TALKING POINT
Bubbles are not the silver bullet
Atravel industry leader says the sector will struggle to get back on its feet until mid-haul and longhaul travel resumes. Flight Centre’s New Zealand managing director David Coombes says the opening of quarantine-free travel bubbles is encouraging but is not enough to move the industry back into profit. A rebound in domestic travel is useful, but not enough.
“There’s a lot of benefit through doing it, but it’s not enough to get us to breakeven and to be frank, neither is transtasman, neither is the Cooks and even Fiji if it comes online. What we really need to be able to stand on our own two feet again and be viable as an industry, is that mid- to long-haul starting with Asia and moving up to the UK.”
While there are hopes that there could be some limited long-haul flights towards the end of the year, airlines have so far been wary of committing to them.
The transtasman bubble had resulted in a spike in initial VFR (visiting friends and relatives) bookings, but anything close to full recovery would take weeks of building confidence among wary travellers, especially corporates where duty of care rules apply.
“We would have preferred sooner, but you’ve got to do it the right way so you know we’ve got to do it safely. As expected VFR, births, deaths and marriages if you like spike, there was a real pent-up demand for that.”
His firm had settled back to a two-speed demand profile: about 40 per cent of preCovid levels in the leisure area and 20 per cent of business travel.
“I guess what I would say to that is it’s great, it’s a step in the right direction. Cooks is another good step in the right direction but both those markets are not a silver bullet for the industry so there’s still a lot of work to be done but we’re encouraged,” said Coombes. “We’d rather be here than where we were 12 months ago.”
It was expected that winter holidays to Queensland — where Qantas is starting new non-stop routes to the Gold Coast and Cairns in competition with Air New Zealand — would be popular, especially during the school holidays. But travellers were cautious.
“I think people are waiting to see if we’d go a month or so, I think, without any interruptions, further lockdowns or flight delays, then we’ll be in a better place.”
Vaccine rollouts would help boost confidence but there was a danger of New Zealand being left behind, said Coombes.
“In the UK, in the US, with vaccinations further down the road there are more opportunities to travel in places that you can travel. That gives us confidence in the Australia and New Zealand markets, where it’s been more restrictive, that when things are right, [travellers] will come back.”
New travel bubbles would be welcome but would be complicated by the need for buy-in by an increasing number of countries. “Singapore’s the next logical one for me but it’s going to have to have Australia and New Zealand agree. But if at least we get Singapore, that’s within a really good hub for further Asian countries — Taiwan and other places that are dealing with it well.”
Where are prices going?
Coombes said he wasn’t seeing prices go sky-high despite less airline competition in and out of New Zealand.
“I don’t subscribe to the theory we’re going to pay a lot more for travel coming out of this. If I’m an airline or a hotel or anyone with a travel asset that’s sitting empty, I’d much rather there was a traveller [there].”
Airlines and other travel suppliers were also wary of the risk of a public backlash if they hiked prices too high, he said.
“Everybody has to be conscious of public perception coming out of this as well, you know you don’t want to be perceived as taking advantage of a situation when you come back, that’s a tricky balance when anybody in this industry is still cash-strapped, running losses and trying to preserve cash flow.”
The travel industry united to work with the Government on a scheme to recover money spent on airline tickets and holidays that travellers risked losing.
It was launched in October and is due to end in the middle of the year, with about half of the $47 million in the scheme paid to agents for the more than $350m they have recovered. Coombes said agents want the scheme broadened, as they estimate another $500m is still owed to Kiwis.
An agents’ group was having “meaningful conversations” with the Ministry of Business, Innovation and Employment.
“We still need those funds and we’re looking at how we tweak the scheme to allow that full allocation to end up in the hands of the agents who need it.”
During the past 13 months, the number of people in travel agencies has plunged from about 5000 to 1500. Flight Centre’s staff numbers have fallen from 1200 to 380 as it closed about 80 stores throughout the country.
The company is one of the world’s biggest travel groups, with a leisure and corporate sales network in major regions around the world. It suffered a A$234m ($251m) loss in the six months to
December 31 and more heavy losses are forecast. However, it has stemmed operating cash outflows to between $30m and $40m a month and after capital raising, has around $1.5b in cash and total liquidity of $1.1b.
Coombes said the company hasn’t wasted the Covid crisis. It was survival first, then cost reduction, capital raising and then planning for the future.
He said the entrepreneurial spirit of the company had previously meant markets had run separately but this had been reviewed to bring cost savings.
“We’ve spent the last year globalising in a true fashion with shared services, developing systems and tech for all markets,” he said.
”We’ve done the capital raise, we’re now planning and actively transforming our business in a moment in time when actually you can implement things that you wouldn’t be able to do with a full sales rhythm. So that’s the silver lining.”