Gulf Capacity Increases and General Market Outlook.
Following on from Skipness' comments, it does appear that public awareness of travel options from Manchester to Australia and NZ via the Gulf / Singapore is pretty good now. It was notable that the extensive advertising campaign promoting tourism to Australia tied in with plugs for Emirates and Singapore Airlines services. I personally have not seen any of these ads (in the Granada broadcasting region) tying in with BA or QANTAS.
Skipness' reminder about Bahrain is also timely. Whilst events in Libya are dominating media headlines for obvious reasons, issues in other affected countries have not gone away. Leaving the politics aside, we must remain mindful of the economics driving the oil markets. The intermediate term loss of Libya's oil is now fully priced in to the market. Algeria is a source of continuing worry as a major supplier to Italy and France in particular. In Bahrain, at least 30 Saudi tanks have been noted crossing the causeway into Bahrain to assist the existing government in keeping order there. Any concessions to the Shia protesters in Bahrain (and surely some are inevitable) are interpreted by the markets as increasing Iran's influence in the region. Meanwhile, Iran has unrest of its own.
Friday March 11th is a critical day to watch in the oil markets. This date is being promoted as a "Day of Rage" amongst discontented elements in Saudi Arabia. If this turns out to be a "damp squib" [no resulting publicity], easily contained by the authorities, the oil markets will breathe more easily. But if significant protests hit the headlines, USD$150/bbl+ oil could be with us overnight. Saudi Arabia remains very concerned about Shia unrest in the main oil-producing eastern province adjacent to Bahrain. One further brief point concerning Saudi Arabia. Whilst the country has promised to increase oil output to offset absent Libyan production, Saudi's output is predominantly heavy sour crude which not all refineries are equipped to cope with; Libyan production is the much more desirable light sweet crude. And of course, the jury is out regarding Saudi's actual ability to increase output in the real world; mega-fields such as Gharwar are long-in-the-tooth and declining. Desperate measures (chemical injections) are being used to sustain production levels from some older wells.
Please be assured that for the purposes of this discussion (prospects for airlines) I am focusing ONLY on the oil price and its implications for aviation. We all have our own private views concerning wars, oppressive regimes and minorities, but discussion of these does not belong here. Lets assume that our thoughts are with all those adversely affected, and stick to our own subject - air services.
So, looking ahead to Summer, the oil price remains the key concern for airline operators at MAN. Oil in the $110/bbl area is already a major headache for carriers, though many are hedged for the months ahead. Problems will arise if the oil prices remain elevated when those hedges need to be rolled over. Airline cutbacks based on fuel prices will affect ALL markets, not just services to politically troubled destinations.
Looking at specific markets for MAN, I think we can presume that LAA106/7 will be absent the schedules for some considerable time at best. In Tunisia, unrest continues; protesters consider the new presidential incumbent too closely associated with his predecessor and not the answer to their problems. Morocco has continuing issues too. Tour operators must consider not only foreign office advice in continuing programmes to these markets, but also their baseline profitability. Will public demand for holidays to these destinations hold up sufficiently to support profits? What about the potential cost of a repatriation from any affected country should foreign office travel advice change suddenly?
Egypt remains a tricky call. It was a massive destination for tour operators ex-MAN in 2010. Resorts such as Sharm-el-Sheik are relatively safe as heavily-protected "gated villages" well away from the main trouble spots. But the attraction of being able to sell excursions to the Pyramids, The Valley of the Kings etc. will be severely curtailed. With Egypt being so distant from MAN, fuel prices are a huge factor affecting IT programmes here too. A summer cocktail of high fuel prices, negative headlines, security concerns and possibly limited access to some historic tourist sites conspire against Egypt repeating its popularity of 2010.
Any positives? Well obviously destinations such as Spain, Italy, Portugal and Greece stand to do well if they play their cards right. That means not homing in on the tourist industry as targets for their own anti-austerity disputes! But fuel prices (shorter air sectors) and a perception of being safe destinations will work in their favour this summer. Of course, reduced disposable income amongst the British holiday-buying public must be factored into thinking too. This will be a challenging season ahead for TUI, Thomas Cook and their brethren in the IT sector.
One final thought. Several years ago, major tour operators pulled their Cyprus programmes en masse based on perceptions that the country was too close to unrest in Lebanon at that time. The Cypriot government reacted decisively to protect its vital tourist industry, with the result that services to the UK by Cyprus Airways and Eurocypria were massively enhanced for a couple of seasons until the major tour operators returned in volume with their own metal. The success of this precedent could partially explain potential new services to MAN by Tunis Air and Royal Air Maroc which are rumoured to be under consideration. There is a vital tourist industry to protect, and if the major tour operators withdraw capacity in favour of other markets ...
All comments arising from this summary are welcome, but this time lets stick to oil price implications, tour operators and airlines serving MAN. We don't want to upset the mods again. Lets take it as read that we all have our individual views / sympathies concerning political regimes, protestors and war victims and leave them out of this discussion. With that understood, I continue to envisage a very challenging summer ahead for air services from Manchester Airport in particular and the UK generally. MAN has waited quite some time for the return of sustainable growth. Sadly, I don't think 2011 will be the year to reverse the trend. I'd love to be wrong on that one, though!
SHED.