Optimism is in short supply so far this year and the latest statistics make for grim reading. But the true test lies ahead says Stanley Slaughter
Hopes of a good 2012 for business travel have been thrown into doubt in a very short time. The new year was just 10 days old when the UK’s Guild of Travel Management Companies (GTMC) released details of air sales for Billing and Settlement Plan (BSP) agents for the last three months of 2011. Overall they were down 3.8%, although figures for GTMC members were down by slightly less at 2.5%.
GTMC chief executive Anne Godfrey said: “The feedback from GTMC members is that the seasonally slower December was a bad month for air sales and the figures look even worse when it is remembered that they are being compared to December 2010, when the snow and ice virtually brought travel to a halt.
“The whole quarter saw a slow down and reduction in air travel, which may indicate a difficult 2012 ahead.”
It cannot be encouraging that figures for last December were even worse than for a period when bad weather stopped hundreds of flights. But there is something even more worrying in the figures than that.
This slow down seems to have come quickly and - to an extent - unexpectedly. There was no evident reason why the last quarter of 2011 should be worse than the previous nine months. While 2011 cannot be described by any measure as a good one for business travel, its redeeming feature was that it could have been a lot worse. Hopes for 2012 were similarly modest, with the best being something similar to 2012.
Sadly on the top of the concerns over a fall in BSP levels comes more bad news this week from the International Air Transport Association (IATA) in its Airline Business Confidence Index released earlier this week. It too seems to have found that things suddenly deteriorated in December.
IATA reported: “There was a particularly sharp decline in expectations for traffic growth, both in recent months and for the next 12 months. The persisting weak economic conditions could now finally be starting to take a toll on passenger travel, which has been relatively resilient during 2011.
Indicators of business confidence and trade have registered no growth recently.”
A majority of its respondents – CFOs for airlines and heads of cargo divisions – said there had been a deterioration in the profitability of their operations in the fourth quarter of 2011. This trend was expected to continue in 2012 with the best hope that passenger yields stabilised.
But IATA’s respondents doubted that even this would be achieved. Their confidence in making a profit this year has “deteriorated markedly” according to the survey compared with the previous one in October. Nearly two thirds (63%) reported a decline in profitability over the last three months - far more than in October 2011.
IATA concluded that the outlook for profits in 2012 was “becoming increasingly pessimistic” while the outlook for passenger volumes was “increasingly negative.” These are not good omens for the year.
The best spin that can be put on this is that with the world economy still largely in the doldrums and the European economy all at sea over the eurozone crisis, this was about what could have been expected.
But this does not entirely wash. The world economy – certainly outside Asia - was in the shadows for most of 2011. And certainly the European crisis did not suddenly rear its head in October. It had been looming all summer with regular warnings from the continent’s leading politicians that time to fix it was running out fast. In other words, things did not suddenly start getting even worse in October.
It could be that December is always a poor month for business travel, except the decline started in October – usually a good month – and there were far more flights last December than in the equivalent month of 2010.
What is most alarming is that there seems to be no obvious reason why business should start to fall.
And if it is set on decline as both the BSP figures and IATA study suggests, the current state of play in the world and European economies does not give hope that this can be easily halted. While there are faint signs that the US economy is at last stirring, there are fresh concerns over China’s while the euro zone members are still trying to sort out their mess. This week there were also misgivings that the UK economy was about to slip back in recession – or might already be there.
The acid test could be the next round of BSP figures for January. As Anne Godfrey said last week: “The real test will be January sales, which will show if this is just one bad quarter, or a more worrying long-term trend.”
If it is the latter, the alarm bells could well start ringing.