Mixed Messages from the US
Over the last three months we have been bombarded with information on the slowdown in the US economy and the impact that it would have on the economy’s around the world . I don’t know about you but I am beginning to find the information overload and analysis in the business pages a bit tedious . Who really knows what the next few months has in store ? In Ireland the American market is critical to the success of our tourist industry . After a pretty poor first quarter we are all hoping for a pick up in the coming months as the season gets into its stride . Given the weakness in the dollar ( and more recently sterling ) you would wonder why anyone in America would even consider venturing outside of the United States for there hard earned vacation . Yet you have to remain optimistic and try and search for some positives among all the doom and gloom . Therefore it was somewhat reassuring to get the following a opinion on the American situation from the Irish Tourist Industry Confederation . Lets hope this analysis is correct .
- This week the International Air Transport Association (IATA) downgraded its industry profit expectations for 2008 to $4.5 billion, based on global economic growth slowing to 2.6% and an average annualised oil price of $85 per barrel. That’s the second downgrading since September last when IATA predicted $7.8 billion profit for this year, and that figure was revised downwards again in December to $5 billion.(IATA represents some 240 airlines comprising 94% of scheduled international air traffic).
- At an average annual price of $86 per barrel, fuel represents 32% of airline operating costs and a total bill of $156 billion, according to IATA
- Nonetheless passenger demand increased in February by 4 to 5%, though this was well down from the demand growth of 7.4% in February of last year. Things are slowing down according to IATA boss Giovanni Bisignoni.
- The full introduction of Open Skies on March 31st complicates forecasting too. For instance there are 25% more weekly flights scheduled to serve the US market out of Heathrow. It is reasonable to assume that consumers will benefit from greater choice and lower fares due to intensified competition.
- Although there is only a marginal increase in capacity on Irish transatlantic routes, we should also benefit from greater choice and lower fares. Aer Lingus have direct services from 3 new gateways, San Francisco, Washington DC and Orlando (these new routes were introduced last Autumn).
- The US credit crunch has clearly dented consumer confidence.
- According to a New York Times/CBS poll, Americans are more dissatisfied with the country’s direction than at any time since this poll started in the early 1990’s.
- 81% of respondents believe “things have pretty seriously gotten off on the wrong track”, up from 69% a year ago and 35% in early 2002. There is now, it appears, nearly a national consensus that the country faces significant problems.
- 78% of respondents said the country was worse off now than 5 years ago, just 4% said it was better off. Only 21% of respondents said the overall economy was in good condition.
- Interestingly the poll found that Americans blame Government more than banks or borrowers, with 40% blaming the Regulators, 28% blaming the lenders and 14% blaming the borrowers.
- Also interestingly a clear majority favoured Government help for individuals but not for financial institutions, even if the measures would help limit the depth of a recession.
- Perhaps somewhat reassuringly, more than 70% said their financial situation was fairly good or very good, which is only slightly down on 2006.
- Curiously the poll found that 43% of those surveyed said they would prefer a larger Government that provided more services, while an identical 43% said they wanted a smaller Government that provided fewer services.
- As for the longer term, only 46% of parents said they expected their children to enjoy a better standard of living than they themselves do, down from 56% in 2005. In more general terms about the next generation, only a third believe it would live better than people do today. That suggests a current lack of confidence and natural parental concerns. It is very probable that every generation of parents believed similarly from time to time, but the reality has always been different.
- The nationwide New York Times/CBS poll was carried out by phone between March 28th and April 2nd and the margin of sampling error was plus or minus 3 percentage points.
- But consumers are resilient, none more so than US consumers, and many many millions will vacation as always this year. Europe and Ireland will get their share thanks to competitive access costs, though we will probably see fewer than we would have predicted 6 months ago. Lower fuel costs, a stronger dollar and a pick up in US consumer confidence are what is needed.
- And perhaps that’s on the way. At a recent forum called A Wall Street Look at the Business of Business Travel, Ken McGill, Executive Vice-President and Managing Director, travel and tourism, for the economic analysis firm Global Insight, said that the US is currently in a recession. He added it was “mild”, and that the negative growth will last only two consecutive quarters, which is generally described as the minimum time frame of a recession.”The global economy is both robust and broadly distributed, and the interplay between growing and slowing economies around the world will help the US economy recover quickly”, he added.
He also predicted that both increases in fuel prices and decreases in the value of the dollar would moderate in the medium term, contributing to recovery. “The global economy is a good-news story: slowing growth, then getting back on track.”
Let’s hope Ken is right.