American’s travel dollars are at greater risk than likely any other investments they hold. This is the first of three blogs explaining why and what to do in the era of Covid-19.
I’m going out on a limb, here, so it’s important that you follow my reasoning so that you can perceive its weaknesses and let me know. I’m as anxious as any traveler to find the looking-glass.
This first blog explains why these dollars are at such a risk and always have been. Tomorrow’s blog does my best at projecting when travel might be possible, again, and what other parts of the world – particularly Africa – will look like. And Wednesday’s blog will give my recommendations on what to do.
Vacations are planned in advance relative to how expensive they are. Big trips are planned much further in advance than little trips. And a “big trip” to a retired teacher could be a $500 cruise while a “big trip” to many of my clients is a $20,000 safari. For the purposes of this blog bury the hatches between the classes. The teacher on a Bahama’s cruise can have as life-changing an experience as my Google Exec on a remote Tanzanian safari. Travel should be a part of everyone’s lives and the actual cost is not proportional to its ultimate effect on that person’s life.
Travel is the odd child of capitalism, usually paid for in full long before receiving. Lay an unexpected war or virus over earth, and billions of travel dollars seem to be floating in limbo.
Imagine going to Loew’s, buying a new gas stove and paying $800 to be delivered three months later, then finding out your condo is going solar. How about putting down a 20% deposit on your new home for a closing date a year later, three months after the hurricane leveled it? What about your tax lawyer? Do you pay him a half year in advance so you can get your return done in time, a couple months before the economic collapse?
There are reasons you lay out so much cash for your travel so long before you get it.
Start with your airline ticket. The airline industry is one of the oddest chicks in the coop. It doesn’t really work well in capitalism because of its extreme volatility. Capitalism works smoothly on its theoretical principles when buying and selling is predictable. There’s nothing less predictable than vacation travel.
Vacations get the last bit of anyone’s disposable income. They are ridiculously effected by trends and rumors and referrals, not to mention most of all by the economy.
That means even the best business school genius in almost any segment of the travel industry will never be able to create a good balance sheet over a reasonable number of years, like selling cars or refrigerators or pineapples or gutters or steel beams or wedding dresses can.
Because the amount of capital needed to weather the nadir of an unpredictable economic cycle is just too great.
Of American Airlines’ 134,000 employees, 18,500 are pilots, 26,000 are flight attendants and about 40,000 are other uniform-wearing visible employees like airport personnel. That leaves almost 40,000 others you never see.
Uniform-wearing employees can be scaled back in a crisis but the nearly 1-in-3 behind-the-scenes folks can’t easily. They include the ones who make sure the bolts are tightened on that hunk of steel you’re flying. The training of a third-tier assistant mechanic is so intense that taking him off the safety line risks years of assurance.
So that’s why you pay for a nonrefundable ticket up to 11 months and 11 days before you fly. And as irritating as it may be that when you have to cancel for a legitimate reason you loose your entire investment, there’s no other way. Your advance payment is American Airlines’ cash flow, which more than any other industry ever, is also its capital.
By most measures, American Airlines is the biggest airline in the world. But the travel business dynamic trickles down to the smallest little company in the chain.
That great little camp in the Serengeti wants 30% nonrefundable upfront and full payment 30 days out… from the travel wholesaler who wants full payment 60 days out… from the travel agent who wants full payment from you 90 days out. And in those short little periods between fund transfer when a crisis hits the windfall drops when the sale becomes inviable.
And over years and years it drops in all sorts of different places. Billions of dollars of ticket sales were forfeited by passengers on 9/11. The subsequent months were disastrous for the airlines, but the first half of September was absolutely outstanding.
It might drop on the employee who’s just been given a cash advance before the camp unexpectedly has to close, or the landscaper who just landed an annual contract before the drought began, or to the camp owner just before she paid quarterly bonuses, or to the wholesaler and sometimes even to the travel agent. And like big American Airlines, Main Street Travel only exists year after year because every once in a blue moon a windfall drops on them.
It’s how the business works and managing it is an art.
Tomorrow: what we know about Covid-19 and how it effects your vacation plans.