Fear of failure - 17 September 2008

Posted by Paul Collins 1 comment

This is one of those rare times in my life when I am actually quite happy not to have been on holiday. The poor customers of XL Leisure who have been left stranded overseas, or who have had their upcoming holidays cancelled due to the company’s collapse, are in that horrible situation of being on holiday and knowing that they can’t really relax or enjoy it as they have no idea how they might be able to get home again.

The reaction here in the UK to the collapse has been mixed, and looking at some of the comments that have been posted on the forums and stories on some of the national newspaper websites, there is a real split in the country as to how this type of situation should be dealt with.

Some posters are incredulous that the government has no stepped in to make sure the company stayed in business long enough to bring back those passengers who were overseas. Others are surprised that it took so long for a company that, they say, has been on the brink for some time to collapse, and that the levels of service provided were the undoing of the business.

The fact is that the government has no business in getting involved in the affairs of private companies. The process of the world of commerce has to be allowed to run its course, and there will always be some companies that fail and are allowed to fall by the wayside – sometimes it is a case of the wrong business idea or the wrong structure at the wrong time. Also, the path of changes in the way business is conducted mean that some ideas will run their course and have to be allowed to fail for the new innovations to have space in the market.

The case of Northern Rock – and now with AIG in the US - is a different matter and one where the government intervention was most probably justified. These cases are judged by what is loosely terms the ‘common good’. Essentially, the government has a responsibility to maintain the stability of the economy, and at times it is necessary to prop up one business in order to prevent the failure of one company infecting the economy as a whole. In the case of AIG, it is said that the knock-on effects in both the investment markets and for the rest of the business community in the US and across the world would be so profound that the failure of the company could halt the economic growth in markets such as China.

But back to XL. Given the swift and ignominious exit of the third-biggest player in the UK travel industry, along with the earlier failures of airlines such as MaxJet, Silverjet and Zoom, perhaps it is time for the industry to take a serious look at the way in which businesses are structured and funded. Tour operators have to block-book hotel rooms up to a year in advance in order to have the capacity to serve its customers. This is a practise which dates back to the heyday of the package holiday when tourists would begin the process of booking their next holiday almost as soon as they returned from their resort.

Not only is the package holiday as we know it virtually extinct, anyone who does book this type of holiday is now savvy enough to know to wait until at least New Year before they book for the summer. This makes the tour operators twitchy and willing to sell their holidays for much less than they had planned for – any price for a sold holiday is better than empty rooms.

Airlines aren’t much better – they have to pay for their slots at the airports, but most of the current jitters in the market are down to fuel supply issues. Even though the price of oil is now sliding southwards (at the moment) the effects of the high oil prices this year have made cash flow an issue for airlines. Many are now at or very near to the limit of their credit with the fuel supply companies, and there are rumours, ahem, flying around that some companies only have enough money left for a couple of weeks of fuel.

Perhaps the most ire of the blogged opinions that I saw was reserved for the Chief Executive of British Airways, Willie Walsh, and his comments about the future of some of the other airlines in the marketplace. By saying that he expected another 30 or so airlines to close before the end of the year, some members of the public felt that he was using the fear of losing their flights to try to drive more people to book with BA. It is difficult to find anyone who disagrees with the opinions of Mr Walsh in the present climate, but perhaps he wasn’t the best person to be delivering the message…

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