In the lead-up to the war in Iraq and the 21 days of conflict that ensued before the dramatic toppling of Saddam Hussein, The Moodie Report monitored the impact of the crisis on the travel retail business. Here is the fascinating record of that critical period in 21st century history.
UPDATE 10 APRIL: WAR – DAY 22
FROM THE PUBLISHER: April 9 was one of those dates that will resonate through history. The symbolic (and actual) toppling of Saddam Hussein’s regime is captured memorably on the front page of virtually every newspaper in the world today. Those images mark the end of a quarter of a century’s rule by the Iraqi leader and -the world hopes – a near end to the carnage and bloodshed of the past 21 days.
For the travel retail industry, April 9 may also be a significant landmark. As documented many times in The Moodie Report since our launch last September, the prospect and then reality of war has had a devastating effect on the global travel business. Long months of uncertainty dampened business and the actuality of war sent it into sharp reverse. As travel numbers nosedived, so did travel retail spending. Middle Eastern retailers felt it worst, especially in locations such as Qatar, Bahrain and, most of all, Kuwait. But those in the US, parts of Europe and Asia Pacific also registered various degrees of decline.
Whatever one’s stance on the war – and this industry is as divided as any international community – everyone wanted it over quickly. Yesterday’s events suggest that is happening. And that, in itself, will send a much-needed surge of confidence back into this business, and all travel-related industries.
Business will not recover overnight. Terrorism remains a constant threat. The west should not forget that many in the Arab world watched yesterday’s events with a very different perspective, fearful of a new colonialism throughout the Middle East. How Iraq is rebuilt will affect stability in the whole region. And so, more critically, will progress on President Bush’s promise of a “road map” to peace that will result in the creation of a Palestinian state – a pledge that many Arabs simply do not believe.
Nevertheless, the perceived drawing to an end of the conflict in Iraq will lift business confidence. Middle Eastern travel retailers, especially, are optimistic that the worst is now over.
For the industry as a whole, there is still the monumental issue of the Severe Acute Respiratory Syndrome (SARS) virus to deal with, a crisis that is worsening and which is having a more damaging effect on travel than the war. But at least it appears that one of the two greatest threats to this business in its 56-year history may be receding.
UPDATE 9 APRIL: WAR – DAY 21
AUSTRALIA. National flag carrier Qantas said Wednesday it will lay off 1,000 employees before the end of June in response to the war in Iraq and the SARS virus. Qantas, which employs about 35,000 people, cut its profit forecasts late last month and reduced international services by up to 20% from April to July because the war, terrorism threats and SARS were causing people to fly less.
UPDATE 7 APRIL: WAR – DAY 19
INTERNATIONAL. International traffic on European airlines fell by -7% year-on-year in the week to March 30, the first full week of the war in Iraq. The association of European airlines said today that traffic on routes between Europe and the Middle East in the week was -52.3% lower than a year ago, as carriers took drastic action to cancel services or reduce capacity. Traffic on services to the Asia Pacific region was -11.6% lower than a year ago
UPDATE 5 APRIL: WAR – DAY 17
UAE. First quarter sales for Dubai Duty Free reached Dhs294 million (US$82 million), an impressive +17% increase over the same period last year, especially considering the troubled business climate in the war-torn Middle East. Commenting on the latest sales results, Colm McLoughlin, managing director of Dubai Duty Free said: “Given the difficult circumstances, which have led to a reduction in global travel, we are pleased to see that our sales figures are quite resilient.”
Acknowledging that sales figures had dipped in the past few weeks (The Moodie Report understands daily sales have dropped an average of -25% per day compared with the same day the previous month since the outbreak of war in Iraq), McLoughlin added: “Sales for the first two months of the year were particularly strong. In fact January was a record month, and this has helped boost first quarter figures.”
UPDATE 4 APRIL: WAR – DAY 16
THE NETHERLANDS. KLM, the Dutch flag carrier, said that it sold only 77.1% of available seats in March, a fall of 7.4 percentage points from a year ago, mainly due to the war in Iraq. KLM said its traffic fell by 32% on routes to the Middle East last month, while its load factor fell by 10.3 percentage points to Asia Pacific and by 7.5 points to North America. The Dutch carrier announced a raft of emergency cost-cutting measures earlier this week. These included an immediate hiring freeze and a review of all capital expenditure. It is cutting more than 7% of its capacity including 20% of frequencies on its North American and Middle East services and 5% of its flights in Europe. Further cuts will be announced shortly on Asia Pacific routes.
INTERNATIONAL. The International Air Transport Association (IATA) said that with operations underway in Iraq, and the added threat of SARS, airlines need to work quickly and closely with governments, regulatory bodies and industry service providers to ensure that civil aviation will not be crippled by the conflict. IATA Director General and CEO Giovanni Bisignani said: “I have written to some 200 airports and ATC providers to urge them to implement financial contingency plans, in order to freeze or even reduce charges and rates in this difficult period.”
UPDATE 3 APRIL: WAR – DAY 15
UK. British Airways today announced a sharp drop in passenger numbers for March, blaming the war in Iraq and the SARS outbreak. Traffic numbers slumped -11.4% year-on-year, led by a sharp -23.8% fall in business and first class. Economy levels dropped -9.2%. BA head of investor relations George Stinnis warned: “There is certainly the possibility we will not achieve flat revenues this year.”
The company added: “There is limited visibility on revenue and traffic, reflecting the war, economic uncertainty and the impact of SARS.” The downturn in traffic will hit sales at UK airports, as well as the carrier’s own inflight sales. Onboard sales were flat at £42.3 million (US$67.0 million) in 2002, according to Generation DataBank.
UPDATE 2 APRIL: WAR – DAY 14
THE NETHERLANDS. Schiphol Group, the operator of Amsterdam airport, said passenger levels fell sharply at the end of March due to the war in Iraq and the economic downturn. Schiphol forecast growth in the airline industry will be delayed by two years. In the last 10 days of March, passenger travel from Schiphol fell -12% on the same period last year, while the number of flights was down -3%. Preliminary figures for the whole of March showed that the number of passengers was down -6.0% year-on-year. For the first two months of the year, the number of passengers grew by +4.9. Schiphol said it will postpone €800 million in a total investment of €2.8 billion it planned to make over the coming four years.
UAE. Ambitious Dubai-based carrier Emirates has cast off some of the gloom facing the region’s aviation industry by boosting its services in the strife-ridden Middle East. Despite the escalating conflict in Iraq, Emirates is introducing extra flights between now and July. Services to Doha, Qatar will eventually increase to four daily flights; the Iranian capital of Tehran will get an extra four flights weekly; Sanaa in Yemen an extra two weekly; and Dammam in Saudi Arabia and Kuwait one extra weekly flight each.
Emirates commercial operations director Ghaith Al Ghaith said: “We are boosting our Middle East routes as part of the expansion taking place this summer across the whole network. We will not be deflected from our planned growth by the conflict in Iraq.” The news is a tonic for Dubai Duty Free, which says its revenues are currently running at around -25% of pre-war levels but are still up on last year. Historically, Dubai Duty Free has been one of the most resilient world operators to any downturn and one of the quickest to bounce back.
SPAIN. International tourism is resilient enough to recuperate relatively quickly if the war in Iraq is not drawn out, according to World Tourism Organization (WTO) secretary general Francesco Frangialli. “If the conflict remains short and contained, it is not out of the question for recovery to come during the second half of the year,” he said in a letter sent to WTO member countries.
The uncertainty caused by the build up to the war already had a negative impact by fuelling fear, discouraging bookings and delaying investment plans. He added: “We would have preferred something other than the worst possible solution: war. But there are powerful reasons to remain reasonably hopeful for the recovery of tourism.” As an industry which ensures stability and promotes recovery, tourism has never suffered a deep and lasting recession, he said. “Tourism has always bounced back and has always done so quickly. The economic and financial crises in Asia Pacific and Russia in 1997 to 1998 were clear examples.”
Similar signs of consumer confidence in adversity were demonstrated following the conflicts in the Balkans and the 1991 Gulf War. In 1991 global tourism still achieved +1.2% growth, followed by a spectacular +8.3% jump in 1992. Madrid-based WTO said its research shows that the adjustment period to such crises is accelerating changes in consumer habits and transforming the fabric of the industry, encouraging the creation of new types of operators such as low cost airlines.
UPDATE 1 APRIL: WAR – DAY 13
INTERNATIONAL. Global duty free sales could fall by -20% to -25% this year, according to Generation DataBank, making 2003 the worst year in the industry’s 56-year history and taking sales back to 1990 levels. The combined effect on global travel patterns of war in Iraq, the escalating Severe Acute Respiratory Syndrome (SARS) crisis, plus terrorism concerns, the North Korean crisis and ailing world economies have combined to stretch this industry’s pain threshold to the limit. “If the SARS epidemic is not brought under control and the Iraq war goes on into the Summer, the yearly fall could be higher than 25%,” warned Generation DataBank proprietor Yngve Bia.
JAPAN. Japan Airlines System Corp, Asia’s biggest carrier, said more than 30,000 passengers have cancelled bookings on international flights since the outbreak of war until the end of April. About 10,000 of those cancellations were in March alone, as concerns about the war combine with fears about the Severe Acute Respiratory Syndrome virus sweeping much of Asia, said company spokeswoman Yoshie Otaka. The comments come on top of last week’s news from JAL that it was cutting capacity for April by 8% to cope with a war-related slump in demand.
UPDATE 31 MARCH: WAR – DAY 12
THAILAND. Thai Airways International announced today it would reduce flights to Hong Kong and to other regional and European destinations in response to lower passenger demand following the war in Iraq and the outbreak of severe acute respiratory syndrome (SARS). “(Thai Airways) has made flight adjustments to South Korea, Taiwan, Hong Kong, and Greece, according to passenger demand that has decreased,” it said in a statement. The airline will cancel a total of 28 flights spread over the March 27 to April 13 period. The carrier has also set up a working group responsible for considering the effects of the crisis in Iraq and the SARS outbreak.
CHINA. Next month’s China Travel Retail Summit has become the first travel retail trade victim of the Severe Acute Respiratory Syndrome (SARS) virus currently sweeping much of Asia. The organisers, China Duty Free Group and China Power Duty Free Group, today announced that the event, due to be held in Shanghai on May 14-15, is being postponed to a later date because of the serious and growing impact of SARS in the region.
In a statement, the organisers said: “We believe the postponement of this year’s China Travel Retail Summit is the most responsible one for the sake of the industry. With Asia being at the heart of the SARS crisis and many companies instructing their management not to travel in the region until the outbreak is contained, it is asking too much of our friends and supporters to commit to an event that will be surrounded by uncertainty and personal health concerns. Rather than dilute the impact of this highly-influential event in the industry’s key growth market, we have decided to act in the industry’s interests and postpone to a later date.”
UPDATE 30 MARCH: WAR – DAY 11
US. More than 30% of business travellers surveyed by USA Today cited war and terrorism concerns as grounds for reducing international travel in coming months. Some 45% of respondents were “somewhat concerned” about business travel in the current climate with 17% “very concerned”. Only 12% were “not at all concerned”. Hard-pressed US carriers have been reducing international flights in response to the drop in demand. Last week Delta Air Lines suspended flights between New York JFK airport and 10 European cities for a month.
UPDATE 29 MARCH: WAR – DAY 10
US. International air traffic out of the US fell by -8 to -25% according to route last week, compared with the same period a year ago, as the Iraq war prompted thousands of passengers to cancel flights.
Passenger numbers on US transatlantic flights were down a disturbing -25%; trans-Pacific routes fell -13% and US-Latin America passenger figures dropped -8%. Domestic travel took a lesser hit, falling by -7% in the week. Many travellers in many countries are likely to opt for domestic travel this year, given the current global crisis. Worse is to come. The Air Transport Association reported a -40% decline on trans-Atlantic bookings for the next quarter.
UPDATE 28 MARCH: WAR – DAY 9
AUSTRALIA. Australia’s Qantas Airways cut international flights by 20% today in response to the Iraq war and the outbreak of severe acute respiratory syndrome (SARS) which has hit travel to much of Asia.
Qantas announced cutbacks and a profit warning that underlined. Qantas shares closed down -9.64% to A$3.00, an 18-month low. The airline warned its 2003 profit would probably be 15% below analysts’ expectations of about A$600 million (US$360 million). It cut international flights and put 500 staff on forced leave.
Local retailers are predicting a grim year, especially as the SARS crisis comes on top of the Iraq war, last year’s Bali bombing and 11 September 2001. One retailer told The Moodie Report: “GST, East Timor, September 11, the Afghan war, the Bali bombing, the Iraq War, SARS… what else can they throw at us?”
UPDATE 27 MARCH: WAR – DAY 8
US/JAPAN. Japan Airlines, the largest carrier serving the Japan-Hawaii route, is cutting two flights a day to Honolulu through most of April. This represents a reduction of nearly 800 seats a day. The cuts represent the first major flight reductions to Hawaii since the start of the war last week. The airline said the number of customers flying to Hawaii has dropped 40% since the start of the war compared with last year. The cuts were necessary “due to a fall in demand attributed to the Iraq situation,” the airline said.
Japan Airlines will reduce flights from Tokyo to Honolulu to two flights per day instead of three starting April 1. For the week of April 25-May 6, it will have three daily flights to accommodate travellers for Japan’s key vacation period of Golden Week. That is down from the four daily flights originally planned for that week. Flights from Osaka to Honolulu will be cut to one daily instead of two daily for April 1-23. The Japan Airlines flights are on 747s that carry 380 to 410 passengers. The news has serious repercussions for travel retail, said DFS-Hawaii.
“There’s almost a linear effect in our business by that kind of reduction in traffic,” said Sharon Weiner, vice-president for travel retailer DFS-Hawaii. “If they’re cutting from three to two flights a day, it’s a one-third reduction in our revenues right there.”
FRANCE. In a story likely to be mirrored among many other airlines around the world in coming weeks, Air France yesterday issued a profits warning amid rapid deterioration in traffic and yields since the Iraq war began. It said that it was “no longer certain” of meeting its target of a higher operating income in the current year to the end of March “in view of the deteriorating economic situation caused by the Middle East crisis.”
Air France is one of Europe’s top three airlines. It said that the outbreak of war in Iraq had speeded the deterioration of market conditions experienced since the beginning of March. The airline announced a package of emergency cost-cutting measures including a hiring freeze, cuts in capital expenditure, the postponement of new aircraft deliveries and reductions in capacity. The airline said that it was cutting its capacity for April by 7% compared with the initial flight schedule and that the situation would be monitored weekly.
Routes to North America, Asia, the Middle East and within Europe were “suffering considerably” from falling passenger demand. Only domestic, Caribbean and Indian Ocean services remained “satisfactory.” Air France inflight duty free sales reached US$26.2 million in 2002, up from US$24.6 million in 2001, according to Generation DataBank.
UPDATE 26 MARCH: WAR – DAY 7
UAE. Dubai Duty Free is witnessing an approximate -25% fall in daily sales since the outbreak of the war, compared with the same days over the past two months. But Dubai Duty Free managing director Colm McLoughlin remains upbeat about trading levels. “You have to remember that these figures are still higher than for the same periods last year,” he said. “So it’s not so bad. People are still spending.” McLoughlin also had some sharp words for those in the travel retail trade who were cancelling flights. “It’s disappointing to see people from this business not being prepared to travel,” he told The Moodie Report. McLoughlin was speaking at the Orlando duty free show in Florida, US, which he made a particular point of attending despite the current concerns over air travel. Suppliers are seeing a sharp downturn in their Middle East business this month, with particularly negative figures in locations such as Kuwait, Bahrain, Abu Dhabi and Qatar. No location is immune as travellers and airlines in increasing numbers avoid the region.
UPDATE 25 MARCH: WAR – DAY 6
UK. British Airways has cancelled flights between London and the US and Japan since the start of the war in Iraq and is poised to unveil more cuts. The airline has been culling the flights in what the aviation industry calls “ad hoc” cancellations, but is expected to announce planned capacity cuts this week. BA has cancelled one daily flight between London Heathrow airport and New York JFK airport, the carrier’s website showed. On top of the New York changes, one of BA’s two flights a day between Heathrow and Tokyo has been cancelled on certain days. BA suspended flights from London to Kuwait and Tel Aviv and cut one flight a day to Dubai before the outbreak of war.
INTERNATIONAL. AMR Corp’s American Airlines is slashing international flights by -6% in April, Delta Air Lines has cut -12% of its flights and KLM Royal Dutch Airlines has announced a -7% reduction in capacity. Continental Airlines, NorthWest Airlines, UAL Corp’s United Airlines and Iberia have also stated they are cutting capacity in April.
Delta also announced today that its first-quarter loss would be “greater than” the loss of US$397 million, it posted a year ago. In its annual report, Delta ceo Leo Mullin wrote that the airline industry will continue to face “duress” in the months ahead. “Economic analysts indicate that recovery is unlikely before 2004, if then. Competition in the air-travel marketplace continues to escalate, revenue remains depressed, and geopolitical concerns are increasingly complex,” he wrote.
One US aviation analyst told Reuters: “Airline bookings fell off a cliff in mid-March.” Industrywide traffic figures show a sharp decline beginning on the day of the 48-hour ultimatum made to Saddam Hussein last week. Compared with a year earlier, traffic was down -7.7% on March 17, followed by an -11.4% drop on March 18 and a -15% drop on 19 March. With war under way, the data shows traffic down between -9% to -11.7% daily.
UPDATE 24 MARCH: WAR – DAY 5
US. Carnival Corp, the world’s largest cruise operator, said that its fiscal second-quarter bookings, through May, and even some in the key third quarter are suffering because of the war with Iraq and concerns about terrorism.
“When people are buying duct tape, they aren’t thinking of buying vacations,” said Carnival chairman and chief executive Micky Arison. Carnival executives disclosed that the company so far has hit 86% occupancy for its second-quarter cruises, compared with 92% a year earlier. Cruise lines normally sail at or above 100% occupancy because of the way cabins are sold.
UPDATE 23 MARCH: WAR – DAY 4
US. Pouring rain reflected the generally sombre industry mood as duty free retailers and suppliers gathered in Orlando for the opening of the year’s first major trade exhibition, the Duty Free Show of the Americas. The bleak weather forced the traditional opening day’s major social events inside, where most talk was of events in Iraq on a day that saw several serious reversals for the US forces and their allies. There have been a number of cancellations from the show but the organisers, IAADFS, say they are still on schedule for a successful week.
UPDATE 22 MARCH: WAR – DAY 3
KUWAIT. Kuwait Airways, the country’s national carrier, is temporarily halting flights to the US, Europe, Iran, Jordan, Syria and Lebanon because of the war in neighbouring Iraq. Iraq has launched eight missiles at Kuwait since the military campaign started Thursday.
US. United Airlines will temporarily reduce its worldwide schedule by 8% because of the military conflict in Iraq. Starting April 6, the airline will trim its international schedule by 20 flights.
UPDATE 21 MARCH: WAR – DAY 2
INTERNATIONAL. As the second day of war in Iraq saw the beginning of the US “shock and awe” bombing campaign, world air travel continued to be drastically effected. Air traffic is forecast to fall by 10-20% in the immediate aftermath of the hostilities, triggering the grounding of aircraft and the loss of thousands of jobs in aviation. While immediate disruption is a serious concern, the bigger worry is the flow-on effect on future demand for air travel. The world’s largest carrier, American Airlines, says it will reduce international capacity by 6% next month as a “first step” while it watches developments in Iraq. Meanwhile Air Canada announced yesterday it was cutting 3,600 jobs by the end of the year as the war puts more pressure on costs. Another North American operator, Continental, slashed its workforce by 1200 earlier this week.
KLM and Lufthansa have now been joined by Finnair in reducing flight schedules and the Finnish airline is reported to be contemplating job losses of up to 2000. Air France has also decided to make changes next month.
Australian carrier Qantas is making temporary cutbacks in staff while Korean Air (KAL) said today it is cutting its twice weekly flights to Cairo in Egypt. KAL reduced its services to US destinations by 29 flights from Wednesday. Most airlines have now halted flights to Kuwait, though Middle East carrier Emirates is continuing to fly all other routes.
UPDATE 20 MARCH: WAR – DAY 1
SINGAPORE. Singapore Airlines today announced it is suspending 65 services a week “in response to softening demand in the past few weeks attributed to concern about the situation in the Middle East”. See Data Room for full details.
INTERNATIONAL. A mounting number of major international carriers have responded to the outbreak of war in Iraq this morning by cancelling or reducing flights, especially to the Middle East.
Greek national carrier Olympic Airways cancelled today’s flights to Beirut, Dubai and Alexandria, Egypt, and reduced the number of flights to some Middle Eastern destinations. It is also reducing the number of flights to Cairo, Tel Aviv, Jeddah, Saudi Arabia; and Larnaca, Cyprus. Changes to European routes will depend on passenger reaction to the war. Malaysian Airline System has cancelled four flights to and from the Middle East that were to have occurred between Friday and Monday, due to low demand. The flights were bound to, or from, destinations such as Cairo, Istanbul, Dubai and Beirut.
Austrian Airlines said it has canceled today’s flights to and from Tel Aviv. Meanwhile, Frankfurt airport operator Fraport said today that airlines have so far cancelled eight flights to and from the airport since the start of military action. Six were inbound flights to Frankfurt airport from the Middle East, and two were outbound flights. Affected destinations are Amman, Tel Aviv, Damascus, Kuwait, and Beirut.
German national carrier Lufthansa said it is cancelling all its flights to the Middle East for today and Friday. Lufthansa operates flights to the Middle East from both Frankfurt and Munich airports.
Russia’s Aeroflot Airlines has suspended flights to and from Jordan but its service to other Middle East destinations will continue according to schedule. Aeroflot said its service to Istanbul, Damascus, Beirut and Tehran would continue unchanged, and that it would take all necessary measures to ensure passengers’ security. It said it was closely following the situation around Iraq and would make further scheduling decisions according to recommendations from Russian and European aviation authorities.
INTERNATIONAL. The travel retail trade is holding its breath after war in the Gulf finally began with pre-emptive missile strikes targeted at Saddam Hussein and other Iraqi leaders. The attack started when around 40 cruise missiles pounded the Iraqi capital Baghdad as dawn broke. The conflict looks like escalating quickly. Two Iraqi missiles have hit Kuwait’s northern border with Iraq, according to the country’s defence minister.
He said the two Iraqi missiles were three-tonne medium-range and “were not carrying any unconventional warheads”. A senior US government official said his country’s forces had launched a missile strike against a “target of opportunity” near Baghdad after US intelligence detected the possibility Iraqi leaders were in the area. There were reports from Washington that the attack was specifically aimed at five Iraqi leaders – including Saddam, one of his two sons and senior defence officials.
The final outbreak of war, though long anticipated, has already seen some travel retail companies rethinking their plans or implementing worst-case scenarios. Two suppliers have told The Moodie Report that they have been told to cancel all trips to/from the Middle East and the US and one is, as a result, not attending the Orlando show.
Comment: So, after months of waiting, it has finally begun. War is upon the world and upon our industry. Contingency plans are now being implemented across the business as the scenario everyone feared becomes a reality. Within the bounds of common sense, it does seem vital to us that the travel retail industry keeps travelling. As we pointed out in last week’s The Moodie Report e-Newsletter, if we do not travel, who will? We look forward to seeing our readers in Orlando next week.
UPDATE 19 MARCH
UAE.. Mohamed Mounib, managing director Abu Dhabi Duty Free: “Yes we are facing some tough times, but I guess by now that we are used to operating under different circumstances and we are reacting day-by-day to different situations. Some of our chartered flights have ceased their operations, some airlines have reduced their frequencies, but the good news is, Gulf Air have increased their frequencies.
“We will have to wait to see the outcome in the next few daysn and chief executive of EgyptAir, told The Associated Press. El Nadi said there had been a “big cancellation” of tickets from Europe and Asia. “We are expecting a loss, but how much is the loss depends on how long the war will be,” he said. Revenue losses could reach more than 20%, he added.
UK. Ministers are preparing emergency insurance legislation to keep airlines flying to the Middle East during an Iraq war. A Parliamentary order is expected to give the government the power to protect the aviation sector against war if insurers withdraw cover. Airlines are worried that premiums will soar, not only for Gulf routes but also to nearby destinations such as Cyprus. Insurers cancelled cover after the events of September 11 2001 forcing the government to step in
US. Visitors to the US are to be screened for radiological materials by border inspectors in an effort to counter terrorism. The US Customs department has confirmed that every person now entering the country will be screened by at least one inspector with a special radiation detector, affecting 500,000 people a day arriving at airports, sea ports and land border crossings. Presently, customs agents screen arrivals on a random basis – a move introduced following the September 11, 2001 attacks.
US. War with Iraq could force several US airlines into liquidation as losses soar from US$4 billion to US$7 billion a year. American Trans Air chief executive George Mikelsons warned that the combination of rising oil prices and falling passenger numbers resulting from war could destroy the current airline transportation system. And the tourism industry is preparing for a serious downturn. Carnival Corp, the world’s largest cruise line, is lowering prices in hopes of luring more passengers. Both Carnival and rival Royal Caribbean Cruises report that uncertainty over war in Iraq and the economy have depressed bookings. Tourism-dependent destinations, including Florida, Nevada, New York and Hawaii, are considering new advertising campaigns if a war keeps visitors away. “Even without factoring the war, we were looking to 2004, 2005 before we got back to 2000 levels,” said Cathy Keefe, spokeswoman for the Travel Industry Association of America. “War is inevitably going to push that recovery even further.” The effects of war on leisure travel will hinge on the duration of the conflict and whether there are any terrorist attacks in the US. Airline passenger traffic declined -8% in the first quarter of the last Gulf war in 1991 and was down -2.2% for the year. Duty free spending worldwide was flat in 1991, according to Generation DataBank.
UPDATE 18 MARCH
BELGIUM. Marc Leemans, commercial manager Belgian Sky Shops: “We believe war in Iraq will affect us less than other European airports. After the failure of Sabena, our passengers dropped by -26% in 2002. Therefore we also had to adapt our staffing and did the necessary cost cutting. So we are perhaps more adapted than other operators. As Brussels has become even more a Schengen airport (58% of total passengers are Schengen) the effect will be lower than our neighbouring airports which generate more intercontinental flights. The uncertainty affects all businesses and people are waiting to buy expensive goods like watches or jewellery. The situation will also affect bookings for summer holidays if it continues.”
US. Patrick Moran, Brown-Forman vice president, director of Global Duty Free: “We have had a number of discussions with key customers and distributors to understand their thoughts and plans and we have in place our own contingency planning. The impact of the [earlier] Gulf War provides us with a model and we consider it very important for all parties concerned in our business to be understanding and mutually supportive. The key issue remains the duration of the conflict as, most regrettably, a conflict now seems inevitable.”
INTERNATIONAL. Airlines around the world began canceling flights to the Middle East yesterday as heightened fears kept passengers away in large numbers. British Airways announced it would suspend flights to and from Israel and Kuwait beginning Wednesday and pull its staff from those countries in light of a travel advisory issued by the UK Foreign Office. Thai Airways is suspending flights from Bangkok to Kuwait and Bahrain. BA also has reduced its London to Dubai service from twice to once daily but is continuing to fly to Qatar, Bahrain and Saudi Arabia. Swiss said it would drop two of its six weekly connections between Zurich and Cairo starting Thursday due to a “lack of demand” that it blamed on the situation in the Middle East. Several international airlines canceled flights to Lebanon on Tuesday “for commercial reasons,” said Khaled Saab, chairman of Beirut International airport.
UPDATE 17 MARCH
UAE. Dubai airport has so far resisted any downturn in travel or duty free spending related to the Iraq crisis. “In fact, our year to date sales are +8% over budget and +23% above figures for the same period last year,” Dubai Duty Free managing director Colm McLoughlin told The Moodie Report. “Dubai is considered to be a safe destination and all of the major events planned in the past few weeks, including the Dubai Tennis Championships, which attracted top international players and the Dubai Desert Classic, have gone ahead as planned. The Dubai World Cup, the richest horse race in the world, is proceeding as planned on 29 March. So, it is very much a case of “˜business as usual’ in Dubai.”
He added: “Obviously, any war in the region will have an impact but I think this will be only short term and that business will bounce back, particularly in Dubai, which has proven to be very resilient.”
The crisis came closer to home in Dubai with Sunday’s warning from the US Embassy in the UAE that Dubai night clubs were possible targets for terrorists. “The US mission to the United Arab Emirates has received indications of a possible terrorist attack against night clubs in Dubai. Americans in Dubai are urged to avoid such locations,” the embassy said.
UPDATE 16 MARCH
UK. Air traffic could fall by 10% to 20% once war breaks out in Iraq, according to British Airways ceo Rod Eddington. “It feels like there is a war out there already,” he told The Financial Times. “In a war, bookings fall quickly, particularly in the premium cabins, people put off trips and fuel prices go up. We see those things happening now.” In February, BA’s passenger traffic fell by -5.6% but its premium traffic plunged by -14.3% year-on-year, largely because of war and terrorism concerns. The airline has already cut 10,000 jobs since August 2001 and will accelerate another 3,000 cuts already planned once war breaks out.
UPDATE 14 MARCH
US. A survey of 250 US travel buyers by the Association of Corporate Travel Executives found that 32% of companies have cut travel in anticipation of a second Gulf war and that 82% intended to curtail international trips if hostilities commenced. Business travel managers are gearing up for any contingency: war, an act of terrorism, or natural disaster. The result showed a reduced likelihood that the outbreak of hostilities will restrict domestic travel, and that the greatest impact on international travel will be confined to the immediate areas affected. See main news section for full story.
UPDATE 13 MARCH
GERMANY. Frankfurt airport operator Fraport has announced emergency financial measures in case of a war in Iraq and a subsequent effect on flight traffic.
The company said today it is reviewing its investments and costs in light of the possibility of a war. Worker representatives have agreed to a range of emergency cost-cutting measures which would go into effect if flight traffic falls below plan. Those measures include reducing overtime hours and accumulating flexitime hours, reducing the use of temporary or external staff, implementing a hiring freeze and increasing the flexibility of working hours.
The company has split the measures into three levels. Cutting costs to the next level would depend on how far under plan its traffic figures are. Frankfurt is the world’s number 13 duty free location with sales of US$201.3 million in 2001, according to Generation DataBank. The duty free and travel value retailer is Gebr Heinemann.
UPDATE 12 MARCH
US.The US airline industry could be forced into nationalization and 100,000 jobs lost if America goes to war with Iraq, the Air Transport Association (ATA) has warned.
The airline trade body called for government action and said that the economic damage could be so severe that “there is serious risk of chaotic industry bankruptcies and liquidations” and “the prospect of a forced nationalization of the industry is not unrealistic.”
On top of the existing crisis in the airline industry, war could not only cripple the carriers to the extent of US$13 billion in losses but have a severe impact on the whole country, the report states.
“The economic risks go far beyond the airline industry, the stakes for the entire US economy are extremely high,” said ATA President and Chief Executive Officer James May. “Airlines have supported decisions taken by the US government in the past, and we do so now. Yet, we know from the first Gulf War that there will be serious economic consequences for the airline industry. Without government action, the outlook for the airline industry is bleak.”
The report points to the impact of the Gulf War when airlines were in a far stronger economic situation but still took four years to recover and saw four carriers forced into liquidation. Since September 11, US airlines have lost US$18 billion, and even without open war in Iraq, 2003 losses of US$6.7 billion are projected.
UPDATE 11 MARCH
ASIA PACIFIC. The Pacific Asia travel industry may be better insulated than many from the negative effects of any new conflict in the Middle East due to the trend towards intra-regional travel, according to a Pacific Asia Travel Association (PATA) forecast. Despite factoring in the effects of a possible US-led war with Iraq, the new study shows that of the 39 regional destinations covered, two-thirds are expected to show gains in 2003. Some 90% can expect growth in 2004. PATA Strategic Intelligence managing director John Koldowski said: “Asia, in particular, is well positioned as Southeast and Northeast Asia supplies almost two-thirds of international visitor arrivals to those same regions. This is by no means an absolute, as much will depend upon the nature, duration and extent of any new conflict and the manner in which our own intra-regional travel sensitivities develop.”
CZECH REPUBLIC. The Czech Tourist Authority expects a war against Iraq to cut tourist numbers by 750,000 in 2003 or about 15% of the market. War could lead to several thousand job cuts in the sector, local reports said. Any decline in tourism revenues would be another blow to the already weakened tourist sector, damaged by lost revenue in the wake of last year’s devastating floods.
MIDDLE EAST. The region’s airlines are bracing themselves for war in the region, but their contingency plans remain undefined because of the uncertainty surrounding US-led military operations in Iraq. “Everybody is confused and (has) a very unclear picture of what will be happening in the region in the coming few days,” Captain Ahmed El Nadi, chairman and chief executive of EgyptAir, told The Associated Press. El Nadi said there had been a “big cancellation” of tickets from Europe and Asia. “We are expecting a loss, but how much is the loss depends on how long the war will be,” he said. Revenue losses could reach more than 20%, he added.
UK. Ministers are preparing emergency insurance legislation to keep airlines flying to the Middle East during an Iraq war. A Parliamentary order is expected to give the government the power to protect the aviation sector against war if insurers withdraw cover. Airlines are worried that premiums will soar, not only for Gulf routes but also to nearby destinations such as Cyprus. Insurers cancelled cover after the events of September 11 2001 forcing the government to step in
US. Visitors to the US are to be screened for radiological materials by border inspectors in an effort to counter terrorism. The US Customs department has confirmed that every person now entering the country will be screened by at least one inspector with a special radiation detector, affecting 500,000 people a day arriving at airports, sea ports and land border crossings. Presently, customs agents screen arrivals on a random basis – a move introduced following the September 11, 2001 attacks. US Customs claims, rather hopefully, that the extra screening will not cause more delays for travellers.
US. War with Iraq could force several US airlines into liquidation as losses soar from US$4 billion to US$7 billion a year. American Trans Air chief executive George Mikelsons warned that the combination of rising oil prices and falling passenger numbers resulting from war could destroy the current airline transportation system. And the tourism industry is preparing for a serious downturn. Carnival Corp, the world’s largest cruise line, is lowering prices in hopes of luring more passengers. Both Carnival and rival Royal Caribbean Cruises report that uncertainty over war in Iraq and the economy have depressed bookings. Tourism-dependent destinations, including Florida, Nevada, New York and Hawaii, are considering new advertising campaigns if a war keeps visitors away. “Even without factoring the war, we were looking to 2004, 2005 before we got back to 2000 levels,” said Cathy Keefe, spokeswoman for the Travel Industry Association of America. “War is inevitably going to push that recovery even further.”
The effects of war on leisure travel will hinge on the duration of the conflict and whether there are any terrorist attacks in the US. Airline passenger traffic declined -8% in the first quarter of the last Gulf war in 1991 and was down -2.2% for the year. Duty free spending worldwide was flat in 1991, according to Generation DataBank. But encouragingly, air traffic bounced back +6.7% in the first quarter of 1992 and global duty free spending rose sharply, closing 1992 +6.7%, the first of five successive years of growth in the industry.
UPDATE 4 MARCH
AUSTRALIA. Australian Tourist Export Council managing director Peter Shelley said the next six months for the inbound tourism industry look bleak with bookings already starting to fall due to the possible war in Iraq. A war could cost two billion Australian dollars in lost revenue, he warned. “The feedback from operators in all key tourism markets indicates that consumers are once again placing their travel plans on hold,” said Australian Tourist Commission managing director Ken Boundy.
CANADA. Overnight international tourist travel to Canada is being influenced by the continuing war on terrorism, the conflicts in the Middle East, as well as the newly emerging threat of war with Iraq, according to the Canadian Tourism Commission. These continuing events are negatively influencing the overnight travel from overseas countries but are conversely contributing to the positive growth in US tourists coming to Canada.
GERMANY. German airline Lufthansa will continue to cut capacity should a war in Iraq result in a larger decline in bookings than currently expected. “We will immediately adjust our net in the case of a noticeable drop in demand,” head of sales Thierry Antinori told Die Welt. “The crisis plans are lying finished in the drawer. The pie will likely get smaller if there is a war in Iraq. We’re already preparing ourselves for lower numbers of business travellers in the coming months.” On 19 February the carrier said it would reduce capacity by another ten aircraft in German and European traffic. A total of 31 Lufthansa planes would be grounded in the coming weeks, it added.
JAPAN. A possible war in Iraq has seen travel wholesalers’ forward bookings for the key April and May holiday period slump by between -20% and -30% for certain destinations, reports Travel Journal International Online. The Golden Week string of national holidays runs from 29 April through 5 May. Some wholesalers have yet to fully recover from the impact of September 11 and are now faced with a new dilemma due to looming war between the US and Iraq. Wholesalers said that destinations in Europe will face major downturns in demand in April and May due to the region’s geographic proximity to the Middle East creating concern among consumers. China, on the other hand, is showing a rise of between +10% and +30% in bookings in April.
MALAYSIA. Malaysian Airlines warned that the next few months will be challenging due to various uncertainties and “the prospect of a war with its adverse implications.” It added: “However, our continued focus on deploying capacity within the Asian region may partially cushion any adverse impact.”
SYRIA. The UK government on Monday warned its citizens against non-essential travel to Syria and urged UK nationals already there to be vigilant and consider leaving. The Foreign Office cited “regional tensions” for the travel warning.
UK. Mirroring developments in many companies close to our industry, travel specialist Thomas Cook has implemented a radical cost reduction programme intended to ensure that, even with an escalation of the Middle East conflict the company has sufficient liquidity and hits financial targets. Expenditure for the current financial year is being cut by €250 million (US$228.7 million). The company plans to reduce overheads by 10% against the current budget, as well as travel and entertainment expenses by as much as 25%.
UK. Thistle Hotels warned that potential conflict in Iraq was adding to economic uncertainty and difficult trading conditions. “It is clear that these factors are having a negative impact across the travel, tourism and hospitality industries generally,” said chief executive Ian Burke.
