Cape Town - Global economic performance has been down across the board for the better part of 2016, with Brexit adding in a few curve balls into the mix.
The International Monetary Fund forecast shows that only 3.2% global economic growth can be expect this year. According to the 2017 Global Travel Price Outlook compiled by the Global Business Travel Association and Carlson Wagonlit Travel, SA airfares are expected to increase by 4,4% compared with a global increase of only 2,5%.
(2017 Global Travel Price Outlook)
As we already know air connectivity is a major factor when it comes to economic growth. Conversely the index shows that other African countries are expected to make decreases in airline prices, with Kenya expected to see a 5,8% drop and Nigeria a 6% decrease. South Africans have been enjoying low-priced airfares for the last couple of years fuelled by the competition of the low-cost market - however come April things are expected to change. While the industry has seen a 13-year-low in oil prices, it would be easy to assume that airlines have been buoyed by this but the weak rand/$ exchange rate hasn’t helped the situation, since not only does it regulate the purchasing price of oil but it affects other costs related to the airline industry such as the buying or leasing of their aircraft.
Sue Garrett, Flight Centre's GM of Marketing and Product says, "Whilst an increase of any nature is very hard to absorb, we have to be conscious of the fact that carriers need to demonstrate profitability of a route in order to keep the route active. We have seen airfares drop to all-time lows, in fact an average economy (tactical) fare has not attracted much of an increase over the past 4 years, whilst the average cost of transacting business has seen an increase due to fuel, wages and a declining Rand.
"In order to secure seats for sale from South Africa, fares have to be at a level that gives comfort to the profitability of the route otherwise seats will be blocked out from South Africa and sold from other points of sale for inbound passengers only. It is a supply and demand game and we need to ensure pricing is set at levels that is affordable for the South African traveller, but at a level that keeps the supply open for sale from South Africa."
The Index shows that airline competition remains intense in Western Europe with both major and low-cost carriers fighting for the same market share and continuing to keep airfares nearly flat. German airlines Lufthansa and Air Berlin are fighting to preserve their home country market share while Eurowings, a low-cost option, aggressively pursues its target of 20% of Germany’s aviation market.
"Undoubtedly, as major exporters of crude oil, markets in the Middle East & Africa are highly impacted by the oil industry’s current low pricing. Accordingly, corporate travel to and from the region has slowed for Middle Eastern carriers, leaving significant excess capacity for these airlines and also impacting fare levels. Longer term, travel may become relatively more restrictive to and from the UK without the benefits of EU inter-country travel."
(2017 Global Travel Price Outlook)
'Always a good deal to be found'
On the back of this Andrew Shelton, Managing Director of Cheapflights says, “The Global Travel Price Report includes useful insight but it’s hard to make longer term predictions like this with any degree of accuracy. Air travel costs are always susceptible to a huge amount of variables – from the geo-political influences like Brexit, to increased competition on a certain route.
"Travellers should browse price comparison sites such as Cheapflights to keep on top of the best or smartest deals as regardless of the macro shifts, there will always be good deals to be found.
"Whether flights increase or not, there are always some travel hacks to know, suggests Shelton.
"Try not to book less than three days before travel as airfares tend to be at their most expensive
Airfares on Friday are consistently the most expensive day to travel, so if possible, try to avoid booking to fly on this day. Delete your browser history because prices can increase based on the number of times you re-enter a particular website. Our data shows that the cheapest day to book is generally on a Tuesday, about 50 days ahead of departure,"says Shelton.
'Mega hotel mergers'
The Index says Mega hotel mergers are grabbing headlines. In December 2015, Paris-based Accor purchased luxury giant FRHI Hotels & Resorts, parent of Fairmont, Raffles, Swissôtel, for just under $3 billion. Just one month prior, Marriott announced its acquisition of Starwood for more than $12 billion. These moves are widely seen as an attempt by hotel chains to fight back against new competitors such as Airbnb and may prompt even more industry consolidation. Benefits of the combined entities may include loyalty programs, direct bookings and more. In addition, China’s HNA Group announced it would acquire closely held Carlson Hotels Inc. The purchase includes the Radisson and Country Inns & Suites chains as well as Carlson’s majority stake in Rezidor Hotel Group.
South African hotel rates are also expected to increase by 7%. Once again other countries in the Middle East and Africa are expected to see a considerable drop in rates - the United Arab Emirates is expected to see rate decrease of as much as 4.3%. Kenya for instance will see a 0.5 decrease, while Egypt will see a 1.9% decrease in rates. It must also be taken into consideration that these two countries have had their tourism sectors badly affected by terrorism over the last few years.
But hotel expansion in Africa continues, with the annual Hotel Chain Development Pipeline Survey, from W Hospitality Group, hotel chain development in Africa in the pipeline for 2016, should see an expansion of 75% in total, meaning an addition of at least 16 323 new hotels rooms. Newmark hotels, reserves and lodges also recently announced they will be embarking on an aggressive growth plan on the African continent in 2016.
A key strategic intervention for the group’s expansion is the establishment of Newmark’s first office outside South Africa in Lusaka and the creation of the Kaufela Collection in Zambia.
The Kaufela Collection has already signed three independent lodges, totalling to 100 rooms, and plans to add another 400 rooms by the end of 2016. Newmark is also currently taking on a new property in Zanzibar and a further 170-room business hotel in Lusaka.
Also, Peermont Hotel Group announced it will be undertaking multi-million-rand hotel extensions and resort refurbishments in the upcoming months, including an additional 100 rooms added to the Peermont Metcourt at the Group’s flagship Emperors Palace resort in Johannesburg and a 20-key extension to the Peermont Metcourt hotel at the Khoroni Hotel, Casino and Convention Resort in Thohoyandou, in Limpopo.
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