little more in advance: 81 days, with good deals available generally 11 to 12 weeks in advance.
CheapAir’s findings generally track with others: The Economist reported the “eight-week rule” and Airlines Reporting Corp. reported six weeks as the optimum.
The report also notes that you find lots of deviations from this average. CheapAir found some routes where the best time to buy was when the flight first opened (331 days in advance) and others when the cheapest tickets were last-minute. And, of course, you’re better off buying earlier for travel around major holidays.
Track Your Flight for Fare Drops
Beyond trying to pick the best periods to buy, you have the option of tracking fares with the possibility of getting a refund if a fare drops after you buy.
CheapAir has what appears to be one of the best such programs: “Price Drop Payback” promises that if you buy a ticket through CheapAir and the fare subsequently goes down, the agency will issue a credit in the amount of the difference, up to a maximum of $100. The deal applies only to online purchases of nonrefundable economy-class tickets and only to fare drops posted on CheapAir for the exact same itinerary.
Other big OTAs provide somewhat similar programs. Orbitz offers a credit up to 110 percent of the difference, but only if someone else actually books the identical itinerary on Orbitz. Expedia offers a guarantee, but only for price drops that occur within 24 hours of purchase.
Sign Up for Fare Alerts
Another approach is to request an alert whenever a fare drops on some route you want to fly. Here, you have lots of options: Most big OTAs offer such a service, as do some airlines and some independent third-party travel-information sites. Most third-party agencies do not include Allegiant and Southwest, two lines that block “screen scraping” by external agencies, but George Hobica’s human-powered Airfarewatchdog.com does cover these lines.
Just enter one or more routes and your email address, and the source will notify you of a fare drop. These days, some also provide smartphone and iPad apps.
Different Approaches
The report’s data dispute the urban legend about buying tickets on Tuesday and Wednesday: CheapAir found little day-to-day difference.
And two online outfits—Bing Travel and most recently Kayak—boast a still different approach: “buy or wait a week” airfare predictors on their search engines. I’m currently testing them and will report results soon.
Stay Current
All in all, you won’t find a single magic-bullet answer to the when-to-buy question. Instead, your best protection is to avail yourself of a number of different approaches and keep on top of the airfare marketplace.
Ed Perkins on Travel is copyright (c) 2012 Tribune Media Services, Inc.
DOT EXPECTED TO ENFORCE NEW AIR RULES AGGRESSIVELY
Travel agents who fail to comply with the new DOT rules that went into effect this week run the risk of “draconian” penalties, as the department is likely to make an early example of violators.
That’s the view of industry attorney Jonathan Harriman. Harriman and other industry members are urging agents to take a close look at the rules on baggage fee disclosure, airfare advertising and post-purchase price increases and make appropriate changes.
“These rules will significantly impact the regulatory environment in which travel agencies operate and failure to comply could result in substantial penalties,” said ASTA CEO Tony Gonchar. (For a description of new DOT fare and fee rules, please see related story, “An Agent-Friendly Guide to New DOT Disclosure Rules.”)
Dramatic impact on agents
The new rules could require agencies to make fundamental systems and programming changes and to re-train frontline employees, ASTA stated.
The rules are also expected to have a sizable impact on agency-tour operator business dealings.
The DOT’s advertising rules go into effect on Jan. 26. Its fare hike and fee disclosure rules took effect on Jan. 24.
While some new DOT fare rules became effective in August 2011, the rules taking effect this week “may have the most dramatic impact on an agency,” Gonchar said.
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Penalties for violating the rules can be sizable, said travel industry attorney Alexander Anolik of Tiburon, Calif.
Travel Market Report asked Anolik and his law associate Jonathan Harriman to discuss the DOT’s new rules and what agents can expect.
What should agents do to make sure they are complying with the new DOT rules?
Anolik: Closely review the new regulations and speak to their travel attorney. A few hours of legal consultation is much cheaper than even one day’s worth of penalties.
What are the penalties for violating the rules?
Anolik: The penalties are substantial. The statutory penalty is $27,500 per violation. It increases for each violation and/or each day the violation continues.
Is DOT proactive about enforcement?
Anolik: The Department of Transportation is proactive about enforcement and has an entire office dedicated to finding and punishing violators. Be aware that many agencies are turned into DOT by other agencies that are caught with a violation.
Last year, DOT issued nearly $6 million in penalties against agents and carriers for noncompliance. We expect increased enforcement in 2012 due to the new laws.
Harriman: Get ready for the first wave of penalties in April and May. DOT will give everyone two months to get their act together. Then they will come down hard and make examples of OTAs, airlines and tour operators. This is the way they work – make an example of one company in each segment of the industry.
Penalties are draconian. The average fine for an advertising violation can cost an agency $57,225 – and that is for a small agent.
What benefits do the rules provide to agents and consumers?
Anolik: Consumers enjoy most of the benefits from the new DOT rules. Although short of a Passenger Bill of Rights, these rules make serious efforts to protect consumers from unfair practices and re-civilize the air travel experience.
Agents will certainly enjoy some benefit from the more complicated rules, but this benefit will be outweighed by the additional costs of compliance.
Harriman: One minor benefit is that the new full fare advertising rule is simple and straightforward – what the consumer pays for a ticket is what you have to advertise.
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That’s a change from the 1990s’ DOT rule letting agents break out fares and fees, a Byzantine rule that was very complicated and that many agents got wrong – and were fined $40,000 (as a result).
Are there any drawbacks for agents?
Anolik: Absolutely. Compliance with the new DOT rules will not be easy. The new advertising rules will dramatically change the way airfares are advertised and will required a complete overhaul of most agent websites – especially for OTAs.
As always, there will be agencies that make incorrect changes or completely fail to make the required changes.
This will result in brutal penalties and lots of publicity by DOT, which is looking forward to an opportunity to get the word out and ensure industry compliance.
How will the ban on airfare increases after full payment affect tour operator-travel agent engagement?
Anolik: The new price increase regulations will force tour operators to heavily modify their established booking procedures.
Harriman: It will change the booking process for tour operators. I see them wanting deposits as early as possible and pushing off full payment as long as possible. They will provide full fare disclosure, and then wait it out before they purchase the air so they can lock in the price later on and limit their liability if there is an airfare increase.
Anolik: The agent is paid full commission on the booking, as compared to the deposit [the tour operator receives]. It helps agents’ cash flow and overrides for the consortium – and you want that all in as early as possible so the consortium hits its override level.
Harriman: So agents probably want consumers to pay as soon as possible to lock in prices, whereas the operator does not want full payment [too far in advance], because of the liability for an airfare increase that they cannot pass on.
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