Taylor on Travel

The consequences of the Costa Concordia tragedy remain uncertain, but one impact is clear: the sinking displaced the fragile state of the economy from the headlines - albeit temporarily.

The switch of media focus may be a blessing while the International Monetary Fund taps up Europe's chancellors for contributions to a $1 trillion bail-out fund it believes will be needed imminently, Greece moves toward the next Eurozone flashpoint when its debts fall due in March and France grapples with a credit-rating downgrade.

Latest UK economic indicators appear contradictory. Unemployment rose to almost 2.7 million or 8.4% in the three months to November, fuelled by job losses in the public sector. However, Office for National Statistics (ONS) figures showed a 2.6% rise in the volume of retail sales year on year in December - despite a fall in spending on credit cards.

KPMG's head of retail told the Financial Times: "Retailers achieved these sales through heavy and prolonged discounting and this has seriously damaged the health of the sector." That would explain the profits warning at Tesco.

At least inflation appears to be coming down, though it remains at least double the rate of earnings growth.

In the medium term, the government now plans seven years of public spending cuts and tax rises. The Office for Budget Responsibility forecasts that by 2016-17 UK output will be 18% lower than if the growth rates of 1997-2007 had continued. Or to put it another way, it could be 2015-16 before a household at the midpoint of UK income distribution attains the living standards of 2002-03.

Bank of England research on the impact of government austerity on UK households found 48% worse off last year than in 2010, and 69% expect to be worse off this year than last.

So what about travel? An indication of the strength of the January market should be emerging following a sluggish first week of the year. Comparisons with January 2011 ought to be tempered by the fact that the start to last year was particularly strong, when subsequent months were not.

The most up-to-date ONS figures show outbound holiday departures down 1% year on year in the 11 months to November, but a 5% decline in the third quarter of 2011 - July to September. That is quite a fall in a peak summer market that was already well down on the heady days of 2007-08.

The big two have already acted as though this is a sign of what is to come. Thomas Cook has cut capacity for summer 2012 by 8% year on year and Tui Travel has taken out 9%. Both could restore capacity, of course, although Tui must be the more likely to.

The past fortnight has tossed several straws in the wind: Flybe issued a profit warning following a sharp decline in traffic in the run up to Christmas; the Guild of Travel Management Companies (GTMC) reported a quarterly decline in air bookings for the first time since 2009; and AirAsia X pulled out of Gatwick.

The Malaysian-based carrier blamed APD and emissions trading yet also pulled out of Paris (no APD) and India (no emissions trading), so we can take it the economy and the price of oil were the major factors on top of the inherent difficulties of operating low-cost long haul.

AirAsia X only moved to Gatwick in October and we may presume founder Tony Fernandes did not take over Queens Park Rangers last August with the intention of withdrawing from the UK. Clearly, the current state of the UK market does not accord with Fernandes' view last summer.

Those predicting an improvement towards the end of this year may be right, but I wouldn't bet on it. If this summer ends well on price, with capacity 8%-9% down on 2011 and without a major failure, it won't have been a bad year - in the sense that it could be so much worse.

Cruise ship disasters are thankfully rare, though the travel industry as a whole is no stranger to tragedy. Six people are dead and up to 29 missing at the time of writing, from among 4,229 on board the Costa Concordia. God knows it could have been worse.

An assertion by the head of the accident investigation that the Concordia captain carried out a "clumsy manoeuvre" appears the least of the charges to be answered. But we should wait before drawing conclusions.

The testimony of a former sailor among the passengers that crew members "were incompetent" appears damning, yet there have also been reports of heroism.

One of the last to be rescued was an officer who broke his leg while scouring the decks for passengers. A Peruvian crew member who died was said to have slipped overboard while helping passengers. A cook from the Dominican Republic reportedly made repeated trips in a life raft to ferry passengers to safety.

Amid conjecture that the captain steered the Concordia near to the island of Giglio to salute a colleague onshore, it is worth noting a separate report that "cruise ships are known to sail close to Giglio's small harbour to give passengers a better view". We should also reflect that the captain's action in manoeuvring the listing vessel into shallower water may have saved hundreds of lives.

Yet regardless of the furore there are sufficient questions about what happened to doubt the emergency was well handled.

The first thing to say is that such accidents are highly unusual. The industry carries more than 21 million passengers a year and Europe's share of the sector comprises about 40% of this. It is five years since a cruise ship sank in the Mediterranean, off the Greek island of Santorini after hitting a reef shown incorrectly on charts. Two died. There has not been an incident involving such serious loss of life for 20 years.

The second is the disaster could have been much worse if the stricken ship had gone down in deeper water away from the shore.

This leads to a third and more general point. The Concordia was the largest cruise ship in the world when launched in 2006. It has since been surpassed in size repeatedly, with the largest ships now carrying more than 7,000 passengers and crew. It appears it was the ship's huge size above the water that led it to tilt in just 26 feet of water.

Two concerns follow: that designs have not taken sufficient account of this rapid growth in size, and safety procedures have not kept pace with ships carrying twice as many passengers as a decade ago.

A maritime safety expert suggested the latest cruise ships have a greater tendency to list if in trouble, that they are difficult to steer and vulnerable to high winds (the Daily Mail). Other experts suggested they are difficult to evacuate (The Financial Times).

The maritime union Nautilus insists: "These ships are floating skyscrapers. Alarm bells have been ringing with us for over a decade." Nautilus also queries how the ships are operated, saying: "We believe basic safety principles are being compromised."

Ships officers have expressed concern about training not keeping pace with technology, and Nautilus says: "Core crew are trained to high levels, [but] the passenger staff receive . . . a fraction of the safety training given to airline cabin crew." These are serious charges.

The growing size of ships reflects remorseless economies of scale and the industry is not about to perform a u-turn. Yet the Concordia raises uncomfortable questions. The evacuation does appear to have been chaotic. The charges need addressing.

The business paper the Financial Times suggested: "The terrible loss of life and chaotic evacuation suggest these floating mega-resorts carry significant risks." If that view takes hold among investors it will also undoubtedly be absorbed by a proportion of consumers.

The conclusions of accident investigators will go a good way to shaping the long-term impact.

But the sector already faced its share of issues - the flood of new capacity, the state of the economy and consumer demand, a push for growth in Europe chaffing against the troubled eurozone, the high price of fuel and a squeeze on margins. To these must be added a possible short-term impact on bookings and longer-term challenge of reviewing safety: not least the lifeboats.

It is sobering to be reminded, amid all the talk of technology in travel, that the life-boat system aboard the most modern, giant cruise ships is essentially unchanged since the aftermath of the Titanic which sank 100 years ago this April.