By Gary Chapman
The travel and tourism industry will need to consolidate to survive the higher US dollar, low oil prices and lower yields.
Whilst I retain a positive outlook for the coming year, the continued tightening of liquidity in the region will drive leaders to look deep and hard at their businesses in 2016. Indeed I am sure the prudent ones are already doing so. The longer we have to manage lower oil prices, the more we will see the squeezing of marginal businesses that are perhaps not as efficient. I believe they will feel even more pressure as the year goes on.
The loss of some 50 percent of the oil revenues is not insignificant and is inevitably putting a squeeze on spending and people’s confidence about the near-term future. In the travel & tourism services sector, for example, the strength of the US dollar is an added challenge impacting Dubai’s competitiveness and driving lower yields. That means lower commissions being earned, particularly when you look at travel agents. The ones that are not on their game will really struggle and the knock on implications of that will need to be watched by others in the travel industry.
Well-run businesses will also have to re-examine what they do and how they do it. No one is immune from this tightening liquidity. The knack is to do it before you have a crisis and not wait until you have one. It‘s a good thing because organisations can come out stronger and be more competitively positioned, not just regionally, but globally. This is particularly so for global businesses like dnata. The operations of our different business segments: ground handling, cargo, catering and travel, are not only here in our Dubai hub, but spread across the world.
There has also long been the perception that Dubai is a low cost employment environment. This is not the case and businesses are realising this. The reality is that as we internationalise and search for the best people to fill the best roles, we are in an international market and have to pay very competitive remuneration packages to attract and retain the right people. That’s a change we’ve seen, but not just in the last year. There has been a gradual shift, which has been accelerated by the strengthening of the US dollar.
The positive aspect of these liquidity and cost pressures is that it’s a catalyst for businesses and business leaders to look at more efficient ways of working, and at removing the extravagances that may have crept into behavior and businesses in previous years. This is not necessarily a
For example, at dnata, we have been responding to what we see as the future of travel by embarking on a journey of transformation over the last few years. We look at disruption technology, innovation, and at taking advantage of technology to improve our business model. Already, we see online channels taking a bigger share in the travel industry. This region has been slower to respond to this technology trend, but it is accelerating and dnata is now well positioned to play in this area.
So, while the tightening of liquidity is going to create bumps along the road, we will continue to drive our business and strategy forward to ensure we are better placed year after year.
Finally, even as the geopolitical environment in the region continues to be challenging for businesses, I feel very positive about the future and the long-term positioning of Dubai, which is dnata’s home base. We are blessed by the commitment of the government of Dubai to its long-term strategy of creating an environment which allows people and businesses to thrive and be successful and Dubai continues to invest in the future.
It is this courage and commitment that gives us added comfort in terms of what we are doing here, in the region, and globally.
Gary Chapman, President of dnata.