Airline woes and its impact on hotels

The airline industry, never known to be financially healthy for any meaningful length of time, is yet again in the doldrums owing to high gas prices amongst other factors. In a contracting economy, most airlines cut service on so-called unprofitable routes and put scores, if not hundreds, of planes out of service with United Airlines being the latest to do so. That only compounds a reduction in travel by unhappy customers that preceded United’s actions as noted by an industry survey which documented the fact that “nearly half of American air travelers would fly more if it were easier, and more than one-fourth said they skipped at least one air trip in the past 12 months because of the hassles”.

If the airline industry’s woes, self-inflicted and otherwise, were not enough, they can always look for misery from the actions of the DHS (Department of Homeland Security) which instituted new and more onerous rules for the 27 visa waiver countries. Known as ESTA (Electronic System for Travel Authorization) it is “a new fully automated, electronic system for screening passengers before they begin travel to the United States under the Visa Waiver Program”. Directed at thwarting a terrorist threat of the kind posed by would be shoe-bomber Richard Reid, the program essentially takes away spontaneity in travel that is currently the prerogative of citizens of visa waiver countries. The contrast to entry into the EU by US citizens and others when no form of any kind including a customs form is required only serves to underscore the difficulty of entering the US and only serves to make it a less attractive destination at least for spontaneous travel.

All of the above, quite obviously, seriously impacts the hospitality industry as the Wall Street Journal notes: “Airlines are cutting back capacity, and that spells bad news for hotels, which rely on folks jetting from place to place”. Barry Sternlicht, the CEO of Starwood Capital noted “that cheap airline tickets in the past may have inadvertently subsidized the hotel industry”. Others like David Kong, chief executive of Best Western International Inc., took pains to make a distinction between the hotel industry, where “people must come first,” and the airlines, which he described as “one of the most hated industries.” That is certainly true and too often hotels, front desk staff in particular, have to face the wrath of disgusted airline customers when, sometimes, even the most trivial of matters sets them off. While vertical integration a la “Allegis” is no answer, perhaps, it would behoove hotel companies to take a more proprietary interest in the health of the airline industry.

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Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.