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Are terror fears hitting demand for flights and cruises?

August 11, 2016 Headline News No Comments Email Email

egtmedia59Nobody wants to admit that fears of terrorist attack and military coups are affecting travel to destinations like Europe, but a sudden decline in demand for Europe-bound cruises from the US, and slowing momentum in air travel growth globally, have been linked to that cause.

Norwegian Cruise Line Holdings has cut its forecast for profit this year, with chief executive Frank Del Rio saying the terrorist attacks in Brussels, Istanbul and Nice, coupled with the attempted military coup in Turkey, had dampened demand for Europe-bound cruises.

Headline events had unfolded with such rapidity that the company had been unable to stabilise its bookings, Del Rio told a conference call of analysts, cited by Bloomberg news service.

Under the circumstances the company was forced to “reset expectations,” del Rio said. Earnings this year will reach USD 3.35 to USD 3.45 a share, down from an earlier target of USD 3.65 to USD 3.85, Norwegian said in an issued statement.

Shares of Norwegian plummeted up to 9.7%, the sharpest fall in one day in almost three months. Carnival Corp and Royal Caribbean Cruises also fell, Bloomberg reported.

Norwegian cited four reasons for the revised outlook: lower holiday demand from the US to Europe; a weaker British pound following Brexit; excessive capacity on Miami-based Caribbean tours; and an effort to avoid discounting fares.

Meanwhile, the International Air Transport Association (IATA) released global passenger traffic data for June, showing that while demand (measured in revenue passenger kilometres or RPKs) rose by 5.2% compared to the year-ago period, “the upward trend in seasonally-adjusted traffic has moderated since January”.

“The demand for travel continues to increase, but at a slower pace. The fragile and uncertain economic backdrop, political shocks and a wave of terrorist attacks are all contributing to a softer demand environment,” said Tony Tyler, IATA’s director general and chief executive.

Asia-Pacific airlines’ June traffic increased 8.2% compared to the year-ago period. However, most of the growth relates to the strong upward trend in traffic seen in the final months of 2015 and into 2016, with June demand barely higher than in February.

“This could be a natural pause, but possibly is also a sign of Asian passengers being put off travel by terrorism in Europe,” Tyler admitted.

European carriers saw demand rise 2.1%, the smallest increase among regions, “reflecting the negative impact of recent terrorism”.

“While demand tends to recover reasonably quickly after such events, the repeated nature of the attacks may have a more lasting impact. Capacity climbed 3.4% and load factor slipped 1.1 percentage points to 83.3%.”

Australia’s airlines have been operating fewer frequencies and down-gauging aircraft in recent months, contributing to a 3.6% decline in capacity. The result is that load factor surged 4.9% to 79.4% on a 2.8% increase in traffic.

The bottom line on air travel from Tyler: “It is too soon to know whether recent terrorist attacks will have a long-term negative influence on demand, nor what will be the impact of Brexit and the events in Turkey. But it is vital that governments recognise and support aviation’s ability to contribute to global economic well-being and better understanding across cultural and political borders.”

Written by Peter Needham

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