10 October 2017

In the face of turbulence how is the travel industry faring?

A constellation of factors is causing mayhem for airlines, train operators and hotel groups.

Courier met with Shai Weiss (Virgin Atlantic), Marc Noaro (Eurostar) and Greg Marsh (One Fine Stay) to talk about the problems facing the travel industry today. 

Courier: Would you say that people have a new attitude to travelling today?

Greg Marsh: Theres increased currency when it comes to experiences. The consumer is so much more informed and so much more powerful. Theyre more willing to take a risk with the accommodation component.

But, on the other hand, some things havent changed and wont ever. There are certain classes of travel – including those travelling with a family or for work – where attitudes to risk are different. Theyre looking for consistency and reliability of experience.

Marc Noaro: As Greg said, people are better informed about their destination and are less likely to take part in typically touristy things. They value the flexibility of being able to stay in a One Fine Stay or an Airbnb.

Were investing in creating more of an experience based around the Eurostar. Theres a space in the market to be more than just a transport provider.

Shai Weiss: The more we innovate, the more we find that for Virgin Atlantic its actually the human touch that makes a difference, which is fascinating.

We can do all the work we want around opening our platform, changing prices and flying more but the thing that actually promotes us better than anybody else is the human touch. Its a bit harder for the Airbnbs of the world to do that. People have such low expectations of the flight, right? Youve seen what happens in the US – that can happen here as well.

What was your reaction when you saw that video of the United Airlines passenger being dragged off the plane?

SW: I was horrified. I might be wrong on this but I feel that would never happen with us. We may make terrible mistakes and disappoint passengers on a daily basis, which is the nature of the beast, but we empower people on the front line to make decisions so this is just not in the ethos of our company.

It must be hard for airlines now with a whole range of new carriers entering the market.

SW: The new entrants promote a very low price but when you actually buy the ticket, its got no baggage, you dont get any water so youre going to die of dehydration on the plane, and you need to bring your own food. If you start to package all these things up, you find that were just as competitive.

At the back end of this year or the early part of next year, youll see us offer more services in the economy cabin where people can buy up or down but were not going to launch another low-fare entity.

MN: Its an emergence of what I call ultra-economy; a form of economy with nothing to it apart from getting you from A to B safely. And then you can mix and match.

Ive just come from a meeting ahead of launching our new route to Amsterdam. Weve looked at this model, which ranges from Easyjet right through to the full-service flag carriers, and what weve got to offer from Amsterdam is very similar. So we have to have the appeal across our 900 seats to make sure we optimise our costs in whatever class a person sits.

Greg, as the startup guy, when you hear these guys talking about their multiple classes of service, dont you see a lack of focus that’s ripe for disruption?

GM: There are two distinct features of the hospitality and travel businesses. The first is the complexity of the product and the number of touch points, like air traffic control and landing slots.

The second thing that dominates is scale. Trains and planes are really expensive things. The only way you can make the economics work is by putting quite a lot of people into the coach at the same time. But there arent necessarily going to be enough business class travellers at that particular time on those particular routes. So you need multiple classes, which dramatically increases your service complexity.

Its not obvious to me how you could Airbnb’ the airline industry. Less so for trains. Interestingly, Blablacar’s single biggest growth segment is intra-city travel between tier two cities. Thats where the rail network underserves.

MN: Because weve got the English Channel between us, were a bit cushioned from that. Blablacar has taken a massive market share from the French railways but theyre also facing a culture issue. French people are quite happy to jump into an unknown persons car based on internet feedback. In the UK, we worry about whether theyre fully comp, if theyve got an MOT or if theyre a smoker.

Shai, to what extent are airlines like Emirates, Etihad and Qatar a threat?

SW: First of all, 70% of our traffic is across the Atlantic. Were a relatively small-scale company with about £2.7bn in revenue. That might sound like a lot but in aviation terms, thats pretty small. We have 39 planes and 5.5 million customers per year. All this makes it very difficult to compete flying east.

Our counterparts at Delta [which has a joint venture with Virgin Atlantic] worry more about this. Theyre impacted by the Middle East carriers and theyre trying to make sure the US carriers do well in the face of what is believed to be – although itquite hard to prove it – heavy government subsidies afforded to those carriers.

What do you think will happen there in the future?

SW: Watch this space. I think youre going to see more and more talk about that, especially in the US, which is becoming a bit more protectionist of industries in general. But from a UK perspective, Brexit is a bigger problem.

Sticking with the US, are companies worried about being on the wrong side of a president prone to impulsive tweeting and banning people and laptops?

SW: People are definitely worried. But theres not going to be a change in the long term. In the short term, though, this could have a massive effect. If you look at whats happened to some of the Middle Eastern carriers, theyre talking about a 10% reduction as a result of business traffic. Were hoping the security establishment wont find it necessary to apply this type of ban.

What will be the key issues for the UKs travel industry in relation to Brexit?

GM: If there is significantly higher friction about travel over borders then presumably that would have a modest impact. But are you really not going to go to Rome because it takes you an hour to go through the passport queue?

SW: You would assume that even under a hard Brexit and changes in the US, the specific travel rights between the US and the UK will remain. For the likes of Easyjet and other European carriers, I think Brexit is the bigger problem.

But we are heavily exposed to the exchange rates. Our big costs – planes and fuel – are priced in dollars. So as a British company were clearly vulnerable when the pound significantly weakens against the dollar. This year it will cost us probably around £100m.

Is some of that mitigated by how cheap oil currently is?

SW: Yes. We initially estimated £200m and its now less. But its not zero.

MN: Eurostar is naturally hedged between two currencies – pretty much 50/50 between the pound and the euro. So its not something we worry about and we dont use oil. The things that keep Shai awake at night are not the same things that keep me awake at night. For us the big thing is people. Europeans are already saying they dont want to come to the UK because theyre worried about not feeling welcome.

A friend of mine runs the Bagel Factory and hes seen a 90% drop in people from Spain wanting to come to the UK to work. Spains not exactly in great shape when it comes to employment and even theyre saying no.

GM: And that little gap of uncertainty is where a lot of business decisions are made and where a lot of personal life decisions are made.

How have concerns over terrorism affected your businesses?

MN: The year it was mostly felt was 2016, because of the major Paris attack in November 2015. We saw an all-round reduction in business. Our US and Far East customers can switch off very quickly and switch on again when they perceive that its safe. They very much follow government guidelines, whereas in Europe we tend to have a more personal risk-based approach.

Its too early to say whether the events in the UK or the recent incident on the Champs-Élysées will have an impact. But when things continue to happen its never a good sign.

GM: People still want to travel and tourism demand does return.

SW: In the long run, one things for sure: travel is on the up. If you take India and China – and China specifically – theres only one direction its going, which is upwards. Europe as a whole is a prime destination.

What do you see as the biggest opportunity and challenge amid all this uncertainty?

SW: It would be interesting to see if the European aviation industry can start to consolidate a bit. From a financial perspective, thats whats really been at the heart of the US carriers’ success.

But getting on a plane in America is a horrible experience…

SW: Perhaps the US has gone to an extreme case of concentration. But the extreme case in Europe is that of failed airlines.

MN: The biggest opportunity, I think, is how we compete on digital. Theres a relentless desire to self-serve and have everything on your mobile device. Who knows what itll be like in 2027.

GM: We had a five year wave of travel innovation, which started about 10 years ago. I think theres a consolidation phase in travel at the minute. Having said that, theres an enormous growth potential for platforms such as Uber and Airbnb.

  • Shai Weiss, Virgin Atlantic. Having been finance chief since 2014, Weiss took the role of chief commercial officer at the airline at the start of the year.
  • Greg Marsh, One Fine Stay. Marsh set up his upmarket take on Airbnb in 2009. He sold the business to French hotel chain Accor in April 2016 for £117m.
  • Marc Noaro, Eurostar. Noaro has been at the train operator since its inception in 1994. He was made chief customer officer in 2016.

This is a condensed and edited version of a conversation that took place at The Ned in London on 19 June 2017.