Travel industry counts cost of Iraq war

The human cost of the Iraq conflict goes without saying, but BA’s summer strategy reveals how hard global trade is being hit.

Given the scale of the horror into which the Iraq conflict has descended, it is perhaps distasteful and vulgar to count the cost of Tony Blair’s unswerving support for the American adventure in anything other than human lives. But those extremist Islamicists who are at war with the US won’t see it that way – the cost in human lives is incidental for them compared to the damage that can be inflicted on the US and its allies in terms of their ability to do business around the world.

In this context, it is surely appropriate to consider how well, or otherwise, the travel industry is facing up to the summer season. By September, we will know just how much transatlantic tourist traffic has been affected by the collapse in confidence in the coalition’s Middle East policy. Such prosaic business data will be a far more accurate indicator of the success or failure of the Iraq military escapade than any amount of liberation rhetoric – and America’s enemies will know that.

If that is a prospect for September, then it has implications for actions taken before then and for events immediately afterwards too. Airlines and travel operators will pay close attention to the scheduled transfer of administration to domestic authorities in Iraq next month – a cack-handed handover and consequent increase in insurgence will see travel bookings fall off a cliff. And while the commercial cost is counted in September, the political cost may be counted by George W Bush’s New-Cons in the November presidential election.

So travel industry indices over coming months command a huge significance. Early indications are that the major players are extremely concerned about the prospects of an emerging bunker mentality in Western markets. In this way, international commerce is heralding the political uncertainties of the autumn.

One such indicator is to be found in how our national, flag-carrier airline is behaving. British Airways has this week let it be known that it is extending the airline price war into long-haul routes, with a summer campaign that will see ticket prices plummet by as much as 42 per cent. To date, the price battle has been confined to European routes, the declared cause being the competition from no-frills, low-cost airlines such as easyJet and Ryanair. A long-haul price war shows that this is about something more fundamental to the industry than its internal, competitive dynamics – BA is clearly bracing itself for a collapse in long-haul trade as a consequence of the growing conflagration in the Middle East and the implications for that in transatlantic confidence.

The scale of this price war is unprecedented. It speaks volumes that BA is effectively bribing passengers to fly to and from the US during the summer. The official line is that BA is keen to maintain bookings in its high-margin, premium seats during July and August, when business travel traditionally falls away. But the economies of business travel normally take account of the slack summer period in any event – that’s why we pay so much for business-class seats at other times of the year. And note that these prime, transatlantic routes have in any case recovered significantly since they emptied in the wake of 9/11 and the war in Iraq last year. BA is anticipating a fresh collapse, rather than protecting its share in a competitive market.

The BA long-haul price war is, nevertheless, presented as a healthy symptom of a re-invigorated market. Similarly, the US hotels sector is said to be picking up, after its slump post-2001. Starwood Hotels, the group put together in 1998 by Barry Sternlicht, which combines the Sheraton, Westin and W brands, has reported joyfully that it has enjoyed six consecutive quarters of positive “revpar”, as they call it in the hotel trade – that’s “revenue per available room”, a key industry indicator.

This is undoubtedly good news, but it relates specifically to the market within the US. While Hilton Group, which operates the brand outside the US, also reported revpar increases across Europe, the Asia-Pacific region and, extraordinarily, in the Middle East, European hoteliers are altogether more cautious about prospects for short-term growth than those operating in the domestic US market. Hilton and others are reserving judgment, like the airlines, until after the critical summer months of this year. Similar to the business-class trade that BA is chasing, it’s the business block-bookings that the hotels want – that market is expected to dry up, as ever, in the summer, but the worry is whether it will come back in the autumn.

The prospects for a successful resolution to the Iraq crisis are usually framed in political and diplomatic terms. But the prospects for international trade, as indicated by commercial travel, are telling their own, more revealing tale.

George Pitcher is a partner at communications management consultancy Luther Pendragon


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