Étiquette : airlines

Catégories
Management Trends

The vogue of low-cost travel

Low-cost tourism providers are now attracting a variety of customer segments. This is because their business model has gone upscale, offering a wider selection of improved products and services while keeping prices low. This success is the envy of other companies that are now trying to enter this niche market.

Airlines

Some 15 years ago, the airline industry was turned upside down by the arrival of low-cost carriers and their success continues to grow. According to Euromonitor, these companies have seen their market share and popularity increase every year, putting them into direct competition with regular carriers. In November 2013, they accounted for 20% of all flights and 25% of weekly seats, globally.  

Their development and price strategies have undergone a number of changes. While the « ultra low-cost » model, popularized by Spirit Airlines and Allegiant Air, continues to make inroads in the United States, European low-cost carriers seem to be moving towards the « middle cost » model adopted by easyJet.

With the former business model, a carrier will sell tickets at a very low price and then add various service charges (baggage, meals, ticket printing). These supplemental fees represent, on average, 40% of the total price of a flight with Spirit Airlines. Since this strategy was adopted in 2007, the average price for a flight has dropped from US$94 to US$75. The middle-cost business model, launched by easyJet, has been adopted by Air Berlin, Vueling and, more recently, Ryanair. These airlines have lowered the price of some services (baggage handling, reprinting of boarding pass) and enhanced their products by adding fees for services like seat reservation and speedy boarding. Middle-cost carriers can also compete head-to-head with regular carriers by:

  • flying out of major airports;
  • increasing the number of destinations served;
  • offering flights on strategic routes;
  • adding long-haul flights. Norwegian Air Shuttle (see image below) and XL Airways offer flights between Europe and the United States. Air Asia X, the largest low-cost company in Asia, will offer flights to Europe by the year 2016.

AL_Modele_low_cost_image1

Source: businessinsider.com

The low-cost model also targets business travellers. For example, JetBlue was set to begin offering larger, more comfortable seats in a reserved business section in June (see image below). The airline’s business class prices include cocktails, a gourmet meal and Wi-Fi. In 2012, Vueling launched its « Excellence » class with the goal of having business travellers make up 50% of its clientele by late 2013.

 AL_Modele_low_cost_image2

Source: investor.jetblue.com

With these changes, the business model of middle cost airlines is beginning to resemble that of regular carriers, while the latter, faced with this fierce competition, are trying to enter the low cost market. Air Canada rouge, the Air France subsidiaries Transavia and Hop! and Lufthansa’s Germanwings are all examples of this.

Low-cost hotel options

and there have been two developments similar to those in the airline industry: budget hotels have gone upscale and modern hotel chains have been created.

Within the hotel industry, the economy segment is shaking up its business model and there have been two developments similar to those in the airline industry: budget hotels have gone upscale and modern hotel chains have been created. These changes are responses to the new expectations of travellers, who are looking for good deals without skimping on quality when it comes to facilities, comfort and design.

The Accor hotel group has been renovating the facilities and decor of its economy brands for the past several years. Its Formule 1 and Etap Hotel chains (see image below) have changed their names (to hotelF1 and ibis budget, respectively), while an increased attention to design has made their public spaces and rooms more functional and user-friendly.

AL_Modele_low_cost_image3

Source: ibisbudgethotel.ibis.com

EasyHotel and Motel One are two new low-cost hotel chains that are enjoying growing popularity in Europe. The most recent entry into this market, Eklo Hotels, has adopted an eco approach by using construction materials that are more environmentally friendly and innovative, encouraging employees to be more versatile and having clients pay for any extras.

AL_Modele_low_cost_image4

Source: eklohotels.com

AL_Modele_low_cost_image5Some youth hostels are also joining the upscale trend and now attract a variety of clienteles: adults of all ages, families and even business travellers, that is, anyone looking for a social experience in a setting that offers contemporary design and state-of-the-art technology. Equipped with facilities similar to those found in traditional hotels, such as private bathrooms, a pool, conference rooms and an exercise room, some of these establishments offer even more specialized services like a screening room, playroom, organized social activities, city tours, etc. Europe’s Generator line of hostels (see image to the right – Source: generatorhostels.com) is part of this « new generation » of competitively-priced accommodations (startingat 10€) inspired by so-called lifestyle hotels.

New concept hybrid hotels are flourishing in major cities. For example, Fusion Hotel in Prague is both a three-star hotel and a youth hostel. It provides casual meeting spaces, interactive video games, a bar/lounge for special events, etc. Guests can reserve various categories of rooms priced from 60 to 130€ a night, or just a bed for as little as 14€. According to its general manager, it offers business travellers an alternative solution.

AL_Modele_low_cost_image6

Source: fusionhotels.com

A strategy that is making inroads throughout the industry

Other tourism sectors have also been drawn to this niche market, such as the examples below. 

  • Rail: In April 2013, the French SNCF group launched its new low-cost high-speed train service, Ouigo, to attract new clients. Ticket prices start at 10€.
  • Bus: Serving Canada (particularly Montreal) since 2009, the low-cost bus company megabus.com uses luxury coaches equipped with Wi-Fi. It often offers special deals as low as $1.
  • Car rentals: Major car rental companies are offering clients more economical options through car-sharing subsidiaries like Hertz 24/7.

The revamped low-cost model, enhanced with a touch of originality, is increasingly popular throughout the industry and seems to be a niche that attracts various types of travellers. For businesses, the challenge is to cost-effectively manage this model, even if it means adopting only some of its principles.

 

Image on page one: © megabus.com

Catégories
Geographic markets Trends

Global Tourism: Black Clouds with Silver Linings

Stormy Skies on the Horizon

The global economy has fallen off a cliff and no one is sure when it will hit bottom. According to the International Monetary Fund (IMF), the world’s advanced economies experienced an unprecedented 7.5% decline in real Gross Domestic Product (GDP) during the fourth quarter of 2008. The IMF projects a similar drop for the first quarter of 2009 and says Euro zone GDP will fall more than 4% for the year. In 2009, the world economy will contract for the first time since the Great Depression.

The world’s largest economies are particularly challenged. GDP in the United States has contracted at an annual rate exceeding 6% for the last two quarters. The IMF forecasts that Russia and Japan will see GDP shrink by a similar amount through 2009. Japan’s export-driven economy will experience its first-ever trade deficit and the country will likely experience a dangerous deflationary spiral.

Fragile Tourism

Travel and tourism are particularly sensitive to macroeconomic developments.  The United Nations World Tourism Organization (UNWTO) reported a year-on-year drop in international tourist arrivals for the second half of 2008.  Asia and Europe experienced particularly steep declines of 3%.

The current year got off to a frightening start with international travel agents and tour operators reporting substantial declines in reservations for the coming summer season.  The US hotel industry is suffering massive losses as both occupancy and room rates dive precipitously.  In New York, March revenue per available room (RevPAR) dropped 35.5% on a year-on-year basis.  RevPAR in Orlando and Miami declined by 28% and 29%, respectively.

Two Canadian provinces, New Brunswick and Prince Edward Island, finished 2008 with average hotel occupancy at a paltry 45%. Both provinces are forecasting further demand deterioration this year. Some Canadian urban markets are faring even worse. Annual hotel occupancy for Niagara Falls’ 10,000 hotel rooms was just 38% with no improvement foreseen this year.

Asian powerhouse markets have also been devastated.  Chinese and Indian hotels reported March year-on-year RevPAR declines of 35% and 40%, respectively.  The Thai market, complicated by political unrest, witnessed a RevPAR drop of 37%.  While globalization ignited the twentieth century international tourism boom, it also eliminated firewalls that could have contained the economic contagion ravaging the travel and hospitality industries.

The Upside of a Downturn

With so much gloom on the economic horizon, many business executives are suffering from managerial catatonia. Conventional wisdom dictates that opportunities abound in surging markets, while recessions oblige businesses to hunker down and weather the storm. In contrast, Professor Don Sull, my colleague at London Business School, has become a guru of sanguinity by suggesting that the most lucrative business opportunities are present during economic downturns.  Professor Sull’s research argues that it is significantly easier to implement organizational change and instil better practice in stressful recessionary markets than in boom times. He explains how managers can harness a downturn to identify lucrative investment opportunities, renew a sense of urgency, justify unpopular decisions and overcome complacency (www.donsull.com).

Applying Sull’s hypothesis to the tourism industry during the gravest financial crises of the last century can be an insightful exercise.  Entrepreneurs, investors and managers have frequently identified silver linings in dark economic clouds.  The following three examples illustrate how travel and hospitality professionals have seized opportunities during economic recessions of the past.

Case 1: The Waldorf-Astoria

Hotelier Lucius Boomer opened New York’s Waldorf-Astoria on October 1, 1931, in the midst of the Great Depression.  Towering 42 stories above Park Avenue with almost 2000 rooms, it was the largest and most expensive hotel ever built.  With equity markets in shambles and a quarter of the US population unemployed, few were the fools who expected the hotel to remain open for long. Stock markets had been declining for two years and there was no end to the economic turmoil in sight.

In spite of the gloomy discourse, the opening of the Waldorf-Astoria manifested how the Great Depression had radically altered a fundamental business paradigm. Boomer focussed on depressed costs to attain a competitive advantage. He capitalized on the idle construction sector to negotiate favourable building contracts.  The cost of previously expensive finishing materials had plummeted, permitting use of the finest marble, granite, hardwood and brass.  Unemployed artisans and craftsmen were brought from Europe to work on the hotel interiors at a fraction of their pre-Depression wages.  In the end, a palace was built on a pauper’s budget.

President Herbert Hoover inaugurated the Waldorf in a radio address on the eve of its grand opening. “Our hotels have become community institutions,” said Hoover.  “They are the central points of civic hospitality … The erection of this great structure has been a contribution to the maintenance of employment and an exhibition of courage and confidence to the whole nation.”

The Waldorf-Astoria was also an extremely lucrative investment.  By the mid-1930s the hotel was filling its suites with presidents, royalty and captains of industry.  While the value of the Waldorf’s real estate, management contract and goodwill are debatable, it is probably the most valuable hotel in the world today.  In the end, it was the economic conditions of the Great Depression that permitted the Waldorf to have been built in all its glamour and glory.

Case 2: Carnival Cruise Lines

Most tourism professionals would hesitate to consider the economic turmoil of 1974 the ideal business climate in which to found a capital-intensive enterprise in an industry sector heavily dependent on discretionary spending by retired senior citizens.  Following the breakdown of the Bretton Woods system, US GDP was contracting and inflation exceeded 12%.

In the face of this economic ataxia, Ted Arison purchased a distressed cruise ship for one US dollar and the assumption of $5 million in debt.  In November 1974, with the Dow Jones Industrial Average down 45% from its previous year high, Arison registered the Carnival Company as owner and manager of Carnival Cruise Lines.

At the time, it was difficult to understand why Arison, a savvy businessman, would purchase a near-bankrupt cruise company on the heels of the Arab oil embargo. Petroleum prices had recently quadrupled and a cruise ship could burn up to 200 litres of fuel per minute.  On the surface, the deal made no economic sense.  Arison had different ideas, however. He was about to revolutionize the cruise industry.

Arison targeted a younger market segment (25-40 year olds) that had considered ocean cruises a leisurely pastime for the geriatric set.  Carnival’s ship was redecorated in a flashy neon-esque style. An onboard casino and discotheque were added. Marketing imagery turned away from elegance and genteelness in favour of youthfulness and frivolity. Micky Arison, Ted’s son, made sales calls on dozens of travel agents, employing a casual youthful style to convince them that cruises would be the next big holiday trend for young adults.

Within a year, Carnival was operating at 100% capacity.  It went on to become the world’s largest cruise line. By identifying opportunities in a downturn, Arison’s one dollar investment made him a multibillionaire.

Case 3: Emirates Airlines

Following the September 11, 2001, terror attacks in the United States, the global travel industry came to a screeching halt.  Airlines and hotels were besieged with reservation cancellations. Looking longer term, air carriers began to cancel aircraft orders.  Share prices for Boeing and EADS (Airbus’ parent company) plummeted.

Ahmed Bin Saeed Al-Maktoum, Chairman of the Emirates Group, sensed an opportunity where his competitors saw a threat. No one knew how long the downturn would last but Sheikh Ahmed knew that Emirates was well positioned for growth in the long term.  At the lightly attended Dubai International Air Show in October 2001, the Emirates Chairman negotiated with Boeing and Airbus for an enormous aircraft order.  In an attempt to defend market share as order cancellations poured in, the two manufacturers offered deep discounts.

Emirates ended up splitting the order between the two companies, buying US$15 billion worth of airplanes. While the purchase was more than originally anticipated, Sheikh Ahmed later explained that fire-sale prices resulting from the economic downturn were too attractive to forego.

While delivery of the aircraft would take place over several years, client and investor confidence was immediately apparent.  In the airline industry’s worst ever year, the Emirates Group finished the 2001-02 fiscal exercise with net income representing 8% of revenue. The airline paid a substantial shareholder dividend and a bonus payment of 3 weeks salary to all employees. While competitors laid off large numbers of staff, Emirates did not make a single employee redundant and paid salary increments in full. Among numerous awards, Emirates was voted “Airline of the Year 2002” by 4,000,000 Internet users in the second annual Skytrax Research Study and Best Cargo Airline to the Middle East by Air Cargo News. By considering long-term strategic opportunities, Emirates seized the upside of a downturn.

So where are the opportunities?

Some hospitality businesses are less affected by broad economic strife than others. In comparison to many restaurant companies, McDonald’s Corporation has held up well over the last year. It is ranked as the fourth best performer on the Dow Jones Industrial Average. Its share price is down just 9% compared to the DJIA average of -38%. The company had sufficient confidence in its short-term performance to increase its 2008 fourth quarter dividend by 32%.

McDonald’s is capitalizing on Starbuck’s misfortunes to launch McCafe, a quick service restaurant concept offering cappuccinos, lattes and mochas. With Starbuck’s closing nearly 1000 units, McDonald’s is betting it can attract consumers specifically to purchase specialty beverages rather than just as a support for its food offerings.

Lucrative long-term investment opportunities also exist in the lodging sector. While the number of portfolio and single asset hotel transactions has dropped significantly over the last year, investors with access to capital have been purchasing properties at deep discounts.  The United Kingdom, in particular, has witnessed the liquidation of premium hotel assets at prices that would have been shocking two years ago.  Distressed companies like Royal Bank of Scotland and hospitality giant Mitchells & Butlers have been obliged to sell hotels to generate desperately needed cash.

In a market frozen by the credit crisis, Britain’s Travelodge has been on a buying spree, picking up six properties (650 rooms) from Menzies for £85 million, seven Swallow Hotels (669 rooms) for £70 million and five independent hotels (500 rooms) for £35 million.  Travelodge is opportunistically fleshing out its geographic coverage with aspirations of dominating the British budget sector when the country emerges from its current downturn.

New Eyes

In challenging economic times it is difficult for business leaders to see the light at the end of the tunnel. Indeed, it is even harder to identify opportunities at hand. As such, failure can be a self-fulfilling prophecy.  A Chinese proverb advises that “If we don’t change our direction, we’re likely to end up where we’re headed. »

In challenging times, it is critical that managers in the travel and tourism industry recognize existing business opportunities. There is a silver lining in most black clouds.  As illustrated in the three cases presented herewith, the challenge is not seeking new opportunities but having new eyes to identify them.

Catégories
Sustainable tourism

Compensating your emissions by planting trees? Know the pros and cons and the dos and don’ts.

The popularity of carbon-neutral travel continues to grow, although no reliable figures have been published on the size of this market. Traveling or doing business carbon neutral is a voluntary, market-based option to compensate for the greenhouse gas emissions caused. Using a web-based calculator, one simply calculates the emissions caused and then buys some credits from a company that promises to plant enough trees to absorb an equivalent amount of harmful emissions during their lifetime. For example, Air Canada currently offers this service through the non-profit organization Zerofootprint. Since the launch of the program in May 2007, Air Canada clients have offset 2224 metric tonnes of C02, resulting in 445 trees being planted in a forest restoration project in Maple Ridge, British Columbia. This is equivalent to taking 727 cars off the road for one year.

Purchasing carbon credits in a tree plantation is popular because it is simple to understand and presents a good clean green image. From a business perspective, the establishment of forest carbon sinks is estimated to be 90% cheaper than developing and implementing energy efficiency technology. Although planting trees is a move in the right direction, one needs to be aware of the issues surrounding carbon sequestration projects.

Issues

It is recognized that trees play a part in reducing atmospheric greenhouse gases. If managed appropriately, tree plantations can help address other environmental problems and generate income. They can also cause problems.

  1. Forestry projects only store carbon while the trees are alive. If the trees are harvested, die or get destroyed naturally or by other mechanisms (such as fire), then carbon gets released back into the atmosphere. When this happens, a client’s emissions are not actually offset or compensated for.
  2. Once a forest is established, it is complicated to measure how much carbon is absorbed during the life of the project and this is a current subject of debate amongst scientists.
  3. The Earth does not have the physical land available to absorb the excess emissions already in the atmosphere. Not all land currently available is suitable for carbon sink plantations due to biogeographical and other reasons.
  4. The effectiveness of a plantation depends on the type of tree species planted. Agroforests with multiple tree species have higher carbon storage capacity, greater biodiversity and are likely to provide more benefits to local livelihoods. Monoculture plantations, of non-native eucalyptus or pine trees, for example, provide no biodiversity value, little habitat provision, disturb hydrological cycles, intensify the use of chemicals and pesticides and can increase soil acidity. Unfortunately, many people buy carbon credits in such monoculture projects.
  5. The establishment of carbon sink plantations by developed countries in developing countries has been problematic because they threaten local communities, who risk displacement and loss of access to traditional lands. These communities are often not compensated adequately for their losses.
  6. Since sequestration projects lack regulation, companies can take advantage of the situation to over-exaggerate or inflate their projects’ estimated benefits.
  7. Planting trees does not directly result in a move away from using fossil fuels. It compensates for emissions, rather than cutting pollution at its source. This is why some organizations do not offer carbon credits from sequestration projects. Rather, they focus on renewable energy and energy efficiency projects, which support a transition away from fossil fuel dependence.

What to do

  1. Try to reduce your emissions, while traveling and in daily life.
  2. If cutting down is not an option, try to substitute with the best available alternatives.
  3. If neither of the above is an option, then continue traveling or doing your business carbon neutral, but be selective in supporting tree projects.

If you decide to buy carbon credits in tree plantations look for:

  • Permanent plantations (<100 years) or projects under protection
  • Local native species and multiple species
  • Projects with long lived and hardwood species (or the most appropriate native species)
  • Projects with the resources to manage the plantations to ensure survivorship and longevity
  • Additionality (i.e. projects that would not have happened without your purchase)
  • Insurance on the project so the company can replace trees if lost or damaged (fire, drought, etc,)
  • Well-organized, transparent projects with low administration costs
  • Projects that have additional environmental benefits (such as habitat provision)
  • Projects that provide genuine sustainable development benefits to local communities
  • Projects that retire the carbon credit you bought – so it cannot be sold again
  • Projects that incorporate local people’s needs and knowledge
  • Projects certified and verified by an independent third party

The climate change solution requires social change – and a move towards greener energy in all sectors. The more we rely on carbon sinks to offset greenhouse gases in the short term, the more we delay the transition to alternative energy, and the harder it will be to reach emission targets in the long term. Carbon sinks should supplement an alternative energy revolution, not replace or delay it.

Finally, travelers can take matters into their own hands, rather than relying on carbon credit companies. For example, when you take a holiday, calculate the amount of emissions you need to offset using one of the web-based calculators. Then, make up for this yourself before and after the trip, by not driving your car or by purchasing energy-efficient products for the household. Individuals and companies now have the opportunity to be proactive in addressing their travel-related carbon footprint.

Notes
1. In this paper, greenhouse gases refer to those recognized by the Kyoto Protocol: carbon dioxide, methane, nitrous oxide, hydro fluorocarbons, per fluorocarbons, and sulfur hexafluoride.

Sources:
– Air Canada Carbon Offset Program [http://www.aircanada.com/en/travelinfo/traveller/zfp.html?src=hp_ql]. Last accessed November 20, 2007.
– Priskin, J. and Stenhouse, R.N. (2007) Des végétaux pour voyager : les avantages et les inconvénients des contreparties de la fixation du carbone par la séquestration dans les forêts. Téoros. 26(3) p. 68-71.
– Zerofootprint [http://www.zerofootprint.net] Last accessed November 20, 2007.

Catégories
Sustainable tourism Transportation

Understanding the dynamics of carbon credit purchasing from offsets when traveling carbon neutral

Voluntary carbon compensation, or carbon offsetting is applicable to anything that contributes to greenhouse gas (GHG) emissions1. It means paying an extra for buying carbon credits in offset projects, so that the emissions caused are balanced out. To be carbon neutral, the quantity of carbon credit purchased need to equal the quantity of emissions caused.

Being carbon neutral in tourism is mostly associated with the transport sector, but increasingly, hotels, events, and even car rental companies offer the possibility to neutralize their carbon footprint. Carbon neutrality is not yet mainstream, however, it is heading in that direction. For example, in 2005 0,5 % of British Airways passengers traveled carbon neutral and the figure is estimated to be 1 % presently. Some reports suggest the voluntary carbon market grew up to 1000 % between 2002 and 2005. However, as it is not regulated, a number of issues have emerged that require awareness.

Carbon compensation in context

The voluntary purchase of carbon credits is outside the Kyoto mechanism, and it represents an important part of climate change mitigation for individuals, as well as businesses. It is also an example of a voluntary application of the
polluter-payer principle. The Kyoto Protocol is a mandatory framework to signatory countriesand includes three principal mechanisms:

  1. Emission trading in pollution quotas
  2. Clean Development Mechanism projects (CDM)
  3. Joint implementation projects (JI)

Emission trading is an allowance-based measure that sets a limit on the amount of pollution permitted by Kyoto countries. Those emitting more than permitted must buy credits from those that pollute below limits on the carbon market, for example via the European Union Emission Trading Scheme. At present this affects mainly power companies and the manufacturing sector, and excludes tourism and the airline industry, although the latter is under significant pressure for inclusion.

Project-based measures include specific projects that will result in GHG reduction. Offset projects create new carbon credits and include renewable energy production, energy efficiency technology development and carbon sequestration. Kyoto-based projects are administered by signatory national governments and two types exist. « Clean Development Mechanism » (CDM) projects permit industrialized nations to invest in projects located in developing countries, to contribute to their sustainable development, while « Joint Implementation » (JI) includes projects between industrialized countries. When travelers purchase carbon credits to compensate or neutralize their activities, in general, they are not contributing to such projects. Exceptions include organizations such as « Atmosfair ».

Voluntary carbon credit purchasing does not equate to emission reduction in absolute terms, because the pollution still occurs. Thus, an effort is still required by everyone to reduce emission contributions. Researchers suggests that to achieve a 10 % reduction of GHG emissions from aviation, the purchase of voluntary carbon credits would need to increase by a factor of 400.

10 things to be aware of before choosing to be carbon neutral

1. Type of organizations selling carbon credits
Estimates indicate that more than 40 organizations sell carbon offsets and their growth and expansion has lead to certain transparency issues. Some are profit and others are non-profit organizations and they are all located in industrialized countries. They all verse a % of the money to offset projects that can be anything between 25 % and 90 %. Hence, some keep significant proportions for operating costs.

2. Variations in emission calculations
Recent research suggests significant differences (as much as a factor of 3) exist between the carbon calculators of individual offset organizations, thus, there is a need for standardization to improve credibility. Calculators need to be informative and accurate. The more parameters used, generally the more accurate the carbon calculation should be. In the case of emissions from flying, a good calculator will include the exact distance flown based on actual routes, take account of radiative forcing at different altitudes depending on the length of flight, occupancy rate, and the type of plane.

3. Cost of carbon credits
The price per ton of carbon offset is variable between organizations because the voluntary carbon market is outside the Kyoto mechanism and hence, it is not regulated, nor standardized. Buying carbon credits currently varies from $ CAD 3 to $ 43 per ton.

4. Type and quality of projects supported
Of the three main types of offset projects the most favorable include emission-free energy generation (wind, biomass, solar, geothermal) and new technology developments (any new products that use less energy such as hybrid vehicles).

When buying into these projects, the main issue relates to additionality; a debated concept in carbon accounting. What is important to know before purchasing carbon credits is whether the projects supported will genuinely result in GHG emission reductions. The question to ask is, if I did not finance this project, would it have occurred? If yes, then it is not a real reduction project, because its financing was not from carbon credit purchasing.

5. Beware of tree plantations
Intending carbon neutral travelers need to be well-informed about carbon credits that finance tree plantations. Evidence suggests problems and controversies surround such projects, and consequently some organizations do not even offer any carbon credits in them. The singular action of tree planting will not solve climate change problems for many reasons, notably because it does not lead to a reduction of fossil fuel reliance (Refer to next edition of the Globe-Veilleur on this subject).

6. Buying high-quality carbon credits
Voluntary offset companies can either operate in or outside (mostly) of the Kyoto framework. The advantage of buying credits from organizations associated with Kyoto, is that emission reductions are verified under a regulatory framework administered by national governments.

7. Project standard credit labels
Presently there are no standards to judge the performance of voluntary offset projects, although several are currently being developed. The Gold Standard Foundation offers a quality label to both Kyoto-based and to several voluntary based projects. Thus, it is currently the most reliable label. Such projects are rigorous, and tested for environmental quality by registered third parties. Gold standard projects exclusively focus on renewable energy and energy efficiency projects.

8. Buying future carbon credits: forward purchasing
Travelers also need to be aware that some organizations sell carbon credits in either already existing projects or in future projects. The purchase of future credits creates some risk, because the proposed project may not be realized and or under-perform. However, investing in projects upfront is important in generating funds to start new offset projects.

9. Location of offset projects
Some of the offset projects are located in developing countries and some have created a variety of environmental and social problems, such as people getting displaced from their land and losing access to resources on which their livelihood depends. Thus, it is important to check that the projects are verified and meet standards, so they deliver long-term benefits to the areas where they are developed.

10. Most credible offset organization?
Two recent studies evaluated offset organizations and the most recommended include « Atmosfair », « Climate friendly », « Myclimate » and « NativeEnergy ».

What next?

The above issues need to be addressed to ensure that additional expenditures by travelers and the tourism industry towards negating fossil fuel use are created with the desirable outcome for which they are intended.

Climate change is a global problem that needs global solutions. Thus, if the tourism industry is to keep its confidence in carbon compensation schemes, it needs a standardized method for carbon calculating and the projects it invests in need to be certified and accredited by a relevant global organization.

In the meantime, it is important to reduce GHG emissions and move away from the use of fossil fuels that contribute to climate change. If going carbon neutral, we need to ensure that carbon credits are purchased in quality projects, preferably clean energy and energy efficiency.

1: Carbon refers to carbon dioxide as a gas. Carbon offset projects sometimes involve compensating for other greenhouse gases. The Kyoto Protocol recognizes six gases as contributors to global warming, including carbon dioxide, methane, nitrous oxide, hydro fluorocarbons, per fluorocarbons, and sulfur hexafluoride.

Sources:
– Anonymous. The Economist (2007) Carbon offsets: ripping off would-be greens? The Economist, 382(8520) p.61.
– Anonymous. The New Internationalist (2006) Special report on carbon related issues. The New Internationalist. July. Issue no.391.
– Atmosfair website. Last visited 4 July, 2007.
– Climate Friendly website. Last visited 4 July, 2007.
– Heughebaert, A. (2006) Étude comparative des programmes de compensation volontaire des emissions de C02 par les passagers d’avions. Institut de Gestion de l’environnement et de l’aménagement du territoire. Université Libre de Bruxelles. 98 pp.
– International Civil Aviation Organization 2007. Presentations and statements from the ICAO Colloquium on Aviation Emissions with Exhibition, held in Montreal Canada 14 – 16 May 2007.
– Gold Standard Foundation website. Last visited June 11, 2007
– Gössling, S., Broderick, J., Upham, P., Ceron, J., Dubois, G., Peeters, P. and Strasdas, W. (2007) Voluntary Carbon Offsetting Schemes for Aviation: Efficiency, Credibility and Sustainable Tourism. Journal of Sustainable Tourism, 15(3) p.223-248.
– Kollmuss, A. and Bowell, B. (2007) Voluntary Offsets for Air-Travel Carbon Emissions. Evaluations and Recommendations of Voluntary Offset Companies. Tufts Climate Initiative. 53 pp.
-Luzadder, K. (2007) Agent Issues: Carbon-offset programs: a reality check. www.travelweekly.com. June 14, 2007. 5 pp.
– Myclimate website. Last visited 4 July, 2007
– NativeEnergy website. Last visited 4 July, 2007
-Tufts Climate Initiative (2006) A Consumer Handout. Flying Green. How to protect the Climate and Travel Responsibility. Tufts Climate Initiative. 5 pp.
– United Nations Framework on Climate Change website. Last visited 28 June 2007.

Catégories
Issues Sustainable tourism

Is flying really that sinful?

The tourism industry already has a plethora of environmental issues to address, but more than ever, flying is considered as the biggest sin. Travelers are increasingly preoccupied with the environmental and social ethics of their consumption patterns and some reports claim that more people choose not to travel, in an attempt to curb their contribution to anthropogenic climate change. For example, a recent bulletin of the Canadian Tourism Commission reported that 29 % of UK travelers confirm having already cut back on air travel because of environmental concerns. Thus, the travel and tourism sector need to demonstrate it is taking its share of responsibility towards sustainable development. If not, more consumers may continue to choose to avoid travel, which will adversely impact on the entire tourism sector.

Atmospheric pollution from aircrafts contributes 2 % to 3 % to global greenhouse gas emissions annually, which is less than other sectors, such as road transport, forestry, or agriculture. According to current scenarios of civil aviation carbon dioxide emissions, in 2050 they will increase by factors of 3.3 to 5. Thus, if aviation emissions continue to grow while other sectors reduce their emissions, the relative importance of tourism’s contributions to greenhouse gas emissions will grow. Consequently, tourism involving flying will become a more significant contributor to environmental problems.

The problem

At least the airline industry is addressing the problem and it was the first sector to commission a special report to determine its baseline performance from the Intergovernmental Panel on Climate Change in 1999. A recent International Civil Aviation Organization (ICAO)1 conference, and first ever on aviation emissions, outlined the nature and magnitude of the current problem. Discussions also extended to mitigation measures, where the tourism sector has an important role to play. However, the near absence of tourism industry representatives at the conference is a clear sign that many opportunities remain for a cooperative approach to finding solutions to current problems.

Scientists today confirm that new aircrafts are more efficient than the average car on the road. Engine fuel consumption and aircraft fuel burn per seat improved 70% since the 1960s. Nonetheless, planes use non-renewable natural resources, and between 1990 and 2004, fuel consumption by the aviation sector increased by 2 to 3% per year. Despite alternative fuel technology developments, kerosene remains the primary fuel for planes in the short to medium term. Alternate fuel developments continue to deliver major advances, however fuel source and production raises other environmental issues. In addition, unlike conventional fuels, alternative fuels such as biofuels are currently not regulated nor standardized.

Aircraft emissions are complex and many scientific uncertainties remain. There is pollution from fossil fuel combustion on the ground and in the air at high altitudes. Besides the well-known carbon dioxide emissions, planes also emit water vapors, nitrous oxides, hydrocarbons, carbon monoxide, sulfur gases, soot aerosols and metal particles. At high altitudes these gases behave differently and emissions also change the radiation balance of the troposphere. Planes also contribute to condensation trails that cause cirrus cloud formation, which is unique to aviation in the climate change debate.

Today the aviation sector’s target for 2020 is to reduce fuel burn and carbon dioxide emissions by 50%. It is currently estimated that technological improvements alone can bring more than 1% improvements per year. In order to achieve further engine innovations from technology development means environmental trade-off between low gas and noise emissions (especially nitrous oxides) and these also impact on operational costs. Thus powerful research and development advances are needed, coupled with appropriate programs and strong collaboration effort by stakeholders, such as airlines, airports, traffic managers, regulators and governments.

The ICAO conference also included discussions about local air quality and emission standards for aviation. Although standards exist for several gases2, presently there are none for particulate matter and carbon dioxide. The setting of standards is a very complex procedure. Current research is investigating how to enable appropriate monitoring and standard setting of aviation emissions.

At airports aircraft are responsible for about 50 % of the emissions produced on average. Other emissions result from ground transportation and use of support equipment. Airport efficiency is highly variable at different destinations, thus many opportunities exist to improve operations. For example, the time taken to taxi in and out, take-off climb and subsequent descent and landing procedures contributes very differently to emissions. For example, on average (all flights globally) it is estimated that 6.5 kg of carbon is emitted per passenger during take off and landing, compared to 0.02 kg per passenger at cruising level. There appears significant emission and fuel burn savings by optimally assign aircraft amongst available altitudes. Calculations also suggest that current traffic flow is inefficient and rerouting may improve emission performance as well prevent conflicts (with other planes, weather and on ground). Even a 2 km reduction in average distance flown by planes could lead to over 200 million km of travel per year, resulting in over 2 million tones of carbon dioxide savings.

Major issues remain

Although mitigation measures via technology and traffic management promise continued improvement in the future, market-based solutions are also part of the solution. However, questions still remain as to who is really accountable for aircraft emissions? Is it fuel suppliers, aircraft operators, airport and navigation service providers, or the manufacturers? Or is the end user, i.e. travelers? Or – the tourism industry responsible for destination marketing?

Current market-based solutions to greenhouse gas emissions include taxes, carbon trading and voluntary reduction mechanisms, such as carbon compensation schemes. Environmental taxes are already part of tourism at several destinations in various forms and they are not generally popular with everyone. Since the early 1990s several European airports notably in Switzerland, France, Sweden, UK, Germany have implemented local air quality charges to respond to local air pollution problems.

Aviation fuel is currently exempt from taxes. Some transport research3 suggests that the potential impact of a carbon tax on international tourism would be small. Even if a very high global tax of $ 1000 per tone of carbon emitted were applied in the year 2010, it would not change travel behavior and only reduce carbon dioxide emissions from aviation by 0.8 %. Under such a scenario, tourist destinations on short haul flights may see a decline in international tourist numbers. Island destinations would be losers in general. Eastern and Central Europe and countries such as China and India would gain, while Western Europe, the Americas and Africa would lose. Modeling also suggests that a carbon tax on aviation fuel would affect medium distance flights least.

The ICAO conference also offered discussions about voluntary reduction mechanisms. There is a clear increase in carbon neutral travel and the carbon market is growing exponentially. However this raises new issue concerning the credibility and the effectiveness of carbon compensation mechanisms (the next topic to be covered by J.Priskin in a forthcoming Globeveilleur).

Where to next

The ICAO conference suggests the airline sector needs to be a part of post Kyoto (2012), thus it endorses development of an emission trading system for international civil aviation. Air transport is, and has been an enabler of economic growth and it is a catalyst for growth. ICAO believes that global problems need global solutions and we need a co-coordinated approach to problem solving. The airline industry also knows that it will take Promethean solutions to improve the sector’s environmental performance.

As global forecasts suggest a growth of international arrivals by air, averaging up to 5 % till 2015, the tourism industry cannot continue to hide behind its clean image because it is a part of the service sector. Nor can it conveniently stay focused on destinations, and ignore that travel to and from them is up to 90 % of environmental problems, such as contributions to greenhouse gas emissions.

The good news is that some segments of the tourism market are showing signs of willingness to pay, although attitudes are highly diverse (Figure 1). Last May, the Canadian Tourism Commission reported that nearly 70% of Canadians would be willing to pay an extra $ 10 or more for every $ 1000 they spend on air travel, if the funds collected were used to develop sustainable resources of energy (Figure 1)

Figure 1: Amount Canadians are willing to pay to offset carbon emissions when traveling by air

JP_2007-07_vol_avion_conf_grphq1

Source: Canadian Tourism Research Institute, The Conference board of Canada.

Notes:

1. International Civil Aviation Organization (ICAO) is a specialized agency of the United Nations created in 1944 by the Chicago Convention. It has 190 contracting States and one of its strategic objectives is to minimize the adverse effect of global civil aviation on the environment. ICAO has a Committee on Aviation Environmental Protection (CAEP), composed of public and private sector reps and NGOs representing the aviation industry.

2. At present emission standards exist for carbon monoxide, nitrous oxides, unburned hydrocarbons and smoke.

3.. This research was on international tourism only and also excluded business travel for data reliability purposes concerning international arrivals by air.

Sources:
– Canadian Tourism Commission (2007) Travelers Keen on Going Green. Tourism Intelligence Bulletin Issue 39, May 2007. – Canadian Tourism Research Institute, The Conference board of Canada, Vancouver. 5 pp.
– International Civil Aviation Organization 2007. Presentations and statements from the ICAO Colloquium on Aviation Emissions with Exhibition, held in Montreal Canada 14 – 16 May 2007. [http://www.icao.int/EnvClq/CLQ07/Documentation.htm]
– Intergovernmental Panel on Climate Change (1999) Special Report: Aviation and the global atmosphere. Summary for policy makers. Geneva. 23 pp.
– Tol, R. S. J. (2007) The impact of a carbon tax on international tourism. Transportation Research. Part D 12. p. 129-142.
– United States Environmental Protection Agency (2000) Aircraft Contrails Factsheet. EPA430-F-00-005. Washington DC. 6 pp.
– Weissman, A. (2007). Binge Flying, sinful travel and paranoia. [www. travelweekly.com] 21, 2007. 2 pp.

Catégories
Customer segments Products and activities

More to luxury travel than meets the eye

The transition from an emphasis on the tangible to a focus on the emotional is changing the face of luxury travel. Products are evolving to include uniqueness, eccentricity and exclusivity in the travel experience. In the luxury market, authenticity is key and providers have to keep things fresh.

Without doubt, today’s luxury consumers are increasingly diversified and their behaviour has changed over time. Travel industry insiders now talk about traditional luxury versus new luxury: the former is associated with five-star hotels, posh resorts and high prices, and the latter, while still expensive, is the anti-thesis of material consumption and the desire to possess costly objects. Focused on emotions and experience, it has more to do with the manner in which one consumes luxury items.

Luxury means…

  • a spacious hotel suite, a room with a view, a penthouse, a limousine
  • an upscale brand, a place where the staff knows your name

But it also means…

  • time, space, silence, privacy
  • an emotional experience
  • getting away from daily concerns and the complexity of the world at large to a place where everything is simple and easy
  • something original, out of the ordinary, and above all…
  • exclusivity!

A diversity of experiences, from the eccentric to the unique

A luxury traveller can rent a fifty-room castle in the Scottish Highlands for a family reunion or charter a fully crewed yacht for a honeymoon in the Mediterranean. He can practice an extreme sport and look forward to a butler and spa services at the end of the day. Interested in personal development, she can learn photography, sailing, join an archaeological dig or cook with a famous chef. Consumers are pushing the envelope in their quest for what is new and exclusive. Established standards are falling by the wayside; more and more, luxury clientele want to be where the action is and optimize the self-fulfilment aspect of their experience.

The upscale travel site www.thebluefish.com offers clients the chance to become a fighter pilot for a day (Top Gun Challenge), fly over the Himalayas and see the summit of Mt. Everest, take part in a high-performance boat race from Miami to Key Largo (Poker Run), take a private jet to an exclusive golf and safari experience in South Africa, and more.

Conversely, luxury travel can also cater to a completely different set of needs: relaxation, privacy, a focus on health, personal pampering and an opportunity to experience renewal. These other needs mean that companies operating in the luxury niche have to offer a wider variety of more sophisticated products – from spas to spiritualism and from mud wraps to meditation.

At the same time, there is the desire among luxury consumers for ownership – even partial – of something like a villa, yacht or condominium on board a cruise ship. There is also the « small is beautiful » concept, where guests seek the privacy of a residence club or the ambience of a small hotel to fulfil their desire for intimacy.

Many destinations that are still considered exotic, such as South America (with Brazil at the top of the list), the Baltic states, Africa, China, the Middle East, Asia and the Pacific Rim, are attracting new customers, while established urban and resort destinations (London, Paris, Tuscany and the Côte d’Azur) are holding their own.

Soul and style now the signature of the hotel industry

Prestigious institutions in the world of luxury accommodation have recently created chains. For example, the Crillon luxury banner has the celebrated Hotel de Crillon in Paris as its flagship, while the Waldorf-Astoria has given rise to the new Waldorf-Astoria Collection. Another new chain, Capella Hotels & Resorts, has been launched under the direction of Horst Schulze, the man behind the recent success of the Ritz-Carlton.

For the past several years, celebrated architects and icons from the world of fashion and design have been developing hotels stamped with their signature style (there are hotels named Armani, Bulgari and Versace, and each of the 11 floors of the Hotel Puerta America in Madrid was designed by a famous architect). Bathrooms are getting bigger and more lavish. Many hotels are taking on local accents by using materials and décor that reflect the culture of the host country.

Customized and « tailor-made » solutions are now the order of the day. The size of a hotel is becoming a distinguishing factor because it is still quite difficult to deliver quality, personalized service in an establishment with over one hundred rooms. Long-established luxury hotels must shake off the dust if they want to attract Gen Xers (25-40 year-olds), a growing customer segment. In fact, the reputations and austerity of such hotels tend to intimidate these young consumers who are looking for a more modern image and the ease afforded by high-tech amenities.

Spa products very popular

Neil Jacobs, senior vice president-operations, Asia-Pacific, for Four Seasons Hotels, stresses that spas are now a given, just like restaurants and meeting space. Spas have become a deciding factor when selecting a place to stay. Although still in their infancy, destination spas are experiencing tremendous growth. Spas come in various forms: eco-spas, thalassotherapy spas, medi-spas, urban spas and ayurvedic spas (employing traditional Indian folk medicine), to name a few. The privacy afforded by spas, the service focus of these resorts, experienced therapists, authenticity, elegance, refinement and excellent cuisine (famous chefs) are all elements of a luxury experience.

Airline services taking off in all directions

The inconveniences of air travel (crowded airports, restrictive security measures, waiting times, deteriorating service, delays, etc.) discourage most passengers. To avoid these problems, to make every minute count, and to enjoy point-to-point travel with no transfers, many wealthy travellers are turning to various alternatives.

Air taxi services are becoming more common (e.g. Boston-Newark), offering competitive fares and reducing the delays associated with traditional airlines. A helicopter service (US Helicopter) now takes passengers between downtown Manhattan and Kennedy Airport in only eight minutes for US$160.

Rental, charter, co-ownership and ownership of jets are just some of the other options explored by wealthy customers. Growing demand has made the process easier and chartering a jet is becoming as easy as renting a car. The very latest service innovation is the membership card (which requires a large deposit) that enables the holder to subscribe for prepaid charter time at a lower hourly rate.

The new A380 airplane is redefining the notion of luxury service. Its interior can be configured to offer a bar, office, casino, gym, lounge, private sleeping area, open area so passengers can stretch their legs and, the height of luxury, showers! However, water for showers remains problematic because of the weight.

If you are in the business of luxury, it’s got to be real!

In this market segment, the « best » is standard. Although high prices remain a given, they are not the only mark of a luxury product. A number of words contribute to the perception of value: exclusivity, reputation, brand integrity, experience. The « take-care-of-me » attitude of this clientele, the desire for personalization and recognition of one’s standing all require flawless service and flexibility. Moreover, a personal butler for each guest is becoming the norm in the highest luxury bracket.

Although the luxury travel industry is booming, it is worth noting that the life cycle of a luxury product is relatively short and the concept of quality is no longer so narrowly defined. Company executives are feeling market pressure to create more diversified, authentic and unique experiences. Companies must constantly: refresh their products and embrace innovative concepts; update their products to keep them timely, modern and current; adapt products for every customer so that clients enjoy a personalized experience; and recruit exceptional staff who can deliver on the experience.

However, there is an industry trend towards one-upmanship that should be avoided. Is it necessary to offer a choice of 18 different pillows in every room? Does bottled water have to be served by a sommelier? Should customers be able to select from among 12 different pens simply to sign a restaurant bill? If a company is known for impeccable quality, customers should have total trust in the brand.

As clients in this sector become increasingly demanding, customer relations management is key to building loyalty. For this reason, providers must emphasize service quality, attention to detail (like a hand-written note) and extend their efforts both before and after the customer’s stay.

Sources:
– HotelMarketing.com. « Survey: 2006 Consumer Trends in Affluence & Luxury, » June 23, 2006.
– Smith Travel Research. « Experts Discuss Future Of Luxury Travel, » June 26, 2006.
– Travel Weekly, special issue « 2006 Consumer Trends in Affluence & Luxury, June 14, 2006:
– Chipkin, Harvey. « Hotels Indulge the ‘Give Me More’ Generation. »
– Chipkin, Harvey. « Spa-centric Hotels Part of an Evolving Trend. »
– Gebhart, Fred. « Private Jet Travel Taking Off in All Directions. »
– McDonald, Michele. « Airbus’ A380 To Send Luxury Transport Soaring. »
– Weiner Escalera, Karen. « Luxury Travel Now… And What’s Next, » [Hotel-Online.com], October 2005.
– Weiner Escalera, Karen. « Luxury Travel Now And What’s Next for 2006, » [Hotel-Online.com], March 2006.
– Weiner Escalera, Karen. « Luxury Travel Now And What’s Next III, » Smith Travel Research, May 2006.

Catégories
Trends

What’s coming in 2006?

Each new year brings with it a new batch of forecasts and predictions on a variety of topics. From new technologies, to the hotel sector, to the latest hot destinations, here are some things to watch in the coming year.

Leisure travel

In 2006, leisure travel will continue to drive tourism growth. According to some US experts, rest and relaxation motivate more than half of all leisure travellers. Destinations like spa resorts and those offering a stress-free atmosphere look the most promising. A recent Tripadvisor.com survey showed that 50% of the 3000 respondents planned to take a spa vacation in the next year. With short stays still in vogue, the challenge facing the industry is to offer the most relaxation within the shortest amount of time.

Visits to national parks will rise, while attendance at amusement parks will drop. The cruise industry should continue its upward climb and enjoy an excellent year, notably due to the launch of new boats and the growing popularity of this product among families. Timeshares on cruise ships have been identified as a promising new trend in the coming years.

Cities that emphasize fun and a wide variety of activities within a small area – ideally within walking distance – are likely to attract more travellers. And, finally, the increased demand for leisure travel has led experts to encourage consumers to reserve early to ensure that what they want is available at the desired time.

Business travel

North American business travel will enjoy a good year with projected growth of 5% in 2006, compared to the 4% recorded in 2005. This increase will be driven primarily by the meetings and conventions sector. However, for their daily corporate needs, business people continue to seek alternatives to having to travel for business.

Recent forecasts from Meeting Professionals International (MPI) confirm a 7% increase in meeting expenditures and the number of events for next year. This forecast is based primarily on national markets, because American and European organizers do not expect more events to be held at international destinations. In Canada, the number of visitors attending American conventions should remain stable.

Good news for suppliers: MPI anticipates that convention lead times will begin to increase. In 2006, it is estimated that lead times will grow by nearly 40%, translating into an additional two or three months between the invitation to tender and the event date.

Hotels

In North America, increased demand and slow growth in supply means average room rates should continue to rise in 2006. The upscale and luxury sectors in particular should benefit from this situation. Furthermore, in 2006, the hotel industry, like all travel and tourism sectors, will face the dual challenge of staff shortages and human resource management. According to a recent US study, 25% of hotel industry employees are dissatisfied with their jobs and 32% of these people would like to find a new job in the next year. The year 2006 is also likely to be challenging for hotel owners in major US cities because many collective agreements are up for renewal.

Transportation

Pressures on the North American airline industry will persist as discount carriers continue to invade the traditional routes of the major airlines. In this competitive environment, ticket prices will remain low, but an expected increase in fuel prices (combined with fewer available seats) should nudge average prices higher among regular carriers. There will also be an increase in the number of pay-per-use in-flight services (pillows, blankets, meals, snacks, etc.).

As for airports, we should see an increase in the services offered to travellers. The addition of shops, restaurants, gyms, beauty salons and professional services are some of the tactics being adopted by airport managers to diversify revenue sources and improve the customer experience.

In 2006, the Airbus A-380 will begin commercial flights. The world?s largest passenger jet, the two-storey airplane will be the first to offer on-board areas for socializing.

In the United States, train travel will grow in 2006. Improved services and schedules, and especially the opportunity to transform travel from a utilitarian role into an experience unto itself, have piqued consumer interest in this service, especially among Generation X travellers.

Technology

Travellers, both business and leisure, are increasingly demanding the opportunity to « plug in » anywhere and any time. Hotels, resorts, convention centres, airports and various types of public transit will intensify their efforts to provide high-speed internet access (for free, if possible!). Sometime in the year 2006, US airlines will begin offering wireless in-flight internet access.

Increased internet use by consumers continues to revolutionize the marketing and distribution of travel products and services. In 2006, the number of online transactions will continue its strong growth. The firm PhoCusWright predicts that by the year 2007, 40% of all travel-related purchases in the United States will take place online.

Furthermore, tourism now constitutes a growing presence on major search engines (Google and Yahoo) and general online shopping sites (Pricegrabber). With more comparison tools now available, the resulting price transparency is forcing suppliers to work even harder on their brands, since the consumer?s perception of value is a combination of price and supplier image.

Tourism marketing should attach greater importance to the internet. It is expected that the concepts of « best price guaranteed », dynamic packaging and search engine positioning (pay-per-inclusion) will grow in popularity. Experts are also pointing to the growing popularity of internet-related media like blogs and instant messaging. Individuals will have a fast and growing influence on the commercial success of products and services.

Destinations

At this point in the year, China is still the destination that excites the most interest and curiosity. According to guidebook publisher Lonely Planet, this country heads the list of hot destinations, followed by Mali, Brazil, Iceland and Serbia & Montenegro. As for destinations offering exceptional value, the publisher puts Argentina at the top, followed by New Zealand, Morocco, India and Mexico.

In Europe, according to American Express, Great Britain, France and Italy remain the most popular destinations for Americans. However, Eastern Europe continues to attract a lot of interest, particularly the countries on the Adriatic Riviera (Croatia, Slovenia, Montenegro), which are a less expensive alternative.

Sources:
– Armstrong, David. « Travel, Tourism Bouncing Back – Conventions and Visitors Returning, but Room Rates and Airfares Are Going Up, » San Francisco Chronicle, January 8, 2006, p. J1.
– Cruise Lines International Association. « Cruise Industry Trends for 2006, » [Traveldailynews.com], January 16, 2006.
– Grossman, David. « What’s in Store for Business Travelers in 2006? » USA Today, January 9, 2006.
– Harpaz, Beth J. « 2006 Hot Spots Include Colorado, China & Croatia, » Associated Press, [CNN.com], December 29, 2005.
– Jones, Steve. « Steady Growth Forecast for Business Travel, » [Travelmole.com], January 3, 2006.
– Meeting Professionals International. « Meetings Industry to Grow in 2006, » [4hoteliers.com], January 11, 2006.
– Randall, Judy. « Top Travel Trends for 2006, » The Charlotte Observer, December 25, 2005.
– Sloan, Gene. « China, the New Croatia? » USA Today, January 5, 2006.
– Westenberg, Kerri. « Travel Trends: Where it’s at in 2006, » [StarTribune.com], January 2, 2006.
– Yesawich, Pepperdine, Brown & Russell. « Ten Trends to Watch in the Year Ahead, » [ehotelier.com], December 30, 2005.

Catégories
etourism and technology Trends

Why purchase online?

A 2005 tourism management study sheds light on the purchasing habits of North American Web users with respect to tourism products. The two primary factors motivating them to conclude online transactions are the quality and accuracy of on-site information and a simple reservation process.

Study context

The main reason consumers have overwhelmingly adopted the Internet is that it enables them to shop 24/7 in the comfort of their home. However, there are a number of factors that differentiate Web user purchasing habits. For instance, those who purchase travel products online are influenced by the complexity of the product. Other important considerations include the ability to compare prices, discounts and a user-friendly interface.

With that in mind, experts have studied the relationship between the purchaser’s motivation to buy and the complexity of online travel products. Since Web expertise plays a significant role in this, consumers have been divided into expert users and novice users. The study aimed to prove that ease of navigation was the primary reason for variations in purchase decisions between online products.

Airline tickets, accommodation and car rentals are considered relatively simple travel products. All-inclusive trips, cruises and tours constitute more complex products.

In an attempt to simplify navigation, many sites have become « content aggregators » that offer one-stop shopping. This strategy has been extremely successful for such agencies as Travelocity and Expedia. Dynamic packaging, whereby Web users create their own package while retaining a certain degree of flexibility, have added a new twist to the tourism landscape.

Motivating factors for Web users

The study examined the top six factors that motivate consumers to make online purchases (see Tables 1 and 2). The factors are as follows:

  1. The opportunity to earn points through a customer loyalty program. Some sites have even set up a special page for members to track their reward points (marriottrewards.com, for example).
  2. The availability of the desired product.
  3. Clear, detailed information that enables the user to make an informed decision.
  4. A simple reservation process is a key factor in the online purchase decision. Especially in the case of more complex travel products, customers must be able to find the information they need to make a decision.
  5. The reputation of the company or site’s banner, as this reassures the purchaser and may positively influence the outcome of the transaction. 
  6. Consumers are more sensitive to the price of online products than they are to conventionally purchased products. This is partly due to aggressive advertising campaigns that have gradually led consumers to expect discount products.


 
 


 

The experts used data from a Canadian Tourism Commission study conducted in November 2001 that surveyed 1,161 Canadians and 1,145 Americans. Although Web user behaviour has admittedly changed since then, the study’s findings nevertheless constitute a valid basis for comparing and understanding travellers’ online purchasing habits, based on their experience with the Web and the type of product in question.

Behaviour varies according to sector

A user-friendly interface is a key factor in the decision to buy any kind of online travel product, regardless of the amount of Web user experience, leading experts to conclude that consumers want a simple reservation process. Competitive prices play a greater role in the purchase of less complex products, such as airline tickets, packages or car rental.

The quality and accuracy of the site’s information was a deciding factor for travellers looking for activities, events, tours, attractions and accommodation. Company reputation was less important to those making « simple » transactions -such as renting a car- compared to those purchasing more complex products. Finally, customer loyalty programs constitute a greater draw for expert users and mainly affect purchases of airline tickets, car rental and attractions.

Sources:
– Beldona, Srikanth, Alastair M. Morrison and Joseph O’Leary, « Online shopping motivations and pleasure travel products: a correspondence analysis, » Tourism Management, No. 26, 2005.
– Ham, Sunny, « The Use of the Internet for Hospitality and Travel-related Activities, » e-Review of Tourism Research (eRTR) [ertr.tamu.edu], vol. 2, No. 6, 2004.

Catégories
Trends

Commentary from Michael Nowlis on the tourism trends in 2006

François Chevrier's article concerning tourism trends in 2006 summarizes the broad expectations of many analysts in the North American market. As it is difficult to address the multitudinous industry developments in such a brief piece, I am pleased to suggest a few international trends to complement his list.

Gen Y hybrid consumers will use price transparency provided by the Internet and the euro to combine five-star hotel accommodations with low-cost flights, both reserved at discount travel sites. Although practitioners of conspicuous consumption, the Millennial Group sees no contradiction in following a 5-minute lunch at McDonald's with a 5-hour dinner chez Ducasse. New concepts of value for money will result in consumers mixing and matching products to satisfy their desire of the moment.

Merger and acquisition activity in the hotel sector will continue at a torrid pace. Starwood's recent purchases of Meridien and Société du Louvre, the Fairmont-Raffles merger and the reunification of Hilton are precursors of the rapid consolidation ahead.

Multi-brand lodging companies will further capitalize on the reputations of their flagship properties to create upscale product groups using brands such as St. Regis, Waldorf-Astoria and Crillon. These super-luxury properties will justify stratospheric rates by offering enhanced amenities and employing database technology to introduce new standards of service excellence.

As budget airlines emerge in new geographic regions, they will expose the long-ignored fact that air transport is a commodity where low-cost leaders are most profitable. Investors who shied away from traditional carriers will find confidence in these new airlines as manifested by Ryanair's ranking of maintaining the second highest market capitalization of European airlines (behind Air France-KLM).

While travelers become increasingly accustomed to living in an unsafe world, security will play a significant role in selecting leisure destinations. Disease, crime, air safety and terrorism will become important criteria for holidaymakers planning trips abroad.

While Mr. Chevrier provides a broad optimistic forecast for North America, other destinations will manifest greater variations in demand. In Europe, the United Kingdom, Austria and the Netherlands will see increasing growth in their business and leisure markets while Poland, Germany and Sweden will struggle to fill hotel rooms and tourist facilities. François Chevrier cites the growing attraction of China and India but Asian tourism markets such as Indonesia, Sri Lanka and Nepal will suffer from political instability.

In 2006, analysts, scholars and industry leaders will discover the meaning of Albert Einstein's observation that « The only constant in the universe is change ».

Catégories
Transportation

Simplified pricing in the airline industry

In an article in USA Today, Joe Brancatelli urges the «Big Six» in the US (American, Continental, Delta, Northwest, United and US Airways) to simplify their fare structure as a way to resolve their financial woes. Railing against their stubborn refusal to change their archaic pricing structure, he cites the example of Ireland’s Aer Lingus and its successful move to simplified pricing. All of this leads us to wonder how Air Canada’s new fare strategy will turn out.

Business-travel expert Joe Brancatelli has worked for various industry magazines (Frequent Flyer, Travel Holiday, Travel+Leisure) and now publishes his own website and writes columns and articles for a number of major US publications. In the USA Today article mentioned above, Brancatelli emphasizes that airlines like Southwest, JetBlue and America West have understood the benefits of simplified fare structures. As he explains, the model adopted by Aer Lingus is an example of the new practices taking root in the airline industry.

Keep it simple! 

Aer Lingus has adopted a strategy to simplify pricing and reduce fares on its trans-Atlantic flights. The airline now only sells one-way tickets, thus freeing customers from the need to buy a round-trip ticket they do not need, simply to qualify for a better fare. Minimum-stay restrictions are also a thing of the past.

 

The economy-class fare is capped at US$503 for the five destinations the airline serves in the US. Consumer response to this initiative has been very positive and traffic has increased by double digits on the Los Angeles route. With no other carrier trying to match the airline’s fares to Ireland or Europe via its Dublin hub, the difference in ticket price is sometimes quite dramatic: one Aer Lingus fare is between $300 and $400, while the same route with the closest competitor is priced at more than $1000.

 

The company is seeing the same positive reaction to its business-class fares, which have been cut by up to 60%. Whereas the section used to often be only half full, there are now waiting lists for certain flights. Some firms have even changed their travel policy to allow employees to fly business class.

 

Under the old pricing structure, a one-way fare could range from $100 to over $800, a spread that customers resented. Now that the price is capped
at $500, consumers find the difference between the lowest and highest fare more acceptable. Jack Foley, executive vice president of Aer Lingus, explains that the old way of doing things set up a price war among the airlines, with each company looking to match the competition. Under the new system, Aer Lingus responds directly to the market, not to other airlines. So far, consumer reaction to the fares indicates that simplification is a good strategy.

 

Although it might be hard to believe, the move has also reduced operating costs. To explain this, Jack Foley raises the following points:

  • Do you know how many return seats go out empty because we used to force people to buy roundtrips to get the lower fares?

  • Do you know how much money we spent doing corporate contracts with the old, complicated pricing?

  • Furthermore, it is costly to migrate complicated systems to more advanced platforms or to support archaic systems just to maintain complicated pricing.

 

What about Air Canada?

As part of its recovery plan, Air Canada has announced a simplified fare structure. In light of new market realities, officials explain that complicated pricing is too expensive to maintain and hinders the company’s competitiveness. Like Aer Lingus, the airline no longer requires a round-trip purchase or a Saturday-night stay. In the interests of transparency, the airline hopes displaying all fares (an example is illustrated below) will inspire trust among consumers and enable travellers to make a more informed choice.

MLa_simplification_tarifaire

 

However, when the Executive Class fare ($1495) is more than eight times the Tango fare ($179), one starts to wonder how much «added value» Business Class can offer.
It remains to be seen whether the strategy will be successful for Air Canada.

 

Sources:

– Brancatelli, Joe. « If they fix it, we will fly, » USA Today, October 31, 2004

– Woodyard, Chris. « Low fares go trans-Atlantic with Aer Lingus flight plans, » USA Today, September 27,

2004.