Is the Australian outbound travel industry at a tipping point? Mounting evidence suggests this could be the case. While many operators are still talking it up, others are clearly struggling to shift product.
The first clue came in early May when both Qantas and Virgin Australia said they were cutting back on capacity.
Their yields were hurting and they couldn’t fill seats.
Yet another Federal Election campaign was impacting consumer confidence, they said.
Demand began softening just before Easter, which came very early this year, not helping matters at all.
This news followed a recent conversation with boss of a major river cruise company I last spoke with in early 2014 when business was at an all-time high with record sales and yields.
How times have changed.
It’s now what he called a “tough market” with capacity up by more than 35%, while travel patterns changing.
Similar issues are confronting ocean cruising, which has been swamped by capacity in recent times, a trend that shows no sign of abating.
Royal Caribbean for example will increase its local capacity by 20% for the 16/17 season, with seven ships in the region – five Royal Caribbean, one Celebrity Cruises and one Azamara Club Cruises.
Its vessels are also bigger and staying longer.
Industry insiders say RCL is having trouble selling the extra cabins but the company denies this.
Meanwhile, there were eyebrows raised when Carnival Cruise Lines announced it’s pulling the Carnival Spirit out of the Australasian market for winter 2018.
This will the first time Carnival will not have a ship in the Australasian market year-round.
Editor of Travel Daily, Bruce Piper, says there’s no doubt the Australian travel industry is going through a quiet period.
“A plethora of high season not-so-early earlybird offers, tactical deals and creatively packaged product is evidence of a soft market,” he said.
“Even the seemingly unstoppable Flight Centre cited a ‘challenging trading climate that has impacted short-term results’ at an investor conference in May.
“Industry observers have noted a change in Flight Centre’s rhetoric, with the company for the first time in memory saying its targeted net profit growth of 4-8% was ‘not a formality’ due to uncertain trading conditions and investments made to drive longer-term returns.”
Meanwhile, Webjet went on the front foot today, acknowledging that while “there has been various commentary on the trading conditions in the travel industry” its online business is strong with continued booking growth and market share gains.
The news sent its shares up almost 10% and resulted in a 6% bounce in Flight Centre’s stock, in a funny way confirming how skittish the market currently is.
So has the travel industry reached a tipping point? Hard to say for sure but certainly the dynamic has changed.