A look on the bright side

The news is almost without exception bad.

Austerity measures taken by most of the world’s governments have raised fears that we may all fall back into recession. In Britain, this risk is real and though the coalition politicians are talking up the economy, they must know that 40% cuts in departmental budgets will mean increased public sector unemployment, a slack unlikely to be taken up by the private firms.

There will be increased pressure on banks to stay liquid, so lending -both to individuals and companies - will stay constrained. Falling consumer confidence may increase saving levels, but lower saving rates will reduce the income of savers.

But hang on!

Life hasn't been so bad if you are still in work, and most of us are. Unemployment rates are much lower than in the recession of the mid 70's. Mortgage holders have benefited from low interest rates. Credit card debts have fallen and fewer homeowners are borrowing from equity release schemes to fund or maintain an unsustainable lifestyle.

The British are beginning to understand the truth in Micawber’s dictum: Live within your means or the devil will get you. Actually he talked in terms of shillings and pence. The truth applies to businesses too, including UK Ltd.

The Economy needs to grow and Germany provides the template. A diverse industrial base, with their thriving automobile industry and now the leader in solar power technology. Our reliance on financial services makes us vulnerable to threats of exodus by these financial wheeler- dealers. Excessive reliance on this business has hurt even Jersey. Despite healthy surpluses in the past, they are considering a tax ceiling of 50%.

Currently the one industry that is doing well is tourism in Britain. In 2009, there were more domestic tourists than in the previous year, and this may surprise you, tourism contributes more to the economy than financial services.

The news from abroad is also good as far as travel is concerned. According to The International Air Transport Association, scheduled airlines showed an 11.7% increase in passenger traffic in May 2010, despite the European troubles relating to the ash cloud and British Airways’ battles with its cabin crews. This dispute affected passenger traffic from Heathrow, as well as those from Glasgow, Edinburgh and Aberdeen. Overall BAA airports showed a fall in passengers carried in June 2010 of 1.7% over the same month in 2009.

However, if BAA estimates are accepted, without the strikes, Heathrow would have carried 140,000 more passengers in June 2010, an increase of 2.5% over those of June 2009.

Recessions end when people get tired of feeling poor. Reliance on politicians to put things right is wrong. It's time to learn from Polonius's advice to his son: Borrowing takes the edge off husbandry.

So let’s work harder and reward yourself with a well earned holiday!

The beginning of the end for the European single currency?

Douglas McWilliams is bright, particularly so, even by the standards for Economists. He is the Chief Executive of the Centre of Economics and Business Research in London. I have known him for twenty years and rate his opinions highly.

His views on the current crisis in Greece is realistic and bleak.

The European authorities did well to cobble together a rescue package for the weaker European economies.

However, no matter how much sticking plaster is applied, the fundamentals remain the same. A member state can sort out its problems, if it has a competitive problem but no debt, or a debt problem but no competitive weakness.

Ireland for instance, has a deficit problem compensated by rising exports. Greece has a huge deficit which cannot be alleviated by external demand for its exports.

In the days before the single currency, Greece would de-value its currency. So it must leave the Euro, but if it does so, it would default on its debts.

Greece certainly cannot pay its debts in Euros with a devalued Drachma, so part of the package of aid for leaving the Euro must be at a minimum to convert the debt into the new currency unilaterally. This would mean accepting a fall of at least 15% and even then having possibly to write off a high proportion of the remaining debt.

Would Spain and Portugal be also forced to leave the single currency?

At the recent ABTA travel conference he said:

"Spain's failure to address its banking crisis brought on by over exposure to a weak housing market will precipitate an exit from the single currency and other countries like Italy may use this as an excuse to leave too.

Traditional destinations will attract more British tourists to go back when the good old days of Lira and Drachmas return"

Sustained drives to attract tourists with special incentives will hasten economic recovery, even in Greece.

Tourism Travails

Click to enlarge.

The travel and tourism industry had in 2009, the worst year in decades.

The recession was mainly to blame, but there were other factors such as the Swine Flu panic
and the growing strength of the Euro. The airlines gambled on the price of oil and caught a bad cold resulting in fewer flights and higher air fares. Low cost airlines like Ryan Air benefited in Europe.

British travellers abroad declined by 15.2% with North America suffering most.
The traffic to Mexico dropped sharply as a result of the Swine Flu episode by 41%.
Holidays to Barbados fell by 53% and even popular countries with homes owned by the British felt the pinch. Portugal lost 29%, and the two countries that did well were Egypt and Sri Lanka.

Egypt was seen to offer value and Sri Lanka peace.

2010 started better, as figures from the British Airports Authority suggest. However acts of God and man have conspired to reverse the trend. First we had snow, then a British Airways strike by cabin crew, Volcanic debris from Iceland and now another bout of machismo by Willie Walsh.

Unite, the Trade Union has announced 20 days of strikes, unless management abandons its plans to cut crew numbers and change employment terms.

Supporters of the Chief Executive see him as a strong and astute manager. His opponents claim he has his priorities in the wrong order. The British traveller think that the contest will do British Airways irreparable harm.
So much for "The World's favourite airline"

What lessons can we draw from all these events?

Long haul traffic to the East and Southern hemisphere whilst affected by the British Airways dispute, and the cancellations caused by the Iceland volcano, still represents great potential.

Airlines can learn from the way British Airways handled the two crises in PR terms.

And the adage :"It's an ill wind that doesn't blow somebody some good " still applies.

Omid and the Meercat

Motor insurance premiums have apparently risen by 18%.

Is this a fact or merely the industry's wishful thinking?

It's easy to see why they need a rise in premiums. Although this is a massive business worth £13 billion, it remains only marginally profitable. Claims, some fraudulent have increased and there are now a large number of uninsured drivers. However intense competition, particularly in the shape of advertising, £109 million's worth last year, has surely put a dampener on price rises.

Price comparison sites are now the new breed of broker and they spend a lot of money on the box. Some of them produce memorable advertising too. Can you forget the Russian meercat Alexandr and his catchphrase "Simples"?

All this activity suggests that there is very little loyalty in the market. According to an IPSOS/MORI study, three quarters of policy holders shop around when it is renewal time. And they get three quotes before committing. In this scenario, a renewal notice, from the insurer which has not been prior checked on a price comparison site is inviting defection.

Clearly price and price increases are key influencing factors. Past experience is also important. Disgruntled motorists complain about difficulties in sorting out claims. This is important because one in six policies are claimed against.

Like other business sectors, establishing trust is vital and especially so in the finance industry. Trust helps keep customers. And it is more expensive to acquire new ones.

Finally, do you know who writes the most motor policies?

It's the Royal Bank of Scotland. They own Churchill and a few others. And we own the RBS.

Creative Magic.

I heard from an old friend last week.
We had lost touch many years ago and he found me through Google.
Chris Sharpe is a talented creative man who played the piano beautifully. He had been the creative director at Masius, then the second largest advertising firm in London.
BacoFoil was one of the many grocery brands we handled. Advertising appeared on television in November and December, because most of the year’s sales occurred at Christmas time.
The client came to the Agency for the annual pre-campaign meeting. My bit was simple. Television was the automatic choice of medium and there was little planning involved in the days when ITV was the only commercial station available.
The star performance would be the presentation of the TV commercial.
But Chris had not done the work and since the meeting could not be postponed, he had to think fast.
At the meeting he said:

"Gentlemen, you have a great product but despite our strenuous efforts we couldn't come up with a commercial that did your brand justice. Until last night. We came up with an idea that we liked so much that we threw out our earlier efforts to concentrate on this new notion. There was no time to produce storyboards, so I will just tell you about our advertisement.
First lets start with the proposition:
Wrapping a turkey with BacoFoil reduces dehydration losses. We have tested this and discovered that a BacoFoil wrapped turkey has an extra one and a half portion than an unwrapped bird.
Now we need a catch phrase.
Your oven ready turkey isn't ready for the oven till it's wrapped in BacoFoil
Every time we mention BacoFoil, the word will shimmer out of the foil.
Now we give it pace and wrap it around a Christmas carol.
Your oven ready turkey isn't ready for the oven till it's wrapped in BacoFoil. (Imagine this and add the shimmer of the brand logo on the screen).
The camera shows a warmly lit home with the family around the table which features the Christmas turkey. Outside in a snow-covered garden, two boys are singing the BacoFoil carol.
One is tall and his friend quite small.
The end shot shows the young boys invited to join the family at Christmas dinner. The voice-over makes it clear that this generosity is possible because BacoFoil has delivered one and a half extra portions"

Chris Sharpe sat down to enthusiastic applause.

Could this happen now in our over researched world?

Advertising spend trends in the recession.

For a while it looked like there was no stopping the Internet advertising juggernaut.
In 2008, it accounted for £3,350 million in advertising expenditure -19.3% of all advertising revenue in the UK. Its growth rate was an impressive 19.1% since 2007,when all other media showed a decline of 8.5%.
The reality that has eluded most commentators is that the Internet is in the main a classified advertising vehicle. 77% of its revenue in 2008 came from this form of advertising. Paid for search is its main generator of income. It is the equivalent of yellow pages and Google dominate the market in paid for search.
In a recession all types of advertising suffer.
In 2008, online display advertising - banners, skyscrapers and MPU’s accounted for 5.6% of total display advertising. New estimates from Nielsen Media research suggest that the Internet’s share of display advertising dropped to 3.5% during the first half of 2009.
If this is so, then it’s bad news for mainstream media owners who have led the surge of investment in on-line display advertising infrastructures. Even shrewd newspaper barons bought into Internet ventures like My Space without working out a financial model for recouping their investment. ITV paid a very large sum for Friends Reunited and only now have publicly announced their decision to wash their hands of it.
Quality newspapers have discovered that their on-line readers are younger and more mass market than their newspaper counterparts and as such less valuable.
Newspaper on-line inventory is ending up with blind networks for a fraction of their rate card price.
Advertising Agencies who invested in digital expertise and systems have discovered the days of high margins are over. In truth there is an over supply of online display opportunities. Advertisers once very keen, are now repenting their early enthusiasm.
Another digital collapse is imminent.
This is not to say that Search has had its day. Advertisers with transactional web sites will still exploit the Internet, but they will look for better bargains.
The absurdly high cost of demanded key words, like cheap car insurance, is over.

Another year and another travel health scare.

It’s as if the tourism industry didn’t have enough troubles. Everywhere there’s the spectre of recession. The strength of the Euro and the US Dollar, relative to Sterling has adversely affected tourism prospects in the Eurozone and the USA. Airline traffic has fallen in BAA airports by 11.3 % in March 2009 compared to the same month in 2008.
Destinations more dependent on international tourism are acutely aware of how precarious the situation has become. And yet………..
In the UK, householders with tracker mortgages are now much better off, and once the supply/demand equilibrium has been re-established, things will begin to get better for all of us. Recessions end when people get tired of feeling poor and begin to regain their nerve. One sign will be if the two months of March and April 2009 show encouraging airline traffic. Easter was in April this year, so by comparing these combined months in 2009 and 2008, we will cancel out the Easter timing effects.
There are a number of things you can do to mitigate the effects of the recession.
1. Keep in touch with past guests. Most hotels retain addresses and some actually keep in touch at Christmas and on birthdays. Co-ordinate a direct mail campaign with private sector partners and offer special “friends” incentives for them to revisit.
2. Encourage ex-pats to come home for a visit. Scotland has done this in 2009, but doesn’t mean you cannot do so too. Ask them to re-acquaint themselves with the culture, beauty and friendliness of their homeland. Special events could be held in the towns and villages, with local hotels offering special rates. The idea is thank these economic migrants for their financial support.
3. Promote your green credentials In particular, solar technology, re-greening of the towns, country and hill sides, reduction in carbon emissions, marine parks, successes in conservation and so on.
4. Develop your niche markets. Find ways of creating new reasons to visit. Cultural events like jazz festivals, yachting regattas, kite surfing contests, and special golf tournaments such as the ones organised by Dubai.
5. Work closely with private sector partners. Hoteliers, airlines, ground handlers, tour operators and travel agents. India offers incentives to visiting travel agents. Hotels are already offering additional free nights and ground handlers throwing in local excursions for free. Airlines can offer subsidised upgrades and everyone can be encouraged to do more.
6. More than ever, ensure that your country is kept at the forefront of prospective visitor’s minds. Ad spends on tourism products amounts to £441 Million in 2008. Maintain your share of voice and be relevant. Tell prospects that the country is beautiful sure, but emphasise its unique differences. If possible stress affordability. Say visiting is essential, not discretionary. Tell them that a holiday in your country is very special, not a commodity experience.
7. Mount an integrated campaign that joins seamlessly, press relations, above and below the line activity including on-line.
8. And don’t forget to have a well planned and well rehearsed crisis management programme in place. I hope you will never need to implement it.