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Conflict in the gulf
Current issues Conflictin the Gulf Responseof the tourism industry
RobertHollier The crisis and subsequent war in the Persian Gulf has drastically reduced tourism bookings in the vicinity of the Middle East and even further afield. In addition, the rising oil prices have made travel more expensive thus exacerbating the negative effect on the tourism industry. The only way for the tourism industry to fight back is aggressive promotion of its products. National Tourist Office members of the European Travel Commission have already begun to adapt their advertising campaigns and have targeted new market segments, for example in the USA and Japan. Robert Hollier is Executive pean Travel Commission, 75015 Paris, France.
Director, Euro2 rue Linois,
The substance of this article was written before the outbreak of war in the Gulf.
2
For the tourist trade in Europe, the Gulf events came like a storm out of a blue sky. Never before had Europe enjoyed such record crowds of overseas visitors. Now suddenly, visibility is nil. Predict travel trends in 1991? Not me. Pundits have been so wrong throughout the last decade that it would be crazy to try and guess what may happen in the next six months. As Don Ford, Chairman of the European Travel Commission (ETC) in the USA put it recently, the first half of 1990 did show a ‘record ever’ flow of Americans to Europe (+ 13.3%), but it was difficult to predict, he said, the impact of a slumping dollar, fuel costs and the Persian Gulf conflict on future figures. Difficult indeed. For the long term, one may feel safer. Tourism is here to stay - and grow. Only a cataclysm could change the well-established trend of more travel, more trips, but shorter stays. People will still request less expense per trip, but better quality in package tours. This will not be an easy task for tour operators, hoteliers and carriers. Meanwhile, if present trends are confirmed, we shall see more business travel and more short breaks, but possibly less medium-range seaside holiday flights, more domestic holidays, more south-north and east-west travel, but probably somewhat less
north-south seaside summer vacations - depending also on the weather. At the moment, where long haul is concerned, many Europeans show more interest in flying westward than eastward, and American carriers are transferring airline flights from transatlantic destinations to domestic or neighbouring areas, and to the Pacific. Mexico and the Caribbean are the main beneficiaries. Attempting a comeback, China is now offering Americans up to 50% discount passages (as low as a fully inclusive lo-day tour from San Francisco at $1399), while the USSR, on the other hand, may have difficulty in limiting its excessive hotel rates. Next summer American interests will be transferring many cruise ships from the eastern Mediterranean, including Turkey, to less publicized including the western areas, Mediterranean. Nevertheless cruises will maintain popularity, but in America and the Caribbean cruise ships will not avoid the cost of improving safety after the series of accidents involving ferries, according to the US National Transportation Safety Board. Such obvious requirements as sprinkler systems and life jackets in all cabins, fire fighting training and a common language for the whole crew may become compulsory. The year 1991 will witness an unusual innovation in shipping
TOURISM
MANAGEMENT
March 1991
Current
-
‘Increasing promotion is one obvious answer’
TOURISM
MANAGEMENT
two Belgian-made sailing ships based in Miami for a Swedish operator will cruise the Leeward Islands, flying the Luxembourg flag - although Luxembourg has no access at all to the sea! Another feature of the coming holidays is the trend towards late bookings by consumers hoping to benefit from cut-price rates, something which first appeared in the UK and is now spreading rapidly through France and other Western European markets. This trend has also been noted in winter snow holidays. The negative effects of the Gulf situation were felt immediately by the neighbouring countries. Hotels in Israel in November were so empty that some were used to shelter immigrants from the USSR. El Al’s traffic fell by 35% in October. But business traffic continued. Israel’s representative in New York doubted publicly whether some Middle East countries were less safe than major US cities. Yet Egypt, Jordan and-other Middle East destinations also lost a high proportion of their usual visitors. Even Turkey saw a difficult end to an otherwise prosperous season. (This situation has greatly deteriorated since the outbreak of hostilities.) Indeed, Asian destinations such as Thailand were also affected to some extent - many Europeans chose to avoid flying over the area and especially making stopovers in the Emirates. But perhaps the main impact-apart from the US dollar’s weakness - was caused by the oil scare and the resulting increases in transport costs. As a result, the end of a magnificent 1990 summer season saw a general decrease in hotel occupancy in many European areas. Even on the domestic front, in the USA, hotel occupancy is predicted by Horwath Consulting to decrease from 64% to 63% in 1991. Most airlines in Europe and the USA are losing money (possibly $2 billion, according to Gunter Eser, Chairman of IATA) in spite of increases in fares which, according to the US Department of Transportation (DOT) reached 15% in the USA between August and December 1990 due to extra fuel costs. As the US Congress decided to increase passenger
March 1991
issues
taxes from 8% to 10% at the same ill-chosen time, there is little to stimulate tourism. Adding an airport tax or ‘passenger facility charges’ will only make it worse. Indeed, there may well be more Europeans than Americans flying over the North Atlantic in summer 1991. However, the USA will not find its reduction in demand anything like fully compensated by this. Within Europe, increased competition between ‘liberalized’ airlines on intra-European routes will add financial difficulties to the burden of settling the cost of new aircraft on order or on option - reduced services may be the price to pay. Already some US airlines have had to resort to sales of assets, and in Europe several nonprofit routes were trimmed before 1990 ended, including transatlantic services. A cautious approach to deregulation is obviously needed to avoid airline failures and disappearance, as witnessed in the USA.
Counteract
recession
What can be done to react against such a recession in sales? The answer has to be promotion. Innovation often comes from the USA. ‘Frequent guest’ programmes are spreading in US hotels, just as ‘frequent flyer’ bonuses did in the airlines, but European hotel chains are still only considering them, although winter hotel occupancy rates have been low in several areas affected by the Gulf conflict. Perhaps such programmes offering rewards based on points earned, ‘gold passports’, upgrades, room amenities and discounts are going to thrive and spread. Or will they wither and disappear? Time will tell. Increasing promotion is one obvious answer. Adjusting the targets and the messages is another. Confronted with this new situation, the 24 Western European National Tourist Offices grouped in the ETC quickly reacted by altering their advertising policy in various ways, according to the specificity of each overseas market where they promote Europe. In the USA, the 1989 advertising campaigns had aimed at an extension of market coverage by seeking ‘first-timers’ in the medium-sized cities and areas
Currenr issues
where European representatives, hoteliers, carriers and other sales promoters had fewer opportunities to present their products. This policy was promptly reversed in order to ‘fish in the big ponds’ and concentrate promotion on the larger markets where sufficient numbers of travel-prone dwellers are certain to be found. And since businessmen will be travelling anyway ETC is busy researching ways to incite US businessmen to extend their business visits to Europe through the weekend. The same applies to Canada and Australia. In Japan, however, the main effort is devoted to market segments identified by continued research as being ‘juiciest’ and responding well to advertisements and agencies’ package promotion - after tackling the ‘office ladies’ (OL) segment, and the ‘exoffice ladies’ (XOL), ETC is now undoubtedly most concerned with the ‘newlyweds’ - every year 96.9% of the 1.8 million Japanese honeymooners head overseas for an eight-day de luxe package and shopping spree, where they spend a huge average sum of US $6746 per couple - a substantial market segment indeed, which may be less affected than others by Tokyo’s Stock Exchange losses, as Europe is slowly but steadily increasing its share (currently 15.7%). ETC’s continuous advertising, with the EC’s contribution, in widely circulated glossy magazines dealing with fashion, women and marriage has had an obvious impact and will be pursued with airline and agency support. Agencies are still the key to ETC promotion in other Asian markets such as Taiwan, Korea and Hong Kong, where the rapid growth in 1989 travel abroad has slowed in 1990 due to government restrictions (Korea still claims 70 000 residents visited Europe in nine months). In Latin America, where high inflation is still a household word, but where the low-cost US dollar is now attracting visitors northwards at Europe’s expense, tour operators and agencies are also encouraged to keep on producing more attractive packages to Europe than to other destinations. The situation will not improve until hostilities end, but even before the
4
outbreak of war, the harm was done for 1991. One conclusion is obvious. Unless something is done to increase European advertising budgets in markets such as the USA - now standing at a measly 4.5% of total tourism advertising in the US - there is little chance, as any businessman will note, of achieving a proportionately much higher market share - against 95.5% competition. In Asia the odds are even worse against Asian and Australian competition. Generally speaking, flying through turbulences ought to require more attention by people in the pilot seat. European and EC institutions governments should increase their promotional budgets to match competition. Yet the EC spends far more in support of developing countries’ tourist industries than it does for Europe. No-one ever believed that the 1993 ‘integration’ of Europe would make travel cheaper. Added VAT on transport and higher rates on accommodation, restrictions on duty free earnings for airports and ferries, and many other factors will increase the cost of travel - all the more reason to boost promotion. However, we can expect many positive events in 1991, including some progress in European integration. A ‘European Tourism Policy’ may emerge from many proposals being elaborated, including a statement by the European Tourism Action Group (ETAG) (‘A European Tourism Policy for the ’90s’) requesting more consultation with industry. Many pan-European organizations are beginning to examine the implications for the tourist industry of accepting the Ecu as a European currency. IATA has designated it as a valid currency and ETC, like EC institutions, is already establishing its 1991 budget in Ecus, aknowledging its increased stability as compared with the US dollar. Other ETAG members such as Hotrec, the European Hotel Association, are supporting the idea, and tour operators generally welcome the thought of having a single currency in Europe within possibly less than 10 years. But at this stage who would dare to predict what will happen in years to come? Not me.
TOURISM
MANAGEMENT
March 1991
RobertHollier The crisis and subsequent war in the Persian Gulf has drastically reduced tourism bookings in the vicinity of the Middle East and even further afield. In addition, the rising oil prices have made travel more expensive thus exacerbating the negative effect on the tourism industry. The only way for the tourism industry to fight back is aggressive promotion of its products. National Tourist Office members of the European Travel Commission have already begun to adapt their advertising campaigns and have targeted new market segments, for example in the USA and Japan. Robert Hollier is Executive pean Travel Commission, 75015 Paris, France.
Director, Euro2 rue Linois,
The substance of this article was written before the outbreak of war in the Gulf.
2
For the tourist trade in Europe, the Gulf events came like a storm out of a blue sky. Never before had Europe enjoyed such record crowds of overseas visitors. Now suddenly, visibility is nil. Predict travel trends in 1991? Not me. Pundits have been so wrong throughout the last decade that it would be crazy to try and guess what may happen in the next six months. As Don Ford, Chairman of the European Travel Commission (ETC) in the USA put it recently, the first half of 1990 did show a ‘record ever’ flow of Americans to Europe (+ 13.3%), but it was difficult to predict, he said, the impact of a slumping dollar, fuel costs and the Persian Gulf conflict on future figures. Difficult indeed. For the long term, one may feel safer. Tourism is here to stay - and grow. Only a cataclysm could change the well-established trend of more travel, more trips, but shorter stays. People will still request less expense per trip, but better quality in package tours. This will not be an easy task for tour operators, hoteliers and carriers. Meanwhile, if present trends are confirmed, we shall see more business travel and more short breaks, but possibly less medium-range seaside holiday flights, more domestic holidays, more south-north and east-west travel, but probably somewhat less
north-south seaside summer vacations - depending also on the weather. At the moment, where long haul is concerned, many Europeans show more interest in flying westward than eastward, and American carriers are transferring airline flights from transatlantic destinations to domestic or neighbouring areas, and to the Pacific. Mexico and the Caribbean are the main beneficiaries. Attempting a comeback, China is now offering Americans up to 50% discount passages (as low as a fully inclusive lo-day tour from San Francisco at $1399), while the USSR, on the other hand, may have difficulty in limiting its excessive hotel rates. Next summer American interests will be transferring many cruise ships from the eastern Mediterranean, including Turkey, to less publicized including the western areas, Mediterranean. Nevertheless cruises will maintain popularity, but in America and the Caribbean cruise ships will not avoid the cost of improving safety after the series of accidents involving ferries, according to the US National Transportation Safety Board. Such obvious requirements as sprinkler systems and life jackets in all cabins, fire fighting training and a common language for the whole crew may become compulsory. The year 1991 will witness an unusual innovation in shipping
TOURISM
MANAGEMENT
March 1991
Current
-
‘Increasing promotion is one obvious answer’
TOURISM
MANAGEMENT
two Belgian-made sailing ships based in Miami for a Swedish operator will cruise the Leeward Islands, flying the Luxembourg flag - although Luxembourg has no access at all to the sea! Another feature of the coming holidays is the trend towards late bookings by consumers hoping to benefit from cut-price rates, something which first appeared in the UK and is now spreading rapidly through France and other Western European markets. This trend has also been noted in winter snow holidays. The negative effects of the Gulf situation were felt immediately by the neighbouring countries. Hotels in Israel in November were so empty that some were used to shelter immigrants from the USSR. El Al’s traffic fell by 35% in October. But business traffic continued. Israel’s representative in New York doubted publicly whether some Middle East countries were less safe than major US cities. Yet Egypt, Jordan and-other Middle East destinations also lost a high proportion of their usual visitors. Even Turkey saw a difficult end to an otherwise prosperous season. (This situation has greatly deteriorated since the outbreak of hostilities.) Indeed, Asian destinations such as Thailand were also affected to some extent - many Europeans chose to avoid flying over the area and especially making stopovers in the Emirates. But perhaps the main impact-apart from the US dollar’s weakness - was caused by the oil scare and the resulting increases in transport costs. As a result, the end of a magnificent 1990 summer season saw a general decrease in hotel occupancy in many European areas. Even on the domestic front, in the USA, hotel occupancy is predicted by Horwath Consulting to decrease from 64% to 63% in 1991. Most airlines in Europe and the USA are losing money (possibly $2 billion, according to Gunter Eser, Chairman of IATA) in spite of increases in fares which, according to the US Department of Transportation (DOT) reached 15% in the USA between August and December 1990 due to extra fuel costs. As the US Congress decided to increase passenger
March 1991
issues
taxes from 8% to 10% at the same ill-chosen time, there is little to stimulate tourism. Adding an airport tax or ‘passenger facility charges’ will only make it worse. Indeed, there may well be more Europeans than Americans flying over the North Atlantic in summer 1991. However, the USA will not find its reduction in demand anything like fully compensated by this. Within Europe, increased competition between ‘liberalized’ airlines on intra-European routes will add financial difficulties to the burden of settling the cost of new aircraft on order or on option - reduced services may be the price to pay. Already some US airlines have had to resort to sales of assets, and in Europe several nonprofit routes were trimmed before 1990 ended, including transatlantic services. A cautious approach to deregulation is obviously needed to avoid airline failures and disappearance, as witnessed in the USA.
Counteract
recession
What can be done to react against such a recession in sales? The answer has to be promotion. Innovation often comes from the USA. ‘Frequent guest’ programmes are spreading in US hotels, just as ‘frequent flyer’ bonuses did in the airlines, but European hotel chains are still only considering them, although winter hotel occupancy rates have been low in several areas affected by the Gulf conflict. Perhaps such programmes offering rewards based on points earned, ‘gold passports’, upgrades, room amenities and discounts are going to thrive and spread. Or will they wither and disappear? Time will tell. Increasing promotion is one obvious answer. Adjusting the targets and the messages is another. Confronted with this new situation, the 24 Western European National Tourist Offices grouped in the ETC quickly reacted by altering their advertising policy in various ways, according to the specificity of each overseas market where they promote Europe. In the USA, the 1989 advertising campaigns had aimed at an extension of market coverage by seeking ‘first-timers’ in the medium-sized cities and areas
Currenr issues
where European representatives, hoteliers, carriers and other sales promoters had fewer opportunities to present their products. This policy was promptly reversed in order to ‘fish in the big ponds’ and concentrate promotion on the larger markets where sufficient numbers of travel-prone dwellers are certain to be found. And since businessmen will be travelling anyway ETC is busy researching ways to incite US businessmen to extend their business visits to Europe through the weekend. The same applies to Canada and Australia. In Japan, however, the main effort is devoted to market segments identified by continued research as being ‘juiciest’ and responding well to advertisements and agencies’ package promotion - after tackling the ‘office ladies’ (OL) segment, and the ‘exoffice ladies’ (XOL), ETC is now undoubtedly most concerned with the ‘newlyweds’ - every year 96.9% of the 1.8 million Japanese honeymooners head overseas for an eight-day de luxe package and shopping spree, where they spend a huge average sum of US $6746 per couple - a substantial market segment indeed, which may be less affected than others by Tokyo’s Stock Exchange losses, as Europe is slowly but steadily increasing its share (currently 15.7%). ETC’s continuous advertising, with the EC’s contribution, in widely circulated glossy magazines dealing with fashion, women and marriage has had an obvious impact and will be pursued with airline and agency support. Agencies are still the key to ETC promotion in other Asian markets such as Taiwan, Korea and Hong Kong, where the rapid growth in 1989 travel abroad has slowed in 1990 due to government restrictions (Korea still claims 70 000 residents visited Europe in nine months). In Latin America, where high inflation is still a household word, but where the low-cost US dollar is now attracting visitors northwards at Europe’s expense, tour operators and agencies are also encouraged to keep on producing more attractive packages to Europe than to other destinations. The situation will not improve until hostilities end, but even before the
4
outbreak of war, the harm was done for 1991. One conclusion is obvious. Unless something is done to increase European advertising budgets in markets such as the USA - now standing at a measly 4.5% of total tourism advertising in the US - there is little chance, as any businessman will note, of achieving a proportionately much higher market share - against 95.5% competition. In Asia the odds are even worse against Asian and Australian competition. Generally speaking, flying through turbulences ought to require more attention by people in the pilot seat. European and EC institutions governments should increase their promotional budgets to match competition. Yet the EC spends far more in support of developing countries’ tourist industries than it does for Europe. No-one ever believed that the 1993 ‘integration’ of Europe would make travel cheaper. Added VAT on transport and higher rates on accommodation, restrictions on duty free earnings for airports and ferries, and many other factors will increase the cost of travel - all the more reason to boost promotion. However, we can expect many positive events in 1991, including some progress in European integration. A ‘European Tourism Policy’ may emerge from many proposals being elaborated, including a statement by the European Tourism Action Group (ETAG) (‘A European Tourism Policy for the ’90s’) requesting more consultation with industry. Many pan-European organizations are beginning to examine the implications for the tourist industry of accepting the Ecu as a European currency. IATA has designated it as a valid currency and ETC, like EC institutions, is already establishing its 1991 budget in Ecus, aknowledging its increased stability as compared with the US dollar. Other ETAG members such as Hotrec, the European Hotel Association, are supporting the idea, and tour operators generally welcome the thought of having a single currency in Europe within possibly less than 10 years. But at this stage who would dare to predict what will happen in years to come? Not me.
TOURISM
MANAGEMENT
March 1991