The Brancatelli File By Joe Brancatelli
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Joey Predicts: This Column Will Be Proven Wrong
Thursday, January 11, 2018 -- Here's the problem with beginning-of-the year prediction columns: If you can predict it, it's not news. It's the unpredictable that is genuinely newsworthy.
By the way, this column was supposed to run last week. But then the "bomb cyclone" storm hit and I had to shelve it to cover the news.
See my point? News is what happens while you're predicting what the news will be.
So here's the best I can do: I'll try to predict as far out of the box about life on the road as possible. I won't pick "chalk," as the old horseplayers would say.
THE ECONOMY TANKS AIRLINES AND HOTELS
No one except blinkered partisans push an agenda claiming that a U.S. president can control the economy. Which certainly hasn't stopped Donald Trump from making grandiose claims about his expertise. In fact, the stock market rose faster during Obama's first year in office (33 percent) than Trump's (26 percent). And job growth in Trump's first year (2.1 million jobs) trailed each of the last six years under Obama. But the who really does not matter. It's how much and how long that matter. The economy only produced 148,000 new jobs in December and it's a sure sign that the unprecedented post-2008 recovery is running out of steam. It's not about Trump, it's about timing. The simple fact is we're long overdue for a downturn that will rattle the travel industry's cage long and hard. And guess what? The travel industry isn't prepared. Its collective outlook is for blue skies and unending building of limited-service hotels.
PRICEY OIL ON TROUBLED WATERS
If it was only the economy that was worrisome, airlines and hotels could probably adapt. But oil prices are spiking again and the airline industry especially has put its metaphoric fingers in its corporate ears and is yelling "nah, nah, nah, nah."
Almost painfully on-the-nose example: Brent crude, which most closely tracks the price of jet fuel, briefly broke the $70-a-barrel level today for the first time since 2014. Apprised of this development during Delta Air Lines' fourth-period earnings call, president Glen Hauenstein responded: "It's too early to hit the panic button on fuel prices."
No, it's not. Oil prices are already higher than the global airline industry trade group, IATA, predicted. It forecast oil at $60 a barrel in 2018. There's little to suggest prices will fall during the year: Uncertainty in the Middle East and Venezuela's unraveling surely mean higher prices.
A reminder: When oil reached the absurd $147 level in the summer of 2008, energy prices were accounting for 40 percent of the airline industry's costs. The industry responded with fuel surcharges and fare increases. Flyers responded by staying home and airlines collapsed in bunches. Within months, the worldwide global financial meltdown began.
INTERNATIONAL DISCOUNT SEGMENT FALTERS
If a slowing economy and rising oil prices say anything, they say falling demand for airline seats. The first place we'll see it is internationally. Given the explosive growth of discount airlines flying across the Atlantic, I think that's a place to look for a precipitous collapse. I'm headed to Europe next month and paid just $550 for a premium seat--47 inches of seat pitch in a 2x3x2 configuration on a Boeing 787--on Norwegian Air Shuttle. I didn't even have to book a return or stay on a Saturday to get that price. But you have to wonder how much longer those kinds of prices--and Norwegian itself--can survive. There is already credible grumbling about Norwegian's ability to carry its existing debt load, not to mention future commitments. My advice: Get the deals while you can--and don't book too far ahead.
HNA HITS A WALL
You may not know much about HNA. You're not alone. Almost no one knows anything about HNA, the shadowy Chinese giant that has its debt-laden fingers everywhere. Especially in travel. It owns Hainan Airlines, the fast-growing transpacific carrier; a clutch of Chinese domestic carriers; and bits of TAP Air Portugal, Azul of Brazil, Comair of South Africa and Virgin Australia. In recent years, it has scooped up huge chunks of the hotel industry, too, including all of Carlson and large percentages of Hilton and NH Hotels of Spain. It has bought up airline-services firms such as Gate Gourmet and Servair. There are plenty of indications that neither the Chinese government nor the markets are happy with HNA. It's refinancing debt at a feverish rate (and at above market prices) and Chinese authorities want it to apply the brakes. If HNA is forced to offload assets in a fire sale, the travel industry will visibly shudder. There won't be many buyers for those assets.
TRUMP'S GONNA TRUMP
I told you just weeks into the Trump Administration that the President will make our lives on the road more difficult. I got the expected response: My friends on the left applauded my judgment. My friends on the right, still unsure of Trump, said nothing. And the Trump fans were unhappy. But I told you then and I restate now that this isn't about politics per se. I'm not trying to appease the left or troll Trump fans. There's no benefit in that. This is about actual effects of Administration policy and Trump's tweeting. For better or worse.
Three tries into it, the Administration has gotten to a travel ban that seems sure to pass judicial muster. (I actually thought the second one was probably legal, too, although it has expired and won't be, er, Supremely tested.) But the unnecessary bellicosity is hurting inbound tourism, so much so that the travel trades now use the shorthand Trump Slump. If inbound tourism sinks, American travel jobs are lost. As the dollar falls against major international currencies--and the greenback now trades at or near three-year lows against most of them--inbound tourism to the United States should be growing.
There's also this: Our electronic devices are being seized and searched in record numbers since Trump took office. U.S. Customs and Border Protection inspected 30,200 phones, tablets and laptops in 2017, up about 60 percent from 19,051 devices in 2016. I never keep sensitive material on my devices, so Customs can inspect away. But many business flyers must keep confidential and private data on their devices, including, of course, government employees. If you refuse to surrender your password, the government decided last week that Customs can keep your device.
And chortle all you want at Trump's specious claim that his actions somehow explain why there were no airline fatalities in 2017--in fact, there hasn't been a life lost on a U.S. airline since 2009--but these kinds of pronouncements are unhelpful. If, heaven forbid, there is a crash during Trump's presidency, why must we wade through endless speculation about whether Trump did do something to impact safety? Crashes are difficult and confusing enough without that kind of distraction.
DON'T SIT DOWN
Finally, a bit of chalk, as those horseplayers say...
As far as I can tell, the only steps the airline industry is taking to fortify itself against the coming economic storm is making our lives more miserable. As I've told you since at least 2012, the industry believes it can continue to stuff more and more uncomfortable seats on its aircraft. American Airlines, for instance, is going to 10-abreast seating (from nine) in Main Cabin Extra on its 777-300s. This, of course, is atop the deployment of horrifically configured Boeing 737 MAX aircraft. United is "densifying" its Boeing 757-300s, adding 21 seats to the coach cabin. It will also pack more coach seats on any aircraft that it finally outfits with its Polaris business class chairs. And British Airways has begun reconfiguring many Airbus A320s and A321s with seats that don't recline. There won't be at-seat monitors, either.
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