The Travel Adviser: North America and Europe

The travel outlook for North America and Europe

By
February 9, 2013 22:32
El Al airplanes sit on the runway

El Al airplanes sit on the runway 370 (R). (photo credit: Ronen Zvulun / Reuters)

The new 19th Knesset has been sworn in, bringing with it not only new parties, but brand new faces. For several new Knesset members, it will mean giving up their foreign passports.

The Knesset requires any citizen with dual citizenship to cancel his or her additional nationalities before being sworn in. Similar to airlines being forced to change their identities; six MKs have shed and shredded their foreign passports.

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Both the head of the Bayit Yehudi party, Naftali Bennett, and his fellow party member Dov Lipman are no longer American citizens.

Bennett was born in Israel, but received US citizenship because his parents were Americans. Lipman only made aliyah nine years ago, so the forfeiture of his US citizenship was probably harder for him. For their next visits to the United States, they will need to use their diplomatic passport to gain entry or apply for a visa from the US Embassy or Consulate in Israel, like all the other Israeli citizens.

The question is how often they, along with millions of other Israelis, will decide to fly to North America.

With all the headwinds that plague our industry, I have been advising clients to keep patient, risk-manage your strategy on the buy side, and take advantage of the off-market and special sales when they present themselves. Air fares to the US have risen over 10 percent during the past year, and this increase should continue throughout the next 12 months.

Increased competition on flights to the US has been met by increased demand, allowing the airlines to follow the path of least resistance – higher fares.

El Al’s new ownership is pumping in some money, but will only increase investment if the workers at El Al agree to a new collective agreement.

The First Israel Mezzanine Investors Fund, run by Ishay Davidi, has agreed to inject up to $60 million into the airline. Davidi has come a long way since he worked as a security guard at El Al. His initial outlay was a mere $5m. to obtain almost 6% of the shares. Later this will be increased to 25% and, if a miracle occurs and the union comes to its senses, over 40% ownership.

With El Al’s shares plunging by more than 72%, it doesn’t take much insight to predict that the days of charismatic El Al CEO Eliezer Shkedi are coming to an end in 2013. The vast majority of new ownership is usually coupled with new management.

More telling was the ringing voice of the head of El Al’s union, Asher Edri, who proudly opined: “It doesn’t matter who the new owners are, we will do everything to look after the workers and their rights.”

Flying non-stop to only four cities in North America – Toronto, Newark, JFK & LAX – has resulted in El Al losing market share, and this trend will most likely continue in 2013. Her inability to find credible long-term partners inside North America, coupled with a severe lack of modern aircraft, doesn’t bode well.

Even if Davidi puts in his $60m. investment, it will take several years for new aircraft to be procured and upgrades in both economy and business class to be completed.

This is the year of connectivity. The millennials are coming! Or rather, they’re going, hitting the road in increasing numbers.

These independent-minded, digital-savvy twenty and thirtysomethings are eager to see the aftermath of the economic recovery throughout the Western World. Be it social networks, mobile apps, or in-flight Wi-Fi, travel providers and software developers are scurrying to meet their needs. Hotels that don’t offer internet service, preferably complimentary, will no longer receive reservations; airlines that offer in-flight Wi-Fi find more reservations as well as increased revenue.

Travelling can be tiring, which is why holiday- makers have long welcomed services that make logistics that little bit more manageable, or make unfamiliar experiences more relatable. At the same time, technology has made travelers increasingly expectant of a certain level of personalization, from hotel recommendations to endlessly customizable holiday packages.

These two elements will come together in 2013, as travel services increasingly start to take full advantage of all the data available to deliver a truly bespoke experience, effortlessly.

Staff at British Airways will be using iPads to access information on passengers’ previous experiences with BA, meal preferences and onward travel plans, all to help to tailor the passenger experience.

Alongside increased connectivity comes convenience.

United is joining American Airlines in offering travelers the option of having their checked bags delivered directly to their final destinations, allowing customers to skip baggage claim upon arrival. United says baggage delivery will initially be available to customers departing from any US domestic airport and arriving in Boston, Chicago, Honolulu, Houston, Los Angeles and Orlando.

The airline plans to expand the service to more than 190 domestic airports.

“United’s new baggage delivery service offers an alternative for travelers who prefer the convenience of having their checked bags delivered directly to their homes, offices or hotels,” said Tom O’Toole, United’s senior vice president of marketing and loyalty, in a statement. “Our customers have told us this type of option adds value to their travel experience.”

(Now while United Airlines may be trying to revamp the whole concept of checked bags, this perk comes with a price. The cost for delivery within a 40-mile radius of the airport starts at $29.99.) EUROPE IN 2013 presents a completely different forecast. Like Labor MK Miki Rosenthal, who was forced to give up his German citizenship, that behemoth of an airline, Lufthansa, has several challenges awaiting her.

Europe’s major airlines are investing in first-class cabins, outdoing each other to create ambiance akin to five-star hotels and boosting their image as premium carriers while expanding their cheap-fare units to combat no-frills rivals.

While most US airlines have already dumped first class, those in Europe are navigating through the economic slump by adopting a dual-brand strategy – one appealing to the frugal mood and another that screams glamor and luxury.

Keep in mind that in Europe, first-class cabins are there for pure prestige. With a lot of low-cost airlines popping up, the major European airlines have to showcase their luxury brand. Lufthansa is closing its European short-haul operations this year, excluding those in and out of its Munich and Frankfurt hubs, and bundling them into discount brand Germanwings in its attempt to find an answer to the challenge from lowcost rivals such as Ryanair and EasyJet.

Air France-KLM is increasing its use of Transavia and British Airways parent IAG plans to convert most of Iberia’s short-haul operation to low-cost arm Iberia Express.

The dual brand strategy also explains a scaling up of business class, which now offers amenities first class had a decade ago – such as flatbed seats – a cheaper option for corporate clients who can head straight to a business meeting without spending a few hours to freshen up at a hotel.

Premium cabins – first and business class – contribute a little more than 50% of passenger revenues at Lufthansa and BA, while for Air France-KLM they make up a little under 50 percent.

The airlines want the latest trend – be it the most sumptuous bedding, the longest flat bed, high-resolution TV screens, fast Internet connection and on-board phones – with features oozing opulence and exclusivity, such as private suites, mini-bars, freeflowing vintage wines, in-air showers and noise-absorbing curtains that mask the sound of the cappuccino maker somewhere behind your seat.

But it is on the ground where passengers can best experience being in the sanctuary of the high and mighty: Spas, day beds, bathrooms with the fluffiest towels, branded amenity kits, a personal assistant and a limousine.

Air France will invest several hundred million euros in the next two years to renew its premium cabins and lounges. British Airways is spending over 5 billion pounds in the next five years, not just for new aircraft but also for more elegant lounges and new technologies.

Lufthansa is investing almost three billion euros by the end of 2014 for its product, including first class and business class, and has spent 42m. euros on five Frankfurt lounges, including its biggest first class terminal worldwide to cope with the heavy inflow of travelers from Asia and Latin America.

Lufthansa is also in the midst of refurbishing its fleet of 30 Boeing 747-400s, with special emphasis on first-class seats, the configuration of which was halved to eight so that passengers can have both a bed and a seat.

With major European airlines upping the ante in first class, believing the economic recovery will see payback time, it’s my humble opinion that the issue should be reviewed carefully. The reality is that often you find first-class seats on flights are empty, and instead carry passengers upgraded from business class. When will airlines start asking: why are we investing so much to mainly upgrade business class passengers? Yes, passengers appreciate a well-endowed business or first class lounge. Yes, flyers enjoy the perks that these lounges have, but the vast majority of business and first class passengers choose their airlines by the service they receive in the air and not inside a lounge. Whether it’s a three-hour flight or a trans-Atlantic flight, the discerning customer wants his comfort onboard.

Our newly-minted parliamentarians will succeed just fine, with their second nationality clipped, and the travel industry in 2013 would do well to remember another timehonored homily: less is more.

Mark Feldman is the CEO of Ziontours Jerusalem
For questions & comments, email him at mark.feldman@ziontours.co.il


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