Jeremy Warner's Outlook: With travel companies, it's survival of fittest

Willie Walsh, chief executive of British Airways, expects a further 30 airlines to go bust by the end of the year, a similar number having already gone down in flames in the year to date.

Meanwhile, XL, billed as Britain's third largest tour operator but in truth more of a low-cost airline with a bit of packaged holidaymaking tacked on the side, bites the dust. With customary tact, Ryanair says it serves XL's customers right for signing up with such a dodgy operator. They should have flown Ryanair instead. That way they could have been sure of at least getting their flights.

One of the effects of a downturn is to cleanse the system of the excess capacity that builds up in the boom. In this regard, what's happening in the airline and package holiday business is not so different from what's going on in banking. A Darwinian process of survival of the fittest is underway. Those that manage to come out the other side will be bigger and stronger.

What's made the process much worse this time around for airlines is the oil price. High fuel prices are also what seems to have put the kibosh on XL. With XL, it wasn't so much a collapse in demand that was the problem as that the cost of providing a holiday had risen to more than it was charging for them. The fact that the company was also loaded up with debt, the result of an Icelandic-backed leveraged buyout a couple of years back, made matters more difficult still. As ever, the lesson is that debt is a killer. Those that enter the downturn with too much of it are less likely to survive than those that don't.

A big tour operator can be guaranteed to go bust in every downturn. You can set your watch by it. In the 1970s it was Court Line. Come the early 1980s, it was Laker. In the early 1990s, it was Harry Goodman's International Leisure Group. Out of that implosion was built the explosive growth of David Crossland's Airtours. Sure enough, when the downturn of the early "noughties" arrived, he too met his come-uppance. Shareholders were virtually wiped out in a series of recapitalisations.

By comparison, XL is a comparatively minor stripping out of capacity, though we haven't yet entered the full depths of the downturn, so presumably there will be plenty more where that came from. Shares in the bigger tour operators – TUI, Thomas Cook and Holidaybreak – all rose in anticipation of a wider bloodbath. Fewer tour operators means more business for the ones that survive. Like nature, the capital markets are a brutal place.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Reimagined: Gwyneth Paltrow and Toni Collette in the film adaptation of Jane Austen's Emma
books
Arts and Entertainment
Jesuthasan Antonythasan as Dheepan
Cannes 2015Dheepan, film review
Sport
sport
News
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Arts and Entertainment
The pair in their heyday in 1967
music
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine