Monday 6 October 2008

Recession or the slippery slope to disaster?

The news is bad and gets worse each day. We have moved from a subprime problem that only affected the feckless and the poor who the financial sages said “should have known better”, to a full blown financial crisis orchestrated by the clever chaps in banking circles who taught us that not only was debt good, but that it was essential to the global economy.

Now governments are rushing to rescue these financial institutions in the USA, the UK, Germany and China. Other European legislators are cautiously pointing to flaws in this type of support. They encourage risk taking without pressing for better and tighter regulations. Giving money to people who cannot pay their mortgages only delays foreclosure and even governments can only borrow so much.

Commentators in London expect that Government borrowings will rise from £63.3 billion in 2008/9 to £90.1 billion in the next financial year. This means that debt will exceed 43.3 % of the gross domestic product by 2010/11, considerably higher than the so-called sustainable investment rule, which stipulates a ceiling of 40%.

For people, anxious to get onto the housing ladder the news is mixed. House prices are down by nearly 15%, but lenders are being more cautious and demand higher deposits. Homeowners who don’t have an urgent need to sell are staying put. The results-an even greater fall in approved mortgage applications of about 40% in August.

Imported inflation on fuel and food prices are adding to the general gloom and most people are feeling poorer. They have responded by reducing their driving mileage, switching off the lights, turning the thermostat down a couple of degrees and shopping more in discount stores.

In the travel industry, the fall-out includes airlines like EOS, MAXJET SILVERJET, ZOOM and XL. Fuel is the highest single cost for airlines so expect further failures, consolidations, closures of routes and flight cancellations. Even national airlines are not exempt, as Alitalia’s troubles make clear.

Tour operators are consolidating but as Thomas Cook and TUI are finding out it is difficult to raise the standards of rescued companies to that of the White Knight.

Carbon emissions are a handy excuse to reconsider travel abroad, though the terrible British summer of 2008 might cause people to reconsider the domestic option.

So whilst Spain may suffer, Turkey and countries further east, with reputations for good value may fare better, particularly now that more efficient aircraft like the Airbus 380 and the Dreamliner are coming on stream.

The British love their holidays and will be loath to abandon their trips to sunnier climes. However unemployment or the fear of redundancy may make people reassess their priorities. Now it is even more important to keep your Brand top of mind when planning your marketing campaigns.

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