Taylor on Travel

No doubt all of us have worked somewhere where the recruitment of a new boss from outside the organisation has gone poorly, at least at first, provoking departures by others and leading to changes not always for the better.

Now a joint study in the US by a university business school and management consultancy A T Kearney has examined the performance of leading publicly listed companies over 20 years and compared their performance under chief executives recruited internally and those brought in from outside.

The headline findings appear stark - although a note of caution is warranted as I don't have the full study to hand, just a summary, and as any reader of The Guardian's wonderful Bad Science column will know, the results a study and the conclusions in the summary don't always correspond. However, let's take the conclusions on trust for a moment as this is not a matter of life or death.

The study by A T Kearney and the Kelley School of Business at Indiana University was referred to in an article in The Times yesterday, around which there is a pay wall, but can be found on the A T Kearney website.

It found that 36 listed companies which regularly recruited CEOs from their own ranks "were consistent leaders" and "significantly outperformed" other companies, displaying a "superior long-term performance reflected in . . . revenue growth, profit margins, earnings per share, productivity and share appreciation".

The study concluded that "no non-financial company [in the top-500 US listed firms] with externally recruited CEOs generated 20-year performance numbers that . . . even equated [with] those of the top 36".

It also found 40% of externally recruited CEOs lasted two years or less and 64% had gone inside four years.

A separate study by Professors Yan Zhang of Rice University's Graduate School of Business and Nandini Rajagopalan of the University of Southern California Marshall school of business suggested that the short-term changes often introduced by externally recruited CEOs "can be detrimental to a firm's performance".

Zhang and Rajagopalan concluded: "Outsiders are typically good at rapid cost-cutting and divestment, but over time those opportunities tend to dry up."

At the same time, the median remuneration for external CEOs appears to be 65% higher than for chief executives promoted from within.

None of this may amount to much, but it may or may not be worth noting that:

• Thomas Cook is run by Manny Fontenla-Novoa, who began his working life in the post-room. 
  
• Tui Travel is run by Peter Long, who previously headed Tui-merger partner First Choice and has a lifetime's experience in tour operating.
  
• British Airways chose its own chief financial officer Keith Williams to succeed Willie Walsh when the latter took over BA's new parent International Airlines Group. Walsh himself was an external recruit, although he came from within the airline industry.
  
• Carnival chief executive David Dingle previously ran P&O Cruises.

That covers four of the five largest outbound travel and tourism companies listed in the UK - if we exclude hospitality groups and companies with interests extending beyond travel, such as Teletext owner Daily Mail and General.

The fifth is easyJet, which appointed former Guardian Media head Carolyn McCall as chief executive in June last year to replace the departing Andy Harrison, who in turn came from the RAC.

No doubt McCall won't give a hoot about the AT Kearney study. But it will be interesting to see how the budget carrier and its ambitious plans progress in the straightened times facing the sector. Watch out for further change.

Abta's Travel Matters conference was impressive, multiplying the credit due the association for its work in assembling the Fair Tax on Flying coalition.

The appearance on the platform of a senior member of the Guild of Travel Management Companies was heartening, while that of secretary to the Treasury Justine Greening was a coup.

Greening did not shrink from hitting industry leaders where it hurt with her insistence that emissions trading and APD would proceed in tandem from next year. This has been clear from the outset, however laudable the Fair Tax on Flying campaign's efforts to have the two reconciled.

In passing it is worth noting that emissions trading is not a tax. A proportion of the costs to airlines will go as revenue to the Treasury from the auction of carbon credits, and this will increase substantially over time. But it is a cost carriers might avoid - and tax is seldom that.

More important, airlines might make money from the scheme in its first years, which is precisely what has happened in industries already involved in emissions trading. The carriers with most cause for concern are those rapidly expanding.

And since it is not a tax, emissions trading is less likely to fall foul of the Chicago Convention - which expressly forbids duty on aviation fuel - than would a Per Plane Duty.

But back to Greening, who asserted that UK aviation is responsible for 6% of UK carbon-dioxide emissions and that this proportion will grow. In reality, this 6% figure has probably already been passed, but that is not the point.

The industry needs to get its head around the fact that its oft-repeated claim that aviation is responsible for 2% of global emissions is irrelevant.

Then it needs to understand the current emissions figure is not what counts when it comes to climate change - it is the growth that matters. Aviation's expansion rates are sharp enough, but in circumstances where all other sectors are under pressure to slash overall emissions, they look alarming.

Carriers talk about reducing emissions, but frequently mean emissions per passenger, not their own or the industry total. Indeed, the industry has cut emissions per passenger every year for decades while increasing the total year on year.

It is no wonder the industry feels under pressure. But try looking at it another way.

Aviation will only be responsible for a growing proportion of carbon emissions if other sectors succeed in cutting their contributions to global warming.

There is absolutely no saying this will happen. The future figures are a projection based on the best hope of carbon reduction. However, that is hardly a compensation comfort. If no one cuts emissions, travel and tourism are finished along with a good deal else in the world.

On the other hand, if other industries meet the carbon-reduction demands on them, aviation might look bad but would have a future while it attempts to meet IATA and Willie Walsh's pledges to cut emissions by 50% by 2050.

Confidence in leisure and in business travel appear at different levels at the moment, and with reason.

Latest figures from the Guild of Travel Management Companies (GTMC), whose members handle four fifths of corporate travel transactions in the UK, show a 10% increase in bookings year on year during January to March. In contrast, leisure bookings for this summer to early March were 1% down on 2010, according to industry analyst GfK Ascent., after being 5% ahead just weeks before.

That difference might explain the contrast in tone at two important conferences this week, one in each sector.

Abta's half-day Travel Matters conference on Tuesday was serious and, for a travel convention, fairly sombre. OK, it was a morning-only affair with no time for the bar, the golf course, the dining table or the dance floor. But it focussed on the issues that matter: the economy, taxation, regulation, infrastructure and relations with the government. Leaders of two of the four biggest UK companies in travel addressed it, as did the Treasury politician responsible for tax on aviation.

The Institute of Travel and Meetings (ITM) conference on Wednesday and Thursday was rather different - the mood lighter. The sessions, certainly through the first day, were mostly upbeat and optimistic, focussed largely on the detail of work in the sector - relationships between buyers and suppliers, transparency, technology and so on. The 'big vision' session which opened the conference looked beyond immediate economic concerns and government cuts to the vistas beyond.

There is no criticism in this. The ITM stages a thoroughly enjoyable conference. However, there have been times in the past when  its content has appeared more heavyweight than that at Abta's convention in some areas. So why the contrast this week?

It could be due to any number of idiosyncratic factors to do with the event organisers - or it might just be me. But most likely it has to do with the contrast in experience in the sectors at present.

A bright January has given way to an increasingly difficult period in leisure travel. The deterioration in sales has left the outlook uncertain. Without improvement, the prospects for the summer season look considerably poorer than two months ago, and those for the autumn and winter are a real concern.

This is not the mood in business travel, where bookings are back and corporate travellers have returned to the front of aircraft. EasyJet is not making itself ever more attractive to premium passengers because it thinks the sector is in decline.

However, how long can such a sharp divergence last? Consumer confidence has not soured because people are windy about their personal outlook for no reason. Fuel prices have soared. Incomes can't keep pace with inflation, and the government is making unprecedented cuts in spending that will cost 400,000 jobs.

Hikes in tax and cuts in benefit announced last June hit households just this week - for most, meaning the end of this month.

People are borrowing just to pay bills and housing costs will soar the moment interest rates rise - from a level, 0.5% when inflation is 5.5%, that amounts to an extraordinary hand-out to institutional investors.

Corporate travel has come back because the world economy returned to growth. So long as China booms and the US does not contract that is good news for exporting companies.

But the UK economy is out of kilter, as is much of Europe aside from Germany. How long can the corporate sector as a whole defy the gravity of declining UK consumption?

Tui Travel says demand for all-inclusive holidays led it to declare First Choice an exclusively all-inclusive operator from next year.

Campaign group Tourism Concern says the demand for all inclusives doesn't come from holidaymakers but from the big tour operators themselves because these are more profitable. They can't both be right.

Tui Travel denied that all-inclusives damage local economies, insisting: "It is a myth to suggest people don't go out of the hotel just because they are on an all-inclusive holiday."

Tourism Concern director Tricia Barnet says: "Of course people in all-inclusive resorts won't go out and eat local food. There is no incentive for them to do so."

Both can't be right about that either.

The Association of Independent Tour Operators (Aito) calls the First Choice move "a massive blow" to local economies and "a slap in the face to sustainable tourism".

Tui Travel counters: "We are as committed as ever to making our operations more sustainable. By the end of 2011, half of Tui customers will be staying in hotels with Travelife awards."

By 2014, the group says that figure will be 90%. Which is it - more sustainable or less?

At one level the conclusion should be obvious. Why would anyone pay for food and drink in advance for a week or two, then turn their back on what they have paid for to wine and dine elsewhere? Of course people staying in all-inclusive resorts aren't going to eat outside. They would have booked bed and breakfast if they intended to do that.

On the question of who demands them, it is inconceivable the major companies would not want to develop more all-inclusive properties. All-inclusives are inevitably more profitable provided the pricing is right for people to help themselves.

However, is not disingenuous to say there is consumer demand for all-inclusives. The proof is in the properties. They are packed. Butlins was built on a similar basis and no one complained about the local businesses in Bognor or Skegness.

The attraction primarily is price. All inclusives provide hedging for holidaymakers. Some, perhaps many, wouldn't be able to go away without it. The boom in the properties has an economic basis.

Tourism is a contradictory business. People travel to escape, but take their world with them.

So what comes first - the restaurants and souvenir shops that depend on tourism or the hotels at which the tourists stay?

In most places there would be no restaurants without the hotels - certainly fewer. Yet most of us would not choose to stay on a desert island. We like things outside the door. Hotels and the businesses around them go together. There is a relationship - it is just unequal.

I've stayed in an all-inclusive and people could not wait to get out of the door. When I stayed recently in Tunisia, post-revolution, the first question people asked was about going out.

In the earlier days of mass travel, in the 1970s and early 80s, many holidaymakers stayed in hotels offering half-board - breakfast and an evening meal - a basis half-way to all-inclusive. So when Aito chairman Derek Moore says the First Choice move "does not mark a sea-change in the industry", he is spot on.

The real question, in the long term, is about sustainability - and on that the jury is out. Tourism promises the exotic and pristine while threatening to overwhelm them. It will inevitably destroy a destination if it does not also sustain it.

Tourism will inevitably destroy itself if it does not grow more sustainable. There are only so many 'new destinations' in a world.

What on earth is the justification for airlines charging booking fees on debit card transactions?

Credit cards incur costs - that is clear. The holder is borrowing the money, at an exorbitant rate of interest by the way, which is why the card companies frequently cannot wait to lend you more.

But a debit card transaction involves your own cash, on which the bank is making money while it is in your account.

However, it is not the card companies bumping up the booking fees on debit cards. It is the carriers.

EasyJet was pleasingly open about this fact yesterday. A spokesman confirmed the carrier's new £8 booking fee on debit card purchases does not go to the banks, it goes to easyJet - to cover administration of its call centre, development and maintenance of its website, and marketing and acquisition costs.

The card companies only get their hands on your cash - £4.95 or 2.5% of the transaction - when you use a credit card to book a flight.

So airline debit card fees go towards the costs of doing business. Why the hell aren't they included in the price?

Of course, easyJet's debit card fee is some way lower than that of rival Ryanair, which charges a fee per passenger - making it a funny kind of transaction charge - and some way higher than that of British Airways, which charges nothing. This looks like careful positioning.

Intriguingly, easyJet's debit card charge has risen to £8 from £3.50 barely six months ago - an increase of 129%. The Retail Price Index, the higher of the official measures of inflation, is 5.3%. So what can be happening to the costs of marketing, maintaining a website and administering a call centre?

I understood the price of oil was the source of greatest anxiety to airlines just now. This certainly puts the costs of global distribution systems in perspective.

EasyJet was commended by the Civil Aviation Authority recently for "its steps to amend its website at an early stage" of the CAA's efforts to ensure carriers display fares clearly. That commendation came on February 28, when the CAA "welcomed steps taken by most airlines to ensure their websites display airfares ...  including all compulsory taxes, fees and charges up front".

Debit card charges, since they are booking fees, are not displayed up front. They are displayed up back - generally at a point furthest from the front a consumer is likely to reach.

The fees jack up your fare at the last moment because they can be considered optional. It is clearly only my or your idiocy in having a universally accepted debit card rather than Visa Electron facilities that leads us to incur this fee. We should see at as a charge on sloppy behaviour.

I tried to find out how many UK consumers have a Visa Electron card. The figures do not appear easily available, but the UK Cards Association estimated 8% of UK consumers had one in 2009 - before a number of card providers began phasing out Visa Electron in favour of Visa Debit cards.

The truth is the majority of UK banks do not issue these cards, the majority of UK consumers do not hold them and the BBC reports them as not widely accepted in the UK.

The Office of Fair Trading and the CAA say all unavoidable and foreseeable charges should be included in headline fares. So what are the regulators doing? The 'these fees are optional' explanation for debit card charges is plainly... unfeasible.

Appearances can be deceptive. The 0.5% rise in UK gross domestic product (GDP) in the first three months of the year completed a series of 'good' headlines for the government ahead of next week's polls on local government and electoral reform.

The GDP increase followed a 0.5% decline in the final quarter of last year (revised from an earlier estimate of a 0.6% fall). So the economy has not fallen back into recession. Inflation fell in March, retail sales improved despite a dire picture painted by the British Retail Consortium, and public borrowing fell.

However, the GDP figures simply mean the economy is where it was six months ago - it has stagnated.

Better figures were forecast just a month ago. The business paper the Financial Times described the latest Office for National Statistics (ONS) figures as "weak", suggesting they amounted to "probably a contraction in the economy". Since snow was blamed for the decline in the previous quarter, the FT pointed out, "returning to pre-December levels of activity should automatically have produced 0.5% growth".

It added: "Some of the activity displaced from the fourth quarter might have been expected to boost growth above 0.5% in the first three months of the year as businesses forced to close in December caught up with work in January and February."

In any case, economists warn that preliminary growth figures are often heavily revised. In fact, Goldman Sachs economist Kevin Daly went so far as to say of the ONS: "It almost appears to be a random number generator."

Separately, the European Commission statistical agency Eurostat expressed "a reservation on the quality of the data reported by the UK" in relation to government debt and "the recording [of] military expenditure".

The GDP figures also threw some straws in the wind. Consumer spending on hotels and restaurants did not come back at the headline rate of 5% but at 3%. Construction output - often a bellwether for the economy as a whole - fell by 4.7%, double the rate of decline in the snow-affected last quarter, and production output rose by only half as much (0.4%) as in the previous three months.

By contrast, the economic contribution from government services - heavily pruned from April - increased by 0.7% in January to March.

In the words of National Institute of Economic and Social Research director Jonathon Portes: "The figures are very bad indeed; arguably even worse than the last quarter."