ETC, Donald Martin Report Steep Decline in U.S. Visits to Europe

by TravelPulse Staff
Last updated: 1:00 AM ET, Tue June 1, 2010

<input type="hidden" id="gwProxy"></input><input type="hidden" id="jsProxy" onclick="jsCall();" /> In its monthly newsletter, Donald N. Martin & Company reports that U.S. traffic to Europe faltered in February, with visits by Americans down an unexpected 5.9 percent -- the steepest decline since last June -- following a flat January, according to figures from the U.S. Department of Commerce. The report estimates that the recent off-peak season (October to April) was down at least 5 percent from that of 2008-09, and down nearly 12 percent from 2007-08, for the fewest total off-peak visits by Americans since 2002-03. The off-peak market has yet to come close to its pre-9/11 record of 6.34 million U.S. visits. Looking ahead to the peak season (May to September), the report states, "It's difficult to project much improvement over last year. A decline is more likely, especially if we assume some negative impact from the Icelandic volcano." The volcano's on again, off-again disruption of air travel to Europe continued well into May. But, the report says, "fallout continues. Untold thousands of Americans are reconsidering summer plans for Europe. The volcano's ash plume accounted for most of the average 13.2 percent decline in overall trans-Atlantic traffic reported by leading carriers in April. Average capacity was down by 14 percent. Flights that were cleared were nearly full with average capacity at 81.3 percent. Eyjafjallajokull, although quieter and much cooler, is being watched closely; it has a history of returning to life and sputtering for many months after an initial eruption. Looming nearby is the larger Katla volcano, which Icelanders say has followed Eyjafjallajokull several times in the past in its eruptions. However, Katla last went off without an introduction in 1918." European airline execs are adamant that air controllers were far too cautious in restricting European air space because of the volcano. The EU has agreed to consider adopting U.S. standards, which would narrow no-fly zones to a much-tighter 120 miles flanking each side of a streaming ash cloud. The airlines cited their own "test flights" as ash plumes moved across Europe. But the leader of the European Cockpit Association, representing 38,000 pilots, agreed with regulators that "the safety-first precautionary principle must be applied," until better information is developed about volcanic ash hazards. While ash has knocked out jet engines, it has never actually downed an aircraft. The closest call involved a KLM flight over Alaska in 1989. Ash snuffed out the Boeing 747's four engines, but the pilots achieved re-ignition while the plane still had more than three miles to drop before crashing. The Department of Commerce reported a final 2009 total of 11.98 million U.S. visits to Europe, down 4.2 percent. More ominous, the report says, is that Europe's share of the U.S. market was at a new post-World War II low of 39.5 percent. While overall U.S. citizen visits to overseas destinations fell by 1.6 percent to 30.3 million, visits to Europe fell by 4.2 percent. Thus Europe's share fell from 40.6 percent to a new post-war low of 39.5 percent. Europe remains the favorite destination for Americans traveling overseas, but Asia/Oceania and the Caribbean, combined, are closing in at 38.4 percent. The "All Others" category (Middle East, Africa, South and Central America) was the only steady decline since 2000 when it touched 48.9 percent. Trans-Atlantic airfares remain high for travel into the summer. Meanwhile, the report says, "the soaring dollar is now at nearly 0.82 euros or up nearly 9 percent in May alone. Reductions in European hotel rates are also helping to make up for higher airfares." In addition, according to the report, "the Greek financial crisis became Europe's crisis, when the 110 billion euro bailout for Greece failed to assuage the spreading fear. Every European Union government is under heavy and increasing pressure (although the focus has moved from Greece to Spain). Most are running deficits that are widening because tax revenues have lagged through the economic slowdown. And those with relatively small deficits, like Germany and France, must defend their leading banks, which hold billions of Euros in bonds issued by the weaker nations." The dollar-euro exchange rate is moving quickly, with the dollar rising 8.5 eurocents, or 11.6 percent, in 40 days to a four-year high of nearly 0.82 euros. "The dynamic," the report says, "is with the dollar, but the dollar still has a long way to go to reach its average value versus the euro since the latter's inauguration in January 1999. In fact, the dollar is still much closer to its historic low for that 11-year period (0.63 euros in 2008) than its historic high (1.21 euros in 2000)." Soaring trans-Atlantic airfares are a continuing negative, the report says. "Here are low fares for nonstop roundtrips for travel June 16 to 23 on leading carriers, as quoted May 26 on Travelocity. May 2009 quotes for June travel are in parenthesis: New York-London, $916 ($729); Chicago-Paris, $1,543 ($809); Los Angeles-Frankfurt, $2,139, or up 46 percent from this April's low quote for the same June dates (last year, $1,557). San Francisco-Frankfurt was a more restrained $1,564 for this June. "The carriers have not only reduced capacity, they have protected the cutbacks by winning government acquiescence to the three trans-Atlantic fare-schedule-revenue alliances: SkyTeam, Star and, apparently by year's end, Oneworld. The U.S. and EU regulators apparently have determined that this is the way to save the leading carriers. So far, low-cost airlines that have taken away so much of the majors' home market business are not attempting to compete on long-haul routes, which pose difficult challenges to their modus of operation. It's working; Trans-Atlantic yields were up 23.4 percent in April on U.S. carriers, the biggest increase yet since yields began to rise in December. The volcano may have reduced overall traffic but, as noted earlier, it helped keep load factors and fares high for the flights that did take off. "That the leading carriers need help is difficult to deny. European carriers have followed the U.S. airlines deep into the red ink. Lufthansa reported a 298 million euro loss for its 1st Q (with operations losing 330 million euros). Blamed were higher fuel costs, expenses in consolidating BMI and Austrian Airlines operations, and a pilot work stoppage. Air France/KLM reported a huge 1.56 billion euro loss for its fiscal year ending March 31. Wrong-way fuel hedges alone lost 637 million euros. "British Airways fared somewhat better, despite reporting its worst loss ever: £531 million for the fiscal year. The BA loss came despite a reduction of nearly £1 billion in costs, attributed largely to dropping 3,800 jobs from the workforce. Of course, that has spurred the cabin-crew strike now underway. CEO Willie Walsh blamed the loss of high-fare business travelers. As reported last month, the U.S. trans-Atlantic carriers all reported losses for the 1st Q. None of these results includes the April volcano losses. Lufthansa estimated that the airspace shutdowns cost it nearly 200 million euros; Air France/KLM put it at 268 million euros. Two-thirds of losses were blamed on the cancellation of flights; one-third on passenger cancellation of bookings for future flights. The EU may help defray the airlines' volcano-related losses." For more information, call Donald N. Martin & Company at 212-922-0400 or visit <a href="http://www.DNMartinco.com">www.DNMartinco.com</a> or <a href="http://www.visiteurope.com">www.vi