Henry Harteveldt (An analysis of the airline and hotel industry)

  • Why travel is such an important tool for ‘World Peace’ – really!
  • How travel will look like post COVID? How to make it sustainable without creating more ‘tourist ghettos’?
  • How will airline and hotel loyalty programs emerge from COVID?
  • Why Qatar Airways seems to be such an extraordinary airline?
  • and much more!

You may watch this episode on Youtube – The Judgment Call Podcast Episode #34 – Henry Harteveldt -Analysis of the airline and hotel industry.

Henry Harteveldt is often called “the voice of the travel industry”. Henry regularly appears on broadcast media, including Bloomberg, CNN, and CNBC. Top-tier print media, such as The Wall Street Journal, Financial Times, Associated Press, The New York Times, USA Today, Travel Weekly and Tnooz.

Henry has been an travel industry analyst for more than 14 years, focusing extensively on the airline, lodging/hospitality and cruise sectors. He has published more than 125 research reports during his work at Atmosphere Research.

You may reach Henry via LinkedIn.


Welcome to the Judgement Call Podcast, a podcast where I bring together some of the most curious minds on the planet. Risk takers, adventurers, travelers, investors, entrepreneurs, and simply mindbogglers. To find all episodes of this show, simply go to Spotify, iTunes, or YouTube, or go to our website, JudgementCallPodcast.com. If you like this show, please consider leaving a review on iTunes or subscribe to us on YouTube. This episode of the Judgement Call Podcast is sponsored by Mighty Travels Premium. For full disclosure, this is my business. We do at Mighty Travels Premium is to find the airfare deals that you really want. Thousands of subscribers have saved up to 95% in the airfare. Those include $150 round trip tickets to Hawaii for many cities in the US, or $600 life lead tickets in business class from the US to Asia, or $100 business class life lead tickets from Africa round trip all the way to Asia. In case you didn’t know, about half the world is open for business again and accepts travelers. Most of those countries are in South America, Africa, and Eastern Europe. To try out Mighty Travels Premium, go to mightytravels.com slash mtp, or if that’s too many letters for you, simply go to mtp, the number four, and the letter u.com to sign up for your 30 day free trial. I was obviously curious, you know, I’ve heard about you before. I saw your articles and I know you write for Bloomberg, CNN, a bunch of high profile travel sites, and not just, I mean, they’re not just travel sites, they’re general interest sites, but you write for the travel section from what I’ve seen. Help me understand, how did you get into travel journalism and travel research? I think this is where you are at now, right? Yeah, so I’m a travel industry analyst, and I’m not a journalist, so you may have seen some reports that I’ve written either previously when I was at Forest or Research, or some of the reports you’ve written at Atmosphere, and I do get interviewed a lot by journalists at Bloomberg, The New York Times, CNN, other publications, other outlets. I am an accidental analyst, I will tell you that. I started working in advertising on the American Airlines Advertising Account, and then went to work at TWA, and some other airlines. I moved out to San Francisco, where I live now, to run marketing for the Fairmont Hotel chain, and then worked at a brand agency in an online travel company. In 2000, I went to work for Forrester as an analyst to help them understand what technology was going to do in the travel industry, and to help travel companies understand what technology was going to do. And I’ve just stayed an analyst for now more than 20 years. There isn’t a lot of people who have the stamina and the staying power in the consulting and analyst business. I always feel like, at least that’s true for consulting, there might be slightly different for analysts. It is something where you grind through a lot of data, you come up with a lot of research reports, and then after like 10 years, if you’re not a partner, if you haven’t made it that far, you kind of look for something else, like the grass is always green on the other side. It seems like you always had a strong connection to the travel industry. You liked it, even if you started in there accidentally. No, I was one of those little boys who built model airplanes and collected the airline timetables. Most kids my age were reading Sports Illustrated. I was reading Aviation Week and Flying Magazine. I learned how to fly an airplane before I could drive a car. So I’m lucky. I’ve been able to turn my hobby, my application, into a series of different jobs all related around an industry I’m very passionate about. And it’s an industry that has evolved enormously. And just look at the changes that we’ve seen travel companies do during the COVID pandemic, how they’ve had to adjust what they’re doing, whether they’re an airline or a cruise line or a hotel company or a travel agency or anything else. So it’s just been, I consider myself extremely fortunate. I’ve been able to have a seat at this table. And it’s interesting to see what the problems are and how to figure out how to solve them. That’s very positive. I think the travel industry, there is something special about it. And that also is true for myself. That’s how I looked at it from afar in the beginning of my career. And then I started two, three different travel companies by now. So from an entrepreneur perspective, I never worked for a travel company, for a major travel company. But some of the startups became somewhat major and had an impact on the industry, I hope, some of a long term impact. And what do you think makes the travel industry such a magnet, so to speak? I mean, obviously, we have tons of flight attendants who kind of have accepted really low pay. That’s all pre COVID. But they accept a very low pay to see the world, to kind of get out there and get this sense of curiosity, taking care of that they have. And I feel that there’s a lot of people in the industry certainly have more of a career, maybe a career’s gene. But when I worked in the airline industry, I was expecting the same thing, right? I was expecting airline executives, people who work in the airline industry, when I tried to sell them software, they had no curiosity at all. They were like the automotive manufacturers. So that there seems to be a strong magnet on, say, the consumer side of the travel industry. But once you in it, it seems like the curiosity is going for bad turn. It seems to go away. That’s at least my experience seeing that industry from the inside. I think a lot depends on the role that you’re in and the times that you’re in the business. And I’ve been in this business long enough to have gone through several booms and busts through 9 and 11, through the great recession of 2008, 2010, and now the COVID pandemic. And we’re still obviously not out of that. But you’re right. I mean, there are certain jobs in the travel industry that attract certain people. And I’ve always just been curious about our world. I hope to be able to visit every country before I die. I’ve got a long, long, long way to go. But the travel industry is also a fascinating business. If you think about what it has done, it created dynamic pricing and revenue management. It took loyalty programs to a new level of consumer engagement. It’s an industry that has gone from being very brand focused to very retail focused. It’s one of the largest segments in terms of consumer ecommerce. It had been the largest, but with COVID, I’m not sure now if we’ve seen general retail grow beyond travel. But in terms of what travel is and the parts of it, airlines, hotels, cruise lines, travel agencies, rental car companies, and others, it’s just vast. And Torsten, what’s so amazing is some of the companies that are having huge impact didn’t exist a few years ago. Facebook is a major advertising platform. Uber and Airbnb and companies like those have disrupted ground transportation and lodging. So it’s always evolving. And that makes it fun for me. It probably doesn’t make it fun for some people, but I like it. Yeah, I love your enthusiasm. And I see it the same way. One thing that I always felt with travel, and maybe that’s too far from every day’s needs that people see, but I always felt travel is an extremely great tool, not just for your own curiosity to satisfy that, but also to this exploration that we have, that all of us have at a certain point of our lives, some more than others. It also is a great tool for making world peace happen. Not necessarily in this kumbayam element, but I feel like if I’ve been to 130 countries and I have people on who’ve been to all of them, but it’s very difficult to be, it’s very easy to be partisan if you live in a small town. And nothing gets small towns. I love small towns. What I’m saying is more you see other places, and there’s more to see other countries, at some point you develop a level of, there is so many different solutions to this problem. You cannot be partisan anymore. Yes, there’s exceptions. And I think if we look at communism, and I grew up with communism, I was special as special antipathy of a communism, so to speak. So there are certain things in the world where you feel like, wow, this isn’t right. But on the other hand, it makes you, for 99% of the cases, in my personal case, but I think this is true for others too, if you’ve been to so many different places, you spend some time there, you live there, you know there’s other people on the other side of that wall, of the fence, or whatever ideological place other people are in. And they’re just people, and they want kind of the same thing you want. And I feel like if you take trouble seriously and spend enough time in it, you’re going to come out on this side of world peace. There’s almost no other answer. I agree. Look, I’m fond of saying anytime you leave your own neighborhood, you’re traveling somewhere. So whether it’s across town to a different neighborhood in the same city where you live to a town a few kilometers or miles away to another state, to another country, to another continent, you have the opportunity to learn, to discover, to experience. And obviously, there are a lot of factors that go into it when we take a trip. If we are on a business trip, and it’s very busy, and our schedule is packed, and maybe it’s a day trip where you’re flying, let’s say from San Francisco, where you and I both live down to Los Angeles or up to Seattle, where it’s a day trip, you’re not exactly going to have a lot of time to explore. But you can still be open to those moments, those serendipitous moments. Maybe it’s just a nice conversation with someone at a coffee shop. Maybe it is seeing something, a different view that perhaps you noticed before. But you’re so right when you talk about when we do travel, especially internationally, and especially if we have time to spend in a city or in a country. If we are open to learning and understanding what it is, and you’re right, we are all as people a lot more alike than we are different. We all have a lot more of the same shared goals. It helps when you are somewhere to understand what are the hardships that a community or a country and its people face, what are the advantages that they enjoy, etc. And that’s what I try to do when I’m traveling, is to be open to learning, to be open to active, I call it active watching and active listening, just being an observer of where you are. And when you have the chance to participate, getting in conversations with people, enjoying and experiencing things on the real level, not the manufactured, we’ve got 17 places to see on a tour bus and three and a half days to see them in. That’s not traveling. That’s the equivalent of processed food. I mean, it’s processed travel. It’s not organic. And that’s not as… I like that you say that and those are wise awards. I think you fully agree. And that is pre COVID and I think it already has changed to the better. But there’s been so many places in the world that had been great. Thailand is the best example, but it also applies to many places. In Indonesia, it applies even to places in Africa that seem to give you this opportunity to be part of somewhere else, but still don’t miss home too much. So you live in a place where you can be productive, but you can also talk to… You’re involved in a different culture, but in a way that you can still do your work, say on your laptop. And you don’t miss the amenities upon too much. There’s lots of those places. What I think it happened to is this dark side of tourism, right? And it’s not the dark tourism where we go to Chernobyl. I thought that was actually interesting. I think that’s a misnomer. The dark side for me is going to… Seeing these places become seedy, dirty. There’s a wrong kind of tourist there. Someone who is not open. Someone who is literally just on a hunt for the next package tour. Someone who is seemingly only interested in the lowest economy fair. And all of these things on its own, and not a bad thing, right? I do this too. But I feel like the spirit of curiosity, the spirit of travel was broken in these instances. And we saw it as in Thailand, the wars, I don’t know, 40 million, 45 million tourist arrivals on a population of less than that. And I don’t know. Do you think there is a real fix to this? Is there an education issue? How can we scale tourism, so to speak, or travel, irrespective of what world we use and say it comes back after the COVID? How do you think we can scale it to five, six, seven, 10 times over the months before COVID and still not develop all these tourist ghettos, so to speak? You raise a very important point. And I believe it was skift that coined the phrase over tourism. And it’s a very, very valid point. I remember several years ago, I took my eldest nephew on a graduation trip as a trip, excuse me, as a graduation present. We went to Paris, and it was his first time there. And we went down to Versailles. And Versailles was just overrun with tourists that day. And it was summertime. It was July. It was right around July 14. So of course, it was going to be busy. But what shocked us is we walked into the hall of mirrors, and all we could see were people. You could not see the room. And so when you talk about dark tourism, or the downside of tourism, you know, irresponsible travel, you know, I don’t begrudge anyone who is able to find a great deal and takes a trip because one of the great things about travel is it’s become far more affordable and far more accessible to a lot of people. And going back to what we talked about, the more of us who travel, the more of us who understand our world, the less we have to be fearful of. But we have to be responsible when we travel. What I’m going to be very curious about, to get at your question, how does the industry support growth without killing off the world we’re going to see? In the post COVID world, having, you know, for a lot of people, obviously not everybody, but a lot of people were able to do work from home, which really means work from anywhere. When their offices reopen, will they go to their bosses and say, you know, I like being in the office, but I also like the flexibility of being somewhere else. Can I, may I go off to this place, whatever it is, maybe it’s a lake 50 miles away, maybe it’s a ski place 200 miles away, maybe it’s Thailand, you know, but go there for two weeks, for four weeks, for whatever it is. You know, I know I have my commitments. I know I have this project due or this responsibility or whatever else. I’ll hold up my end of the bargain. Will you let me do that? I think we’re going to see a lot of those kinds of conversations take place. And when they do, I think what happens is travel perhaps gets spread out a little more evenly across the calendar. We don’t have the same degree of summer peaks or holiday season peaks that we did. And at the same time, maybe we don’t have the deep valleys in the off season that we once did either. So, you know, I don’t know. I do know there’s a lot of pent up demand for people to travel. I’m calling it revenge travel, revenge tourism. We’ve been kept at home for so long. We’re eager to get back out to see the world. It’s one of the top things we want to do. Aside from seeing family, we haven’t been able to see. But I think once things stabilize, you know, it’ll be very interesting to see what happens. I think business travel won’t be as strong as it once was, but there will be business people traveling on their own budget, on their own money to go to some of these places where they’ll work for two, four, six, eight weeks, whatever, at a time and with their families. You know, I think it’s going to be a very different world. Yeah, I’ve been doing this for the last 10 years, really taking my family around the globe and we work from different places. And I’m trying to, you know, plan at least enough time that I can see enough about the country or the place that I can learn enough from it, sometimes picking up a few words in a new language, sometimes even going to a language school. So there’s now word for a digital nomad, which has a bad ring to it for most people, because it kind of implies that you basically just, you take your bad behavior to a new place without learning anything, which I think, I’m still not sure what I’m making of this term. One thing that I noticed, and I’ve never been, I’ve been to Costa Rica last week, and I realized Costa Rica had had an amazing hand in pulling the sustainable tourism up. And I always felt of this, man, this is just a marketing slogan, right? Everyone wants to be sustainable. But what Costa Rica has done, and the whole country seems to be that way, like there isn’t even one big road in the whole country. It’s all spread out, there’s villages, and you think of it, whoa, this is all going to be really poor, but it’s not, you know, it’s a middle income country. There is a lot of places along the coasts like Pacific and on the Atlantic coast. There’s little places that see, that have amazing food, they’re not cheap. So nothing is really cheap in Costa Rica. So that is a problem that cannot compete on that scale with Thailand. But it is a place where you feel like, and I’ve never been there before, I felt like I don’t want to leave anymore, because there’s fast Wi Fi, it is easy to buy a house. The large people speak English, the food is fantastic. It’s not much cheaper than San Francisco, but the living quality is so much better at sea, because you ride at the beach and you, you know, everyone is friendly, you don’t get ripped off. It’s pretty amazing as an example that they deliver to the tourism industry. Yeah, no, I think that’s a very good point. Now, you mentioned sustainable travel and sustainable tourism. You know, I think that that we as travelers, or at least a good number of us, are very focused on this. And it’s especially important to people under the age of 35, based on our research that we’ve done, you know, that that when they travel, they want to make sure they are being good citizens. You know, you mentioned bringing bad habits to a new place. There are a lot of people who do try to be open so that if they’re doing something bad unintentionally, they stop it and that they’re learning what local customs are. And again, one of the benefits, perhaps, of the ability to spread out when we travel is that it reduces the peak period impact and maybe spreads out the impact of travel and tourism on a country, on a city, on a park, whatever it is. At the same time, we have to be careful when we are traveling, or the people, the countries, or the organizations that are controlling a point of interest or park or venue, not to allow too many people in that the destination gets ruined. So it’s really careful. And there are fine lines that have to be walked. There are balances that have to be struck. You don’t want necessarily to be a place that is so expensive, only the very elite can go. I mean, there are places like Monaco that revel in it, but there are very few of those places. And as, but as you said, there are some places that the airfare may be cheap and lodging may be very inexpensive. But other parts, other things when you’re there, food, entertainment, whatever, that may be expensive. Again, this is where travelers have to figure out what can I afford to do and how can I stretch my budget. And we as people have been really resourceful when it comes to this. We will rent, maybe just rent a guest room at someone’s house as opposed to staying at a hotel, or we’ll travel with a group of friends to spread out the expenses and rent an Airbnb or something like that. So there are a growing number of options that help keep traveling more affordable for us and allow us to spend the money where we want to, where it’s going to give us the most value, the most return, if you will, the greatest happiness, whether that’s on food, whether that’s on language lessons, whether that’s on scuba lessons or skiing or shopping or whatever it is that we choose to do. Yeah, you run a research company that basically looks into all the trends that are going in and travel. And I’m curious about what your scenarios are, how the travel industry will recover from COVID. We all know that travel has been down 90%, probably still down somewhere around 60 to 70%. Do you probably have better domestically because of the travel? How do you think the recovery will look like and the airlines and then the lodging at hotels? So first we have to understand that travel recovery is going to occur in a patchwork. It won’t be uniform around the world because vaccinations will be available to people at different rates. People will get vaccinated at different rates. You’ve got macro factors like economies and things like this that will all be at play here. In the US, well, let’s put it this way, in developed countries, I think that travel recovers in roughly three years. I think leisure travel, especially in the US and in Europe, will recover within two years or so, maybe a little less depending again on how well vaccinations go. Asia may recover even faster with its leisure travel, but that would be what I’ll call domestic or regional travel. So Europeans traveling within Europe, Americans traveling within North America, people of Asian countries traveling within Asia. Long haul travel will take a couple of years or two to three years, maybe four to get back to normal. Business travel will take several years to get back to normal and it probably will be smaller for several years before it hits pre COVID levels because companies are learning that they don’t need to have their employees traveling as much. The airlines that are better able to attract and cater to leisure travelers will enjoy faster recovery. So that’s good for the budget airlines like Ryanair and EasyJet in Europe, AirAsia in Asia, here in the US, Frontier and Spirit, but the big airlines, the British Airways, the Cathay Pacific, the Thai Airways International, the Americans in the United States, they’ve got a lot of tools that they can use to recover pricing and frequent flyer and all sorts of marketing tools that they’ll be able to use to recover. I think the lodging industry will see good recovery. It will be led at the four star and five star level because the very well to do are eager to travel. They’re already booking up some of these high end hotels and resorts. I was on a call recently with a bunch of travel agency owners and advisors and they told me that they’re already seeing some popular destinations be sold out for the Christmas New Year’s 2021 2022. So this coming Christmas, which is nine months away. So people do want to travel. I think there’ll be good airfares out there. I think there’ll be good bargains out there, but again, we have more options, especially in lodging where we can use organizations like Airbnb and HomeAway and others to get rent a house, rent a condo, rent a yurt, whatever it is that makes you happy. Yeah, I, when you go to Zeef, there was basically a week, one a week after, and I was seeing not surprised. Torsten, I’m sorry. I’m losing you. The connection is not very good. Okay. Yeah, I wasn’t sure if it’s just me. How about now? Is it any better? Yes, now it’s better. Okay. Okay. Let me just double check. It’s going to stay that way. Sometimes it’s a little shaky on my side. Something’s going on with my Xfinity Wi Fi the last couple of days. I was in Karkun over New Year’s Eve, last New Year’s Eve, and I was surprised. The room rates were around $600 a night for the nicer places in town, and the hotels surprisingly, or maybe surprisingly, were basically sold out. And Mexico is one of the few places like Costa Rica where it’s one of the relatively few COVID entry restrictions on an immigration level. And I was surprised at the makeup of the guests. They had shifted quite a bit. It was less American. It used to be 90% American tourist destination, and it was probably 50, 60% Brazilian. And I flew down further down to South America, and everyone was Brazilian. So interestingly enough, there’s a lot of shifts happening. And you see this with Copa Airlines, for instance, who wasn’t able to fly for the longest time. When they restarted, it seemed a lot of the passengers came out of Brazil. Brazil seems to be beyond that level of pre COVID in domestic flights. And so the domestic recovery in Brazil seems to be on a high level. Probably the fare is a lower, but the pure passenger numbers, the number of flights are up. And I think the same is true for China, who has already exceeded the pre COVID level in domestic flights. And there seems to be only, and the US is pretty close, I don’t know how far we are off, maybe 20, 30%. But I think a lot of discount airlines, they’re putting on routes and routes, and they’re already beyond pre COVID levels, like I think Spirit and Allegiant. I’m not really sure why, because they always, I’ve never been a very favorite. I’ve never had a lot of interest in going on Spirit or Frontier, because I feel there is a price difference, but it’s relatively small, especially if you need to bring it back. And the drama and the hassle that you accept with both of these airlines seemed to me not worth it. So saving $20, $30, which you definitely can for most routes, it rarely seemed to be worth the drama for me. So I’m kind of surprised that they do so well, but obviously that’s where people work with their feet, and it seems to be making a big difference. What I realized is too, when that was really interesting, I went to Munich last October, and the business class was basically full and Lufthansa, it was still the old plane or the old configuration, but the economy was basically empty. So literally there were 10 people in the economy in a 300 person plane, and the business class is 40 seats about, and that was basically full. And I find this quite stunning, and two flight attendants told me that’s been the case for quite some time. And that’s kind of surprising, because people would say, oh, leisure is coming back, obviously less internationally, and it was an October different time, and business is behind. But that was the opposite of what you would expect, at least in that particular route to Europe. I find this quite interesting. So there’s a lot of things all over the place, I guess, that are hard to forecast for a macro view, right? Right. Well, again, it comes down to a couple of things I can share with you. I don’t want to become the research nerd, but the, pardon me, what we are seeing is that one, we’ve known airline passengers have historically earned well above average incomes. During COVID, what’s been very interesting is that passengers who are traveling, in particular, long haul, but also domestically, are willing to pay an affordable premium to sit in business class, premium economy, some of the premium cabins, first class, if it’s a two cabin domestic flight, if the fare difference is reasonable. And what they’re doing it for right now is not just the comfort, but the added space, especially on a long haul flight, where you have the pods in business class, and the seat goes flat, you have a fairly generous amount of room between you and the person sitting in front of you, or the person sitting in back of you, and because the seats are wider, there are fewer people across, so you have a little bit more space and privacy as well that way. So I’m not surprised that business class was full. The airlines have also been discounting a lot of their airfares just to get people on the plane and bring cash in the door. Now, to the point about the budget airlines, such as Frontier and Spirit here, or Ryanair and EasyJet in Europe, or others in different parts of the world, in different parts of the world, what they do is they democratize air travel. And we see sanitation in the airline world, just as we do, let’s say, in retail, where you have stores that cater to people of more limited incomes, and stores that cater to people with more disposable income. You have airlines now that cater to people who don’t earn a lot of money, or don’t want to spend a lot of money. You know, that’s fine. Again, it goes back to democratizing travel, making it more affordable and accessible. And frankly, those discount airlines also serve as a lever on the larger airlines and force them to compete, maybe not penny for penny, but to a certain degree in terms of their own discount fares. Yeah, that’s absolutely true. You see those fair wars going on. I think there’s one right now between Miami and LA, and a lot of airlines that either put more seats on it, or more airlines have started flying, and JetBlue just recently started flying, and it’s extremely cheap right now. I find that quite stunning. And you would expect only to fly some LA to Miami, but no, the other way, there’s also people in it. Beyond that, when you look into, and I know you’re an expert there, when you look into the loyalty programs that the major carriers have built, and the enormous pool that they’ve created in the mind of American consumers, who I think have at some point valued their miles more than dollar spending, right? So it’s become an amazing pool, an amazing carrot to hold in front of people’s daily spending habits. What do you think is going to happen to them? When I look at the loyalty industry, I was expecting last March, that this would really loyalty promotions, and we’ve seen this before, there were three nights, say after five stays, or you have to do 10 flights, and you get a free flight. We get 60,000 miles. US areas was one of that, those promotions quite some time ago, when they were still around, and they give you a lot of milestones, and if you would complete them, there would be a pretty big payout. And I thought that would happen after March, at the beginning of the pandemic, that these programs would set milestones and create a lever to bring people back in. They seem to have not done much. I know they’ve used it as a cash cow, and they used it to mortgage against additional loans, which is a smart idea, but for the consumer, I feel they haven’t moved much. They haven’t gotten more attractive. What the airlines have done with their loyalty programs is basically, they said at the beginning of the pandemic, we’re putting everything on hold. We’re going to extend your elite status if you have it at the same level through 2022, because they realized no one was going to be traveling. They have done some things, Torsten, although it may be targeted, fly so many times, get a, you know, earn a bunch of bonus miles, or take so many flights and spend a certain amount of money, and earn bonus miles that count also towards your 2023 elite status, or other things like that. There have been some promotions out there. Some airlines have lowered some of the requalification levels for elite status. Everyone who had, let’s just say you had a platinum status or something like that, you were grandfathered in that status from 2020 into 2021, but then what they said is to earn that for 2022, instead of having to do X, you have to do less than X. And, you know, I will also add Delta Airlines has not done anything. Delta Airlines is simply, at this point, seems to be expecting its frequent fliers to jump through the same standard set of hoops for sky mile status in 2022 that they would in any other year. And I think that’s going to work against Delta, because American, United and Southwest, among others, have been out there with different kinds of promotions and different kinds of requalification. So, you know, we have seen in our research that consumers are less loyal to airlines and hotels, frankly, to most travel brands than they were in the beginning. In fact, loyalty to any one travel company now is down more than 60% from when I first became an analyst in 2000 and did the first study where I asked about this when I was back at Forrester. And what we find is that people are really not likely to be blindly loyal to any one company. There are a small number of people who are. Most of us have a subset of brands, travel brands, that we will consider and some that we won’t. And so what we do is when we’re going booking a flight, booking a hotel, booking a rental car, booking a cruise, we know the brands we like and we shop them first. And then maybe we’ll look at some of the partners or others that may be adjacent to them in terms of quality and value. And then there may be brands that may be less expensive, that we just say the quality’s not there, or maybe they’re more expensive. We say that would be nice, but I can’t afford it or don’t want to spend the money. So we’re a lot more mercenary ourselves. But one thing that’s changed in the past eight years or so, 10 years maybe, is that the travel industry has really shifted from loyalty to transactional and to a revenue based model and revenue based evaluation. And they don’t really care as much about the person who may be staying with them every week, but only spending $5,000 in the course of the year as they do the person who may stay 10 times a year, but spends $30,000 because they are just able to book better quality hotels and book suites and dine and entertain at the property and whatever else. So it’s become a lot more focused on the value of the customer. Now, from a marketing standpoint, from a financial standpoint, makes a lot of sense. For us as the consumer, we’re out there saying, hey, look, I’m giving you my money and I don’t feel that there’s any sense of acknowledgement or appreciation. I think it’s a real challenge. And part of that is so many of these brands now are so large that they don’t have to care. They won’t tell you that. Their PR people won’t tell you that. But frankly, you get someone from a big airline or a big hotel out away from the office, you know, dimly lit bar having a conversation after work, they will tell you that they just don’t care about people who aren’t in their top one or two levels of elite status. I can imagine. And you know, I don’t think it’s a surprise. I always felt the airline brands especially had been very generous over the years, especially combined with the banks. And that package really allowed a generation of travelers, including me, to see the world using rewards in a way that I thought would never be possible. So I’m very, very, very appreciative and I’m very thankful of what this is. I think it was, I don’t know if it was once in a lifetime, but it was a very generous act that I think happens by good intentions, by some luck, and by something that was going on in those companies that didn’t even know they wanted to do. So I’m very grateful. On the other hand, I feel it is very hard to pull off these massive loyalty programs 30, 40, 50 million members, customize them and deliver a personal experience. And I always, I think it’s a little comical when you check into a hotel and someone who’s never seen you before tells you, thank you for your loyalty because you have a status with that hotel chain, right? Or the same is true for airlines. And you’re like, well, I’m maybe have the status with all the different airlines, right? Or maybe with all the hotels. So it’s a little comical because I know what they want to do. And I think they do try to create this, this personal experience. I actually think they’re doing a pretty decent job. But obviously, the margins that maybe used to be there, or maybe not there anymore, and then obviously will create more pressure to not create customers so special. What do you feel is there a future for these revenue, non revenue based mileage programs, especially say, we earn these miles based on how many dollars we spend, I think this is not true for anywhere in the airline industry, as well as in the hotel industry, with very small exceptions. But some airlines still give you the ability to get an outsize to reward by having a fixed number of miles for say, you want to go to Asia, that’s only 50,000 miles say on Alaska’s program on cafe. And you can go to South Africa for just 10,000 more in business class. Do you think these things will survive or not? And I think Delta is just using the opportunity right now, they have devalued quite enormously their own chart when you travel on partners. Do you think the beauty of these award charts is gone and they will all be revenue based so you get a 1 cent discount per every mile you’ve got? Right. So the fixed award charts are going to go away if they haven’t already. For one thing, pricing awards dynamically allows the brand, whether it’s an airline or a hotel, to give you the product at a lower price. Sometimes the demand is softer or capacity is greater than anticipated. So that’s good. But as you said, there are also going to be times where you go to redeem your miles and you look up a flight or a hotel stay and you’re just shocked because it’s 800,000 miles to fly in business class from let’s say the US to Australia. Well, that’s not exactly a great bargain. It’s not in terms of the miles, especially if you don’t have 800,000 miles. But on the other hand, if you’re sitting on several million miles and you don’t have to fork out tens of thousands of dollars in cash, it may be just fine. I mean, again, perspective will be really, really important. But I think that what the airlines are saying is we would rather tie your earning ability to what you spend to, frankly, recognize and reward those who spend more. To that I say, you know what, maybe as the brand, you need to really rethink who you want in your loyalty program. Do you really want everybody that flies your airline or everybody that stays at your hotel to be a member of your loyalty program? And if you do, then what are the benefits that you’re going to offer them that are compelling that they wouldn’t otherwise get just buying a ticket as a general customer or booking a hotel room as a general customer? Now, hotels seized on this a few years ago, they said, join our loyalty program and you get free high speed Wi Fi. Okay, you know what, at the time they were charging for Wi Fi and it could save you $9 or more a day, you know, for a lot of people that was meaningful, but others were saying, you know what, I’m staying on business, I’d expense it anyway, I don’t care. So I think that that you really have to recalibrate what are the benefits you want to offer. You know, you may come down to the conclusion that really instead of having 100 million people in your loyalty program, you really only want 58,000. Now, that’s a huge difference and you lose a lot of insight. But maybe that lets you focus on the value you want to deliver to those 58,000 people and make sure they’re really truly loyal because losing them could have a substantial negative effect on your business. Now, that’s a hypothetical example that’s not based on anything in reality, but it’s just going out there to say, you know, these loyalty programs have been corrupted. There is much or more about the credit card. Are you carrying the brand’s co branded credit card and earning points that way? Again, if you are great, that’s what you like. But more of us have switched to a generic bank cards like MX membership wards, city, thank you, Chase Sapphire, etc. Or we’re doing cashback because that’s definitely more relevant. So an airline card, a hotel co branded credit card, that doesn’t carry the cashier the value or appeal that it once did. And that all goes back to the devaluation of the core program at the travel brand. Yeah, I think we’re going to see this bifurcation for hotels, they’re probably in a better place because they basically, once you book a hotel on say Hilton.com, it’s 25% less or 15 to 25% less than in commissions and what they would have to pay through an OTA. But the OTAs have lost a lot of traffic like Expedia, they’ve been consolidating themselves. So I think they still have this idea in mind that they can save 25% by booking on the hotel website. And I think for hotels, that still is really important because it’s you have to run a certain hotel website, you have to have a mobile interface that needs to be marketing behind it. So I think they still have for every member, there is a value proposition that they can kick back say 10% less, right? And they kind of do this with member rates for a while now. For the airlines, I feel for most of their members, as you correctly say, there isn’t a lot of value left. And I think I wouldn’t be surprised to see if Google buys one of those big loyalty programs, because Google can monetize that data, whatever you’ve done before, whatever data shows up very well, right? So they can, they probably already have that data, they probably pay for it, but they don’t run the program yet. But one of those those big data joins, I think I can see them run most of the membership very profitably, and then kick back airline miles to consumers on a certain level, depending on what that is. And then only as you say, the top 100,000 really stay in the Delta program. You know, I’m not so sure that they would sell it to Google. But I will say that airlines and hotels are making much better use of their loyalty program data and their other customer data than they were a few years ago. And airlines are building out software capabilities to extend personalized offers through different channels, including online travel companies like Expedia, as well as traditional retail and traditional corporate travel agency organizations. So, you know, the airlines and the hotels, for that matter, cruise lines, rental car companies, rail companies and others are all working to use the data that we they have on us better. Because what they found is, if they send us personalized offers, we will respond, not only are we more likely to buy, but we actually spend more if we’re getting a personalized offer. The core offer may be a discount, but then we end up buying other things as part of whatever the purchase is. And we have seen through our research pre COVID that personalized offers can lead to as much as a 20% increase in average order value. And BCG Boston Consulting Group has done research pre COVID in retail, where they found personalized offers can increase sales there 5% or more. So, you know, it’s in the the seller’s best interest to use that data and to make us feel loyal and to make us want to open those emails or respond to those text messages with the offers. You know, and we will. But, you know, again, if they’re not delivering on the basics, if the room isn’t clean, if the people aren’t pleasant, if the restaurant isn’t good, if the neighborhood where a hotel is located isn’t safe, you can have the most generous loyalty program in the world. And we’re not going to patronize that property anyway. And we may not want to go back to the brand. Unless it’s a mattress run. Yes. Do you have data on how much money on average these the each loyalty program makes per per member? So say United, I don’t know if they break it out, but the added mileage plus is responsible for a million in profit. I have not seen anything public on how much profit they earn per customer from an airline. I have seen hotels discuss, you know, the average rate or revenue that they get from their loyalty members, and it is considerably more. It’s I believe at least 15% more than the average guest and possibly far more than that, depending on some of the brands. Marriott, for example, Marriott International has been very good about monetizing its Bonvoy loyalty members. And, you know, those those members have shown that they are willing to pay more, that they are willing to, you know, they engage more with the brand. They stay at more of the flags, more of the brands within the organization. You know, they spend more on property. So, you know, again, if you’ve got the right value proposition, and you know your customer and you’ve got a product that meets or exceeds their needs, great. The challenge in travel is to get ahead of the customer, which is very, very, very hard to do, very hard to do. Our expectations as consumers increase every year because, pardon me, our expectations increase every year because the businesses we work with invest and they do things that are better, whether it’s Google, whether it’s Uber, whether it’s the supermarket, whether it’s the bank you use or whatever else, they’re doing things to make things easier and more convenient. And what we expect is, oh, others are going to keep pace with that. Guess what? They’re not. And so, as a result, there’s this disconnect. They’re unaligned expectations. The consumer is up here, the brand is here, and the problem is the brand isn’t saying to us, oh, hey, you need to come down to our level, and then making us feel good about it. All they do is disappoint us and frustrate us. And then what happens? We say, you know what? I’ve had enough of it. I’m going to go and see if there’s something better available somewhere else, or we just become mercenary. Yeah. Well, there is this huge disconnect, and I’m always curious why that is. There’s a huge disconnect and say how Europeans travel. They basically have no hotel chain affiliation, for instance, and they try to intentionally, most Europeans, to select non US hotel chains. So it’s very hard to get anyone I know from Europe and say into a helpline. They would go to a reticent, maybe. They might consider certain brands they know locally, but whatever you suggest, they will not go to a US based chain. And then it’s kind of the opposite in the US, right? So when I’m traveling, and I see a US brand, say in Europe or outside of Europe, if it’s not crazy expensive, I consider booking there. But I wouldn’t think much of most European brands because I feel like there isn’t a lot of brand standards. And I felt this perception that there is something going on with the European travelers that works very different in their mind. But I don’t know if, well, if you looked into this, if there’s something specific that loyalty programs maybe can address or that the whole organization can address, it seems to be like almost like a completely different world. So some interesting things. First, what was very interesting is years and years ago, I worked for a branding agency and the parent companies of Holiday Inn was then Bass Hotels was one client. Another client was FISA International. And research we did for those organizations, and this is now literally going back more than 20 years, showed at the time that in the case of Holiday Inn, Holiday Inn was really viewed as a global brand because they just had very good training and there was a lot of cultural sensitivity. Granted, it was formulaic. It’s Holiday Inn. There’s a certain look to it. But the things that people liked about Holiday Inn was, interestingly, the reservation system. It was felt to be more accurate and more reliable. And the clinging standards of the rooms and comfort of the beds, those were some of the things that stood out. So Holiday Inn was very successful in making itself viewed as a brand of the world, a global citizen. Now, the views of Holiday Inn varied from country to country. Americans were less enamored with Holiday Inn, for example, than people in certain parts of Europe or Asia. And in Asia, Holiday Inn was actually viewed as true luxury, as almost aspirational in certain markets. With Visa and Amix at the time, Amix was seen as a business credit card carried by American executives or executives who worked for US based companies. Visa was considered to be much more of a global brand. And in part, Visa didn’t have the word American in its brand name. So let’s bring it up to today. You mentioned that Europeans don’t want to stay at branded hotels, US branded hotels. First, Europe, until the past 30 years, didn’t have a lot of branded hotels for the most part. It was a region where independent hotels dominated, often hotels owned by a family for generations. They didn’t have, aside from maybe big cities such as London and Paris and Frankfurt, they didn’t have the big multi hundred, let alone 1,000 plus room hotels that you would see in the US or certain other parts of the world. And so there are cultural tastes and cultural preferences. What’s been very interesting is that in the past 20 years, the US brands have been very successful in exporting brands such as DoubleTree by Hilton and Weston and Conrad and others into Europe and elsewhere. And those brands are very well received. The developers like it because it’s a known product. They can make more money. And they’re attracting people who’ve run independent hotels to convert to some of these brands. Accor has gotten an acquisition spree. It owns Fairmont. It bought Raffles. And it’s grown its own suite of brands in Europe. So it’s just very interesting to see that now Europeans are more comfortable staying at brands, but the brand has to be relevant. It all goes back towards what’s in it for me as the guest. Are my expectations going to be met and ideally exceeded? And so brands bring a certain sense of familiarity, although they also force a little trade off in terms of conformity. Well, we’re talking about a brand that has developed very nicely. I’m always curious about Qatar. They’ve been able to build their brand, obviously driven by a lot of money, but that’s kind of a given in the region. And they’ve been able to build a brand and also put in the innovation, put in the work. They’ve innovated on the business class a lot. They played with first class and didn’t really work out. They kind of have taken that off the menu a little bit. And they really reintroduced an economy class, Kevin, that we used to know, that comes with good food, something that we probably still remember from 25 years ago. And they are able to have put the money into branding and also created an airport and hub that actually is worthwhile connecting at. And what’s even more surprising during the pandemic, they seem to have been able to keep up their network. I don’t know if their planes are completely empty. That might be the case. But they really canceled the flight completely. They maybe only fly three times a week. Well, most destinations are still intact, and they always had a long haul network. So they never had much of a short haul network. Saudi Arabia for a while, that’s now slowly coming back as well. But when we contrast this to Amirats, which always was known for pretty big planes, but also pretty empty planes. And that was pretty pandemic. They were mostly never really full. And they had like three flights from LA every day and two from San Francisco, massive capacity. And it seemed like they cut their network by 90%. And Qatar is kind of, and so that’s true also for Etihad. So what’s going on with Qatar? Is it just destined of losing a lot of money? Do they think this is a real opportunity? Are they getting a little closer to making any money? What’s your insight into Qatar? Well, Qatar Airways is state owned. And the government of Qatar has said they’re willing to keep the airline going. Now, a lot of the routes that they’ve been operating have been less about people and more about cargo, moving belly cargo, either exporting goods or importing goods into Doha or using Doha to your point as a transit hub for some of that cargo between the, let’s say, Europe and the Americas at one end and India or Southeast Asia at the other. And Doha is a very, very convenient airport, a very geographically well placed airport. So it makes a lot of sense. But Qatar has definitely invested in the passenger product in the passenger experience. Their business class Q Suites have earned the praise of some of the most finicky flyers I know. The reason that they had first class only on the A380 is that, frankly, they felt they didn’t need it on any other flight. For one thing, very few people will buy first class. But also, when your business class is so good, what are you going to do? What do you do to make first class that much better? And you contrast that, say, with Air France, which has a nice, solidly good medium, solidly good business class product or Lufthansa, but their first class is tangibly better, although they only have first class on a handful of their long haul jets. So, Qatar Airways has really focused on the passenger experience because they feel they need to. They’re not as large as Emirates. Their network isn’t as extensive. To your point, maybe they can only run one flight a day in and out of the city, whereas Emirates may run two or more. And they know that they have to really compete. And part of that competition will be based on schedule and price. But part of it is the so called soft product, the pleasantness of the flight attendant, the comfort of the seat, food, in flight entertainment, Wi Fi, all of that. And it will work. So, it seems to be working for Qatar Airways right now. And I think the other thing that they are doing is they realize if they fly through the pandemic, if they open new routes, for example, they’ve opened new routes from Doha to both San Francisco International and Seattle Tacoma, if they’re there now by the time people start traveling again, they’ll be more of a known factor. And it will help them compete with other airlines, whether they’re European carriers, Asian carriers, or other carriers from the Middle East. And, you know, maybe they won’t have to discount as much. One thing that I noticed when I talked to people who start an airline or helped start an airline, it’s relatively easy to start an airline. Warren Buffett has the strength to say. And it’s relatively easy to make it a product that people find of interest. Even marketing is easy, because you just slash the fairs like Iceland Air, or not Iceland Air, a Huawei. Excuse me, with Iceland Air was going in a similar route for a while, similar destination for a while. But it’s really difficult to make an airline profitable and sustainably profitable, not just for a year. And we differ a lot of expenses in that particular year, but make it sustainably profitable. That’s a feat that for the longest time was impossible, and then US airlines became so profitable, amazingly profitable, like Alaska Airlines. Do you think this, and now, you know, a lot of airlines have gone down, and they’re out of business, or they will go down? I mean, if the travel recovery will be another 12 months out, I think it’s going to be even more airlines that stop flying entirely. Do you feel we’re going to see a renaissance of really profitable airlines? Because there is simply so many, there’s a much smaller amount of airlines around. And to an extent, I always felt some airlines maybe are not even in the business of making money, because there’s so much more money to be made from people bringing, they bring into the country and the cases of Qatar to raise the national image, which is really strange. Do you feel we see the super profitable airlines again, or there will be a sustained 5, 10 years where nobody makes any money? No, I think, look, you know, you do have some airlines like Cutter and Emirates and Etihad that are viewed as strategic assets, and their contribution is measured more than in their own individual profit and loss. What do they do to help with travel and tourism, to help with development, to help with the country’s positions on the world stage, trade and more. But for airlines that are not state owned, or whose governments are not as generous as the UAE and Qatari governments may be to their airlines, the airlines do have to earn a profit, at least not lose a lot of money. I do think that within a couple of years, and I do think it’s no more than two years, at this point, we will start to see airlines return to profitability, and assuming that the global economy doesn’t go haywire, that oil and thus jet fuel doesn’t go haywire, that we don’t have any other crises, I think we will see the airline industry, you know, continue to be profitable, starting in maybe it’s 2022, certainly no later than 2023, and continue forward. What we don’t know is how profitable will it be? What will demand look like? Will consumers be willing to spend money on all the optional things? Will planes be as full as they once were? Will airfares be as high as they once were? So there are a lot of unknowns torsted at this point. I have worked on a startup airline, and I will tell you, the first year is really, really hard, but you’re coming off of a base of zero, so everything looks good. When you get into year two, year three, year four, that’s when it becomes much more difficult, the comparisons become more difficult. You’re more of an established business at that point, and you don’t have the luxuries and the flexibility and agility sometimes that you did when you were starting up. But, you know, I’m hopeful in conversations I’ve had with the executives looking at their balance sheets and financial data and looking at data from organizations like IATA, as well as my own research. I think 2022 is the year we start to see airlines return to profitability, and though it may be modest, but it climbs from there. Well, on that positive note, I want to thank you for coming on the podcast. Thanks for sharing your knowledge. Thanks for doing this, Henry. Thanks, Torsted. I enjoyed it, and I appreciate being invited. Absolutely. I hope we get to do this again. I would like that. Henry, have a good one. Talk soon. Okay. Take care. Stay well. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.

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