Indicators never lie!

It is said that two of the key leading or early indicators of economic activity are the construction and travel industries. It is difficult to make any profound comment about the former that most locally-based people would not already be aware of, but as regards the travel industry, things might be looking slightly ominous on the local front.

Setting the scene; since the removal of visa requirements for local travellers over a decade ago, the local travel industry has seen nothing but growth. People suddenly had the ability to travel to places that were once forbidden to them or where access was severely restricted. This was applicable not just for people seeking to travel to leisure destinations that were once but a pipe dream e.g. Rome, Paris, London, but also for business people seeking to do business in markets that now formed part of the same European family.

If the people wishing to travel formed the demand part of the economic chain, then the airlines quickly stepped in with the supply part, in other words, European airlines quickly increased their frequency into Bulgaria and new entrants also came into the market  – easyJet, Wizz Etc.

As the onward-and-upward pent-up local demand for travel continued, a bun fight evolved with airlines keen more on putting bottoms on seats than looking at their bottom line profits (or yield as the industry likes to refer to it). Market share was the name of the game, and where this scenario prevails, then the obvious price wars follow, with airlines undercutting each other as their bosses focused on the bums-on-seats policy (load factors) rather than on profit and long-term sustainability.

Local travellers never had it so good as far as airline fares were concerned: leisure travel blossomed as did business travel, as companies found it inexpensive to send staff to foreign shores to attend meetings, conferences or even simply to meet fellow colleagues in other countries.

In short, Bulgaria has seen regular and overall consistent growth in air travel and airline frequencies during the past decade in line with the regular and consistent growth that the country’s economy has experienced during the parallel period.

However, as we look at the things now in spring 2012 and compare it with 12 months ago, we find ourselves with a noticeable retraction by airlines with their operations into and out of Sofia.

Whether this is based on airlines’ pessimistic economic forecasts for the region or other external considerations is a separate question, but the fact of the matter is that we now have 10 weekly flights by Malev Airlines taken out of the equation (through bankruptcy), Czech Airlines have reduced frequency from 14 to three flights weekly which will soon become zero, Swiss Air suspended their seven weekly flights last year and Lufthansa chopped nine flights from their total frequencies to Frankfurt and Dusseldorf, whilst Germanwings cut their three weekly flights to Germany.

Without going deeper into the add-ons and subtraction of routes, immediately that’s 43 fewer flights a week available for local travellers to key European airports, most of which were flights that provided connectivity to other European cities where local business people conducted most of their business and where the vast majority of the local demand for travel is focused on.

It should,  however, be noted that as partial compensation Austrian Airlines have added 13 more flights and Turkish Airlines five extra flights to their roster, though the latter has typically been focused on providing options for passengers moving to the east of the globe and not to the west and into Europe.

This has created a situation whereby the Austrian/Lufthansa operation has been left with a virtual monopoly for travel to many  European destinations and particularly where travellers require connectivity through to secondary cities.

Across Europe, 32 per cent of the total numbers of travellers using the top 10 European Airports are using the airports as a connecting point; this in itself is a relatively high percentage. By comparison, the figures for the main transport and connection hub of Vienna sees more than half the people from Bulgaria using it for connecting onwards to other destinations while for those travelling via Germany (Frankfurt/Munich) over two-thirds are using the airports as a hub to connect to other secondary locations. This is often referred to as the hub and spoke structure.

While airlines such as Air France, British Airways, Alitalia, Turkish and Qatar can offer a multitude of connections transcontinental, most local travellers need European connecting hubs to get them to their final European destination and at the moment only the Austrian/Lufthansa operation can satisfy the requirement for much of this demand.

What happens when about 4000 seats a week or 208 000 seats a year disappear from the market? Simple answer, demand for the remaining seats increases and the fares for travel into the rest of Europe reflects this.

Assuming that is that the current passenger demand is maintained and that the reduction in flights is not being influenced by negative opinions regarding the sustainability of the local economy. Remember travel has been considered as a leading economic indicator!

As we stated, as things stand, the Austrian/Lufthansa operation has been left with an almost monopolistic grip on travel from Sofia into Europe and particularly when connections are required to secondary cities.

Taking our own data, the fares in the local market for travel across the globe in 2011 on average were five per cent down on 2010 levels as competition kept fares in check.

For the first quarter of 2012 and before the effect of the overall reduction in flights kicked in, fares were down by three per cent. As we sit in the middle of the second quarter and while the overall average fare to all continents will likely reveal a moderate overall increase, the fares for flights into Europe appear now to be skyrocketing.

From our own data analysis, travellers are facing fare increases in excess of 25 per cent on what they were paying last year for the same routing and this is not just down to spurious add-on airport taxes.

Before we earn the wrath of the airlines and are accused of biased journalism, it should perhaps be pointed out that airlines are not charities and they are there to make a profit as well as to facilitate all of us in getting from point A to point B.

If airlines are not there, we cannot travel and we cannot conduct our own business and just maybe, the situation is arriving where airline fares are actually reaching the levels they should naturally be at!

In real terms, airline fares are massively cheaper than  they were say 10 years ago, and while we in Europe have been mentally accustomed to believing that all airline fares should be levels of 50 euro each way, the fact of the matter is that the travel industry is littered with failed airlines who thought they could do things cheaper than everyone else.

Bulgarian commerce in general needs airlines to fly to it which then allows the country and its people to be connected to the outside business world, the cost of travel perhaps from the airlines perspective then ceases to be material.

Economic recessions excluded, of course.

All this means that for any company who have based employee travel budgets for their travel into Europe based on past levels, that budget may well and truly be put to the test between now and the end of the year. It will either mean less business trips for employees or a total revision of the annual travel budget; depending of course on the importance of the need to travel.

There are always ways of mitigating the exposure to paying more than one should for travel: booking as soon or as early as possible before the trip is one obvious piece of advice as is using a credit card. Having some sort of general travel policy in place from a company perspective is also a trait taken as given in most parts of Europe, but one that tends to get ignored in this part of the world.



Mark Thomas

Mark Thomas is Managing Director of Jamadvice Travel / BCD Bulgaria, one of Bulgaria’s leading Travel Management Companies with 28 years market leading presence on the Bulgarian market.