Op-Ed: Financial Crisis Incubating A New Corporate Travel World
We have been through trying economic times before, but this looks like it is going to be a bad one. Every day brings more bad news. The 24-hour news shows seem to relish each gloomy announcement. The dimensions of the causes of the downturn are unknown and the unknown can be scary. How many more people will lose their jobs? How long is this recession going to last?
The airlines seem particularly vulnerable. At this time last year, the industry was reeling from the run-up on the cost of oil. After oil peaked at $147 a barrel, the market collapsed. Today, oil is trading at one-third of its high. Is today's low-cost oil a silver lining for the airlines? Hardly. Fearing oil at $200 a barrel, many airlines gambled on fuel hedges. Evidence of these lost bets is visible in airline fourth-quarter financial reports. It's a crapshoot. Even the best-managed airlines can be losers.
When the recession first took hold, leisure sales declined. Airlines cut service to leisure destinations and reduced schedules. Now, as companies scale back activities, corporate bookings—the bulwark of the industry—are declining. Airlines have weathered other recessions and the surge in oil prices, but this rivals any crisis that preceded it. Unlike past recessions, the airlines entered this downturn in financial distress.
The industry's response to the 1990s recession was downsizing. At the end of the recession, the airlines were leaner and more competitive. Despite the collapse of the Internet bubble in 2000, the Internet prospered and became integral to our industry. These recessions had the effect of pruning dead wood and making business more efficient. In contrast, this recession shares more in common with the dark days following 9/11. After 9/11, we were never the same. How we travel and think about security today could not have been imagined before that day.
Likewise, after this recession, we will not be the same. The hollowing out of the financial markets means that less capital will be available for business. We will be leaner as we move forward, but closer to the edge. Offshore companies will be on a more equal footing with their American counterparts. We cannot assume that we will enjoy the advantages of financial resources or even first-rate infrastructure. Flying a Middle Eastern airline gives us an idea of the competition to come: new equipment, motivated staff and enviable service.
Another unique characteristic of this recession is its global span. Offshore markets will become increasingly important as companies compete for energy sources, sell services and products, and seek out countries for low-cost manufacturing. Airline alliances that enable travelers to reach distant destinations, worldwide hotel chains and car companies and global information systems will not be a convenience, but a competitive necessity.
Will we respond to the emerging reality as a threat or an opportunity? This time, senior management in all sectors of our industry need to carefully consider their responses. The employee they lay off today will be the person who will not be flying, renting a car or staying in a hotel tomorrow. We cannot move the ship forward if we are firing men and women at the oars of business. We will serve our interests best if we protect the jobs of our employees and use this time to prepare them for a competitive global future.
The new world looming in front of us will be competitive, smart, energy-efficient and, most of all, global. Rather than thinking of this recession as a crisis, it may be more useful to think of it as an incubation period. It is a time to enhance our products, raise our services to world-class standards, equip our employees for new competitive realities and collaborate with our customers as they too prepare for this new world. It is also a time to educate government officials to make regulatory approvals so necessary for our industry to compete in the new world.
While business travel was the last sector to enter the recession, corporate sales will be one of the first sectors to recover as business spins back up. When the winds of this recession shift, rather than living in a world left behind, let's be prepared for the new.