Happy Days Are Here Again!
Happy Smiles, Everybody!
WOW! Well, we do appear to have an infectious outbreak of optimism on this thread once again. Other threads are buzzing too. What new services are starting? How much growth will there be? So I guess it is time for me to pitch in again with another healthy dose of gloom and doom (which I annoyingly like to refer to as reality!).
Seriously, I am delighted that MAN has been able to announce additional long-haul services lately. As has been pointed out, the eastbound offerings of EK / EY / QR / SQ are developing positively. On the Atlantic scheduled services, all four US Transatlantic majors are represented at MAN in their own colours, along with Virgin Atlantic on the British side. A modest portfolio of new European schedules have been announced too, including TAP to Lisbon and assorted sunshine destinations by RYR.
Despite the above, I believe the emphasis for MAN (and UK airports generally) must remain focused on the retention of existing business rather than the carefree pursuit of expansion. The pursuit of new tails is great fun, but a successful business must always focus primarily on economic realities. MAN is facing another very difficult year with no sustained upturn in sight.
So why am I reluctant to join the party? (Apart from being a miserable git). Well, TV news reports offer some clues but they don't tell the real story. You will have noted coverage of upheaval across the Arab world, including several key markets for Manchester Airport. More on affected air services later. We are told that after 30 - 40 years of tolerating the vagaries of their respective "Dear Leaders", the downtrodden masses are finally emerging from their shanty towns to demand something called "Democracy". Apparently, it is a panacea which cures all ills and which is at the forefront of polite dinner conversation in every deprived slum. Or perhaps not. No form of government is perfect, but democracy can be disastrous in countries which vote along purely ethnic or tribal lines. One group will dominate indefinitely, another will be oppressed indefinitely. No doubt folks in the dominant group would love "democracy". But in reality, most ordinary bods give little thought to different types of governments, and few would actually be aware of the options. All media spin aside, what exactly is motivating large diverse populations to simultaneous insurrection? Allow me to list ten big reasons for starters:
COMMODITY: PERCENTAGE 12 MONTH PRICE RISE TO 23-02-2011 [F.T.]
OIL [Brent Crude] + 38.1%
CORN + 78.9%
WHEAT + 48.9%
FEEDER CATTLE + 28.04%
LEAN HOGS + 32.36%
COTTON + 126.25%
LUMBER + 19.05%
COPPER + 35.08%
SILVER + 104.61%
PALLADIUM + 206.25%
That's right. The real reason why unrest is surfacing simultaneously in so many countries is that the cost of living is rapidly becoming unaffordable. All countries are subject to the international market price of commodities. However many nasty dictators are ousted because of this, it is naive to suppose that unrest will disappear unless the populace can find a miracle worker to take charge and defeat global food shortages. The nasty dictators primarily stand accused of failing to feed and clothe the masses. Many people will tolerate years of political thuggery and oppression as the norm, but they will not stand by as their kids go hungry. In the West, we must recognize that for as long as the basic essentials of life are priced beyond the means of ordinary citizens, upheaval and instability will remain an issue in poorer societies.
How has this happened? Well, in the wake of the 2008 banking crisis, western governments embarked on an orgy of money-printing ("QE") to bankroll the unfathomably enormous sums required to bail out that elite group of "masters of the universe" bankers. The general public still has no concept of the scale of the sums involved in keeping these "too big to fail" institutions afloat. Now, we are gradually seeing a series of sovereign debt crises as a result ... Iceland, Greece, Ireland, Portugal. Austerity measures imposed to postpone further crises elsewhere. And "QE" ... the effect of which is manifesting itself in soaring global commodities prices as we see above. Whole countries are being priced into poverty and starvation as a result of all this.
"QE" is not the only culprit here, although it is a dominant factor. In terms of corn prices, well-intentioned mandates by unwitting politicians (pandering to the green lobby) require fixed quotas of vehicle fuels to be derived from corn (ethanol) in certain territories. Vehicle fuel demand is now competing with food agencies for the corn harvest. The latter half of 2010 also saw a 'La Nina' climate event which impeded global harvests. The Russian and Ukrainian cereal harvests were decimated (exports curtailed), Australia has suffered devastating floods. There are other examples out there.
So - bottom line - popular unrest is not going away.
TUNISIA [median age of population 29.7 years, youth unemployment 30.4% - BBC] - the Bogeyman Ben Ali has gone!!! (Hurrah!). Will the new guy be able to outmanoeuvre global commodities prices? NO? Will the crowds remain disenchanted? YEP? Outlook for tourism? POOR. Prospects for MAN's planned new TUNISAIR services to Tunis and Enfidha? Anybody know if these are still expected to happen? And the outlook for tour operators' programmes to Tunisia? Cutbacks at best?
EGYPT [median age of population 24 years, youth unemployment 42.8% - BBC] - the Bogeyman Mubarak has gone!!! (Hurrah!). The new guy is the former head of the secret police assisted by the Armed Forces Supreme Council. Lovely. Gatherings have been banned. I'll bet these guys will be real aces at bringing world commodities prices under control. The mob will love 'em. Egypt already has to import 40% of its food requirements to feed its unwieldy population growth, and it has recently become a net importer of oil (disastrous). Tourism is vital to the economy, but many amongst the indigenous population demonstrate open loathing for ("infidel") tourists. Red Sea resorts such as Sharm are effectively gated communities, heavily guarded by the police and military to keep hostiles at bay. Tourist excursions to ancient historic sites are protected by armed guards. And that was before revolution took hold, with westerners viewed as enforcers of the hated Mubarak regime. Outlook for IT programmes to Egypt? You book them if you want to!
LIBYA [median age of population 24.2 years, youth unemployment no stats - BBC]. The Bogeyman of 42 years is just clinging on. If he falls (following civil war?), will the country fracture along tribal lines? Will the new regime be able to control global commodities prices to appease the masses? In view of the atrocities taking place in Libya it seems almost disrespectful to speculate about the future of a scheduled air service, but that is the underlying point of this thread so pardon me if I do allude to it. Prospects for LAA106/7 anybody?
MOROCCO [median age of population 26.5 years, youth unemployment 17.1%]. Established government still in control, but protests calling for reform and strikes are endemic. The government is promising subsidies for key commodities. Will Morocco hold it together? The jury is out. Tour programmes to Morocco anybody?
ALGERIA, JORDAN, SYRIA, YEMEN, IRAN. All troubled to varying degrees. Offline for Manchester Airport services, but unrest in these countries destabilizes the region in general. Note that countries of all political leanings are affected; an unsupportable cost of living is a common enemy.
IRAQ, AFGHANISTAN, PAKISTAN. Enough said.
BAHRAIN. [median age of population 30.4 years, youth unemployment 19.6% - BBC]. Protests rife, governments promising a "national dialogue". Key US military air and naval bases at stake in Bahrain. Population split along religious lines 30% Sunni ("elite"), 70% Shia ("oppressed"). A very worrying state of affairs here, not least because just across the causeway lies the elephant in the room ...
SAUDI ARABIA. [median age of population 24.9 years, youth unemployment no stats - BBC]. 87-year old King Abdullah and his elderly Crown Prince are both considered to be in poor health. The succession is a source of great international concern. Oil-rich Saudi Arabia is home to certain radical religious elements, including the Wahabi group which spawned Bin Laden and the 9/11 hijackers. Saudi oil reserves are widely accepted to be 40% lower than official figures claim; some key fields are in decline and despite claims to the contrary, Saudi has little ability to increase output. The Saudi regime appeases its population by subsidizing key commodity prices to a generous extent. Nevertheless, this is seen as a repressive regime and it does have internal enemies. Any hint of major demonstrations or upheaval taking hold here will be catastrophic for global oil prices. If Bahrain or Saudi Arabia yield to revolution, airlines watch out!
But ... maybe you are getting the impression that problems exist only in the Arab World. Not so, though they are most widely reported for obvious reasons. South Korea is currently enduring a historic banking panic - 8 banks have closed their doors in recent days; financial institutions are under siege. Only bigger stories coming out of Egypt, Libya and NZ have excluded them from the headlines. Meanwhile, across the border to the north, that nice Mr. Kim is in advanced preparations for a third nuclear test. China is battling inflation. The Communist Party must keep its vast population happy (affordable food) or else. Big time state intervention in Chinese banking too.
Across in the Americas, Communist hero cocaine baron Evo Morales (Bolivia) fled an angry demonstration in Oruro on February 11th as protestors threw dynamite at him. Back in December, he tried to remove crippling government subsidies on gasoline, flour and sugar. He backed down on two of those, but the sugar subsidy was axed. The sugar price has now doubled and the natives are chucking dynamite around. And of course, it goes without saying that chaos continues in Chavez's Venezuela where the currency has just been devalued yet again (inflation 27%). Chavez is at least a colourful character. He distracts attention with his weekly TV show ("Hello President") on which he sings, dances and makes bizarre political speeches. Most recently: "Queen of England, I'm talking to you!" (about the Falklands). And last year he accused the US of causing the Haiti earthquake using a secret weapon.
OK, so lots of trouble around the world with commodities prices fueled by rampant "QE" primarily to blame. High oil prices, lower living standards, geopolitical upheaval. All terrible news for airlines generally.
Here in the UK, much of this passes us by. At least at a conscious level. Our official inflation is quoted as 4%. This will be affected as commodity prices feed through here (and some would argue that the figure is deliberately understated anyway!). However, in the UK only 10% of the average wage is required for food spending; in many countries more than 50% of the average wage goes on food. And in "developed" countries, food prices are distorted by packaging, labour and transportation costs which will rise at different rates than the underlying commodity price. Sophisticated major food companies also hedge their commodity prices by purchasing futures contracts months in advance which smooth out rising costs. But for less developed economies, shock rises in commodity prices quickly become ruinous (as we are seeing on TV).
Back to topic at last! The outlook for Manchester Airport, our regular airlines and the aviation industry generally is still very difficult. We simply can't look at this airport in a little cocoon and disregard global realities. Favoured tourist destinations are in meltdown. Oil prices are soaring, and if Bahrain and Saudi Arabia really kick off ... watch out! Airline customers are finding their disposable incomes squeezed by inflation, debt, recession and austerity measures. The aviation industry generally remains "public enemy number one" for climate change zealots (so was climate ever a constant then?) who urge yet more onerous taxation and disincentives against air travel.
So make the most of those new air service announcements. Let's hope the new services do turn up. And lets hope we can hold on to a good proportion of our existing business. Don't make the assumption that the good times are back just yet. And as for the default 'safe' tourist destinations such as Spain and Greece which stand to benefit from upheaval elsewhere? What's the betting that anti-austerity protests and strikes will have a role to play again this summer? Tourists are such easy prey. Pity poor Thomas Cook and TUI!
Right, over to you lot. I'll just duck for cover!
SHED.