Will the demise of the budget airline sector impact upon worldwide property markets?

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Even though the worldwide property market is literally on its knees there seem to be more and more negatives impacting and appearing at every corner. The latest suggestion from those within the market regards the budget airlines and the fact that the sector is under serious pressure at the moment. Those who keep a close eye on the worldwide property market will know that there is in many cases a direct correlation between access via budget airlines and the popularity of any one property market. There are now major concerns that the collapse of a number of airlines will have a serious impact upon the ability of the worldwide property market to bounce back.

What is happening to the budget airline sector?

It has been estimated by the Official Airline Guide that there will be 46.3 million fewer seats this winter which equates to in the region of 450,000 fewer flights. So far the list of casualties in the sector includes the likes of XL Airways, Zoom, Sterling.dk, Oasis Hong Kong, Silver Jet and MaxJet however this really is just the tip of the iceberg. We have seen such leaders as Ryanair and EasyJet reduce schedules in order to retain cash flow and ensure that their businesses are able to survive through this recession.

The situation with Ryanair and EasyJet has been replicated around the world with each and every single market having its own particular worries. Many investors are looking at the price of oil and suggesting that the fall from over $150 to about $70 should help the budget airlines in the short to medium term. The problem for many is the fact that they have already acquired their fuel on a forward contracts basis, so many are still paying a high price having committed to do so sometime ago.

By the time the reduced price of oil filters through to the budget airline market we will certainly have seen yet more of the smaller carriers fail and many of the major budget airlines will feel yet more woe. It is not inconceivable that we could see one of the major budget airlines collapse although at this point in time they appear to be taking sufficient steps to safeguard their immediate future.

Budget airlines and the property market

The fact that there will be 46 million fewer visitors overseas during the winter period is not only bad news for tourist markets around the world but will also have an impact on property markets. We have seen more and more people acquiring second homes in the knowledge that the cost of travelling to their second home overseas is minimal due to the competition in the budget airline sector. If we see availability and competition reduced in the sector this will have a have a knock-on effect to popular markets such as Spain and most importantly it does have the potential to stop emerging markets in their tracks.

Over the years we have seen countries such as Bulgaria attract more and more tourists which then attract the attention of international property investors who see a ready made market in second homes, the property investment market and the tourist industry. There is already evidence of a slowdown in areas of Spain and Bulgaria where the property markets that have been served by the budget airline industry for some time now.

Emerging property markets of the future

The problem now may well be small in comparison to the problems of the future if as expected the budget airlines undergo a period of consolidation over the next few years. In the eyes of many investors, the business model of these airlines, which operate on wafer thin margins and high volumes, has been shown to be suspect in times of a slowdown. There is every chance that they will cut back on not only existing routes but also introduced fewer new routes in the short to medium term, thereby cutting off vital transport links to many up-and-coming parts of the world.

While some may argue that the budget airlines are not the only airlines in the industry, which is correct, the more expensive airlines are unlikely to pick up the slack in the high-volume low margin areas of the world. There is also the factor of cost and the fact that many secondary property markets overseas have benefited from an increase in traffic numbers and the emergence of the budget airlines.

Property prices

As we suggested above even though the worldwide property market is feeling the pain at the moment there is evidence that some of the smaller more niche property markets in Spain and Bulgaria are suffering to a great degree because of a cutback in the number of flights from places such as the UK and the drastic reduction in passenger numbers.

Transport links have always been one of the main ingredients of any successful new emerging property market and this has been shown time and time again around the world. While there does need to be local demand and a reason for investing in a particular market, the factor of accessibility from as many places around the world as possible is vital. The greater the potential market interest in one area the greater the demand, the greater the supply and the greater the activity which are all essential ingredients for any property market.

Summary

For many years the budget airlines and similar transport operations have been of great assistance to new and emerging property markets all around the world. It would be wrong to suggest that they have created markets but there is no doubt that they have helped to encourage substantial growth and are still a very vital element of the equation. If property investors are not able to visit an area to check out a property they may want to acquire, they may well move on to more accessible markets.

It is not just the fact that buyers and sellers are not able to visit a particular region but also the fact that tourists are unlikely to descend on those regions in great numbers if the accessibility is not as good as it could be. The influence of the budget airlines is well documented within the property market and something which needs to be kept in mind when investors are looking at particular overseas markets.

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