The economic slump has hit business travel badly and the threat of a global pandemic has added further pressure to the fortunes of the global airlines and potentially for the conferences which are permanent fixtures in the international re/insurance calendar.
While there are many who will say insurance and reinsurance is not the most exciting of roles, the global nature of the industry and the risks it covers has traditionally required brokers and underwriters travel the world. The global recession has hit economies hard and as cash becomes tight firms are revising their budgets and that includes travel spend.
The facts show that businesses are looking for cheaper options to get face to face with clients and it has been highlighted by the a rise in the investment in video conference technology.
The Guild of Travel Management Companies (GTMC) has released figures which showed that in the first quarter 2009 there was a 6% overall reduction in activity, compared to the first three months of 2008. It comes as no surprise that the biggest fall was in air travel which fell by 17% in terms of transaction numbers. GTMC Chief Executive Philip Carlisle described the fall in aviation transactions as “worrying but predictable”
The International Air Transport Association (IATA) released its data for scheduled international traffic activity for March and reported an 11.1% fall year on year for the month.
Airlines cut international passenger capacity by 4.4% resulting in an average load factor of 72.1%. This is 5.4 percentage points below the average load factor recorded in March 2008. Freight demand was relatively stable at -21.4% compared to March 2008.
“The global economic crisis continues to reduce demand for international air travel,” said Giovanni Bisignani, IATA’s Director General and CEO. IATA estimates that international revenues in March will be impacted with a decline of up to 20%.
He added: “Airlines cannot adjust capacity to match demand. Load factors have dipped sharply from last year. All of this is hitting revenues hard.”
“The only glimmer of hope is that cargo demand has stabilised this month although at the shockingly low level of -21.4%,” said Mr Bisignani. “Like the rest of the economy, recovery in the air transport sector rests on a rise in consumer confidence and consumer spending. Shedding debt will be a major headwind. US households, for example, are leveraged at 130% of annual income. Even bringing this down by 5% erases $500 billion in consumer spending. The challenge for governments is to turn stimulus funds into spending that fuels trade.”
In terms of the passenger airline figures regionally only the Middle East saw a sizable increase in volumes.
Carriers in Asia Pacific continued to lead the decline with a 14.5% fall in passenger demand, outstripping a 9.3% downward adjustment in capacity. The region is particularly impacted by the fall-off in long-haul travel, which is contracting faster than short-haul.
North American carriers saw a decline in international passenger demand of 13.4% as travel was further discouraged by US unemployment reaching 8.5% in March and consumer confidence remaining weak.
In Europe airlines saw their international demand fall by 11.6% where confidence has been dented by unemployment in key markets such as Germany and Spain increased to 8.6% and 17.4% respectively.
Middle Eastern carriers were the only ones to experience growth in March (4.7%). This is an improvement from the 0.4% growth in February, and represented an expansion of market share. But this was out of balance with the 13.1% increase in capacity.
The slump in business class travel bookings has continued and there are major airlines such as Qantas and Singapore Airlines which are reviewing the numbers of business class seats which they will offer going forwards.
If things were looking grim for travel the advent of Swine Flu and the potential for a pandemic has also seen a significant revision of business travel.
Already major international firms such as Honda have looked to put ma stop on employee travel while other major names such as Adidas, Nokia, and Reinsurance giant Swiss Re have said they are to place restrictions on staff travel as the threat of a pandemic continues.
The insurance market’s year is marked with a range of major international conferences and should the threat of a pandemic become a reality what will the approach be for the industry in terms of attendance?
IATA has said it is concerned over the spread of Swine Influenza and its potential to have a significant impact on traffic levels.
“Safety, as always, is our number one priority,” said Mr Bisignani. “IATA is working in close cooperation with the World Health Organization to ensure an efficient response of the air transport industry to the challenges that Swine Influenza will present.
“It is still too early to judge what the impact of Swine Flu will have on the bottom line. But it is sure that anything that shakes the confidence of passengers has a negative impact on the business. And the timing could not be worse given all of the other economic problems airlines are facing.”
Global Broker & Underwriter will be conducting a survey for its next issue in an effort to find out how the re/insurance industry’s leading firms have altered their travel policies in the light of the new economic reality
