Europe travel holding up well despite soaring airfares

By Michelle Baran

Between rising airfares, the London 2012 Olympics, riots in Greece and economic uncertainty on both sides of the Atlantic, one would expect travel to Europe to be challenged on the eve of the busy summer season, and yet land-based bookings to European destinations have remained remarkably resilient.

“We’re seeing that Europe this year is actually rebounding really well,” said Albert Herrera, vice president for hotels, destinations and tours at Virtuoso.

Indeed, Virtuoso member Peter Herff, vice president of San Antonio-based Herff Travel, said that despite all the perceived setbacks across the Continent, “the romance and the mystique of Europe still outweigh just about everything else.”

Europe bookings, which make up about 75% of Herff’s business, have stayed “fairly consistent” year-over-year.

Mykonos alleyRudi Steele, president of Dallas-based Rudi Steele Travel, is seeing even stronger numbers to Europe, saying that a “conservative” estimate is that his agency is seeing 30% more bookings in 2012 than it saw last year, “and last year was our best year since 1957.”

Steele added: “We have not had any slowdown. We’re already struggling getting the right space for people at certain hotels.”

Airfare scare  

While retailers and operators have reported anywhere between flat bookings and 30% growth in Europe for this year compared with the same period last year, the one wild card for everyone has been and remains airfare.

Airline industry analyst Bob Mann of R.W. Mann & Co. attributed much of the rise in airfares to a curbing of competition among airlines.

“Starting last summer, we started to see the impact of the majority of transatlantic traffic being under antitrust immunity agreements,” Mann said. “At that point, we saw the first four-digit airfares in a long time.”

Industry consolidation has enabled the airlines “to collaborate both on the amount of capacity they offer and the pricing,” Mann said in explaining increased pressure on transatlantic airfares.

“The other factor, of course, is fuel,” he said.

Vaughn Cordle of Washington-based AirlineForecasts estimated that fuel costs this year will rise 12%, which, he says, means that fares need to go up 3% just to cover the increase. He added that while the fare increase this year won’t be as high as it was last year or the year before, it will continue to inch upward.

“The industry has a fuel problem,” Cordle said. And because of that, he added, the airlines “need to raise fares. ... That’s the only way they can maintain a constant load factor to keep the economics from deteriorating.”

To help clients overcome the airfare sticker shock, tour operators and packagers have had to roll out air-inclusive deals just to close the sale.

“Our air sales are off the charts, which is quite frankly something that we don’t particularly want,” said Trafalgar President Paul Wiseman, who added that the operator’s current air-inclusive promotion is costing it a lot of money.

“Air is a completely nonprofit loss, financially subsidized, but we have to do it,” Wiseman said. “We’re not getting any comment about tour pricing. The issue is high airfares.”

Tauck, too, has noted customers’ frustration with airfares in booking Europe travel for 2012. Consequently, the operator introduced an air-inclusive offer for 2012 bookings made through the end of February that offered a refundable airfare with no hidden taxes or fees.

Tauck Vice President Jeremy Palmer pointed out, “For the major coastal destinations in the U.S. to the major transfer points in Europe, it seems that economy [fares are] up anywhere between $300 and $500 over last year. If you’re going to Italy, you’re looking at $1,300 at the peak time. That’s a fair amount of money. ... For some people, that can be a go/no-go.”

According to airfare analysts, the capacity crunch on transatlantic flights makes the likelihood of any last-minute air deals to Europe zero to none.

“Historically, before the industry consolidated, before it had such strong capacity discipline, what you saw was [airlines] tried to raise prices, and in some cases they were successful,” Mann said. “But in the end, they ran around with empty airplanes. That was 2008 and 2009. Since then, the industry has pulled down a lot of capacity, consolidated heavily, and load factors are at historic highs. So you literally just don’t have the last-minute wholesaling of empty planes.”

Hard times for Britain, Greece

Not least of the other hurdles Europe faces this year is the hubbub surrounding the London 2012 Summer Olympics and the Queen’s Diamond Jubilee.

Big Ben“If there’s a soft point for our clients, it’s probably London,” Herff said. “They’re trying to stay away from the crowds associated with the [Queen’s] jubilee and then you’ve also got the Olympics. ... I see a little bit of pushback on London as a beginning point for our clients.”

But Herff noted that travelers are definitely “not skipping Europe because of London.”

“That’s always the case with any Olympic destination,” Virtuoso’s Herrera said, alluding to the likelihood that travelers would try to find ways to avoid London this summer. But he advised that while that’s the perception, people can take advantage of relatively slower, quieter periods for booking just before and after the games.

Wiseman, too, noted that Trafalgar is seeing a slowdown to Britain around the Olympics, which is something the company had anticipated.

But not everyone is feeling the Olympics effect. Airline vacation brand packager MLT Vacations reported that demand for London travel around the time of the Olympics is strong.

Travel companies were more consistent in reporting a slowdown in bookings to Greece amid riots and protests as the government implements unpopular austerity measures.

“Greece has been hardest hit by the crisis, and we have found that our customers are moving away from mainland Greece to focus instead on the islands,” reported Dan Bergquist, G Adventures’ product and contracting manager for Europe, the Middle East and Africa.

Nikos Tsakanikas, president of Homeric Tours, said the big issue for tourists was not political or economic problems but the potential for violent protests.

“In general, the economic crisis that is existing now in Greece and all these things, the austerity programs, they don’t have an impact on tourists,” Tsakanikas said. “The only thing that does is when they have demonstrations, people see them on TV, and they say, ‘We can go another time.’ Did we have some cancellations because of that? Yes, we did.”

Even so, Tsakanikas said Homeric Tours was doing “very good; not excellent, but good.”

As for the rest of the euro zone, operators report strong bookings for countries and regions perceived as having weaker economies and potentially lower prices, such as Italy, Spain, Portugal and Central and Eastern Europe.

The euro itself, recently hovering at $1.33, is basically a nonissue for travel to Europe, according to Herrera.

“It’s something that we Americans have gotten used to, so it’s no longer a deterrent,” he said. “It’s the cost of doing business. It’s the cost of a vacation.”

Follow Michelle Baran on Twitter @mbtravelweekly. 

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