Those of you who aren’t running an airline or mortgage provider are probably breathing a sigh of relief this week. The front pages have been dominated by news of ‘Black Monday’ – sparked by an unsuspected profit warning from mortgage lender Bradford & Bingley.
Britain’s biggest buy-to-let mortgage lender said it would incur a loss of £8m in the first quarter of 2008, compared with annual profits of £108m last year, as the credit crunch and high cost of borrowing has left customers struggling to meet their mortgage repayments. This sent shockwaves through the financial industry, hitting share prices of the UK’s major banks left, right and centre.
Meanwhile, mounting consumer debt has unsurprisingly led to cutbacks on luxuries, which is having a pronounced affect on the travel industry. Reports today show that airlines have suffered a sharp fall in online sales this year, which further compounds the misery they are already suffering as a result of skyrocketing fuel prices.
The future looks especially uncertain for low-cost carriers, which rely on shoestring budgeting to remain competitive. AIM-listed Silverjet, the UK’s first low-cost, business class-only carrier has finally called in the administrators, after a lengthy battle to increase its share price which has been well documented in the business pages. Like its former rivals Maxjet and Eos, CEO Lawrence Hunt has blamed soaring oil prices, currently at an all-time high of $130 per barrel, for its crash landing.
But Ryanair boss Michael O’Leary has used the hype surrounding the prophesised demise of the industry to put his airline in a strong position over the next few months. Dismissing the idea that the era of low-fare air travel is over as ridiculous, O’Leary assured passengers that Ryanair can absorb rising oil prices for the foreseeable future. Ryanair will break even in 2009 if oil prices remain at $130 a barrel, but may begin to lose money if this increases to $140 or $150, he said.
While admitting that fares may need to rise by 5% to accommodate rising costs, such as those imposed by BAA, he pledged that he would never make his customers pay fuel surcharges, as rival airlines have done, even if oil prices hit a staggering $500 a barrel. He also revealed plans to keep 20 aircraft grounded this winter, to cut fuel costs, and to freeze senior managers’ pay in an effort to protect the airline’s margins.
As consumer confidence falls and cutbacks on spending increase, convincing customers to favour your product or service is vital. Remaining transparent and reassuring your customers that you’ll continue to put their interests first, despite your margins being squeezed, and outlining ways in which you will prevent them from shouldering higher costs as much as possible, is likely to inspire brand loyalty at a time when this is more important than ever. Well played, O’Leary.