When mass market tour operating came to the fore, back in the 1960’s-70’s, the key holiday element was the charter flight, as it often provided the only cost effective route to get to the holiday destination. This led to a tradition where hotels and tourist boards put greater value on relationships with tour operators, giving them better “Package” rates and marketing contributions.

However, the rise and rise of low cost carriers such as Easyjet and Ryanair has flooded the beach leisure market with capacity and effectively turned the flight element into a mix and match bus service, where Online Travel Agents (OTA’s) can offer 100’s of flight combinations for most days of the week. This has negated any real advantage of owning your own charter fleet and turned it into a disadvantage at times, fueling the growth of OTAs using Dynamic Packaging (DP) technology.

The visionary management of TUI, saw this threat early and over a 10-year period repositioned the Thomson and First Choice tour operations into “differentiated” hotels, which they control and have exclusive distribution for, protecting them from the attack of the OTA’s who have taken control of the “Commodity” price driven market. As we all know Thomas Cook were slower to react, but under the leadership of Chris Mottershead are beginning to make progress on their own drive for differentiation.

The growth of OTA’s in turn fueled a growth in Bed banks who consolidated demand and negotiated rates with hotels. The best rates often came from their “Castles” where they paid hoteliers “Early” via large deposits, using working capital funds generated by paying other hotels up to 90 days post departure. The collapse of “Low Cost Travel Group” with massive debts exceeding £100m, severely “burnt” hotels and has caused a major tightening of payment terms. At the same time OTA’s due to competitive pressure have reduced customer balance collections for 8 weeks to up to 2 weeks before departure. Hence, there is simply less cash around in the sector to fund either “Castles” or Early Booking discount payments to hotels.

At the same time the threat of terrorism has re-shaped customer demand with the loss of Egypt, Tunisia and effectively Turkey focusing demand into Spanish destinations. Last year saw record occupancy levels in the Balearics and Canaries, which of course has led to higher prices. However, the bigger impact is how hotels are now seeking to yield manage.

Historically, hotels signed paper contracts with various tour operators allocating their stock between them at fixed rates and then “stop selling” when tour operators reported back sales and hotels realised they were fully booked. This model was replicated when “Bed Banks” replaced tour operators, with hotels able to yield downwards via special offers, but rarely able to increase prices.

Spanish hotels are using the current buoyant market to take control of their own destiny by forcing Bed banks and OTA’s to access their stock via “Channel Managers”. These allow hotels to hold their stock centrally and change rates daily. These rates are either “pushed” to bed banks, to update the rates in their system or availability/price is “pulled” via XML queries on a live basis.

This is a massive shift in power and is a big threat to bed banks as OTA’s can easily cut them out of the chain and connect directly to the hotelier. In a market place where the hotelier is confident of selling its product, why would they bother giving the bed bank a better deal to protect a distribution network they now openly question whether they need?

Cash is still an important commodity in the purchasing chain, but with less cash available hotels are now just as focused on yield management, which in turns requires them to control their stock. Any element of the chain that restricts this or does not add value is likely to be removed.

The best way to counter this threat is to be so big and to dominate the leasuire bed sector so much, that OTA’s direct can simply not complete with you buying power or distribution.

Hotel beds owners TUI did not have the pockets or the will to consolidate the bed bank market to achieve this and it has taken the entry of a major VC to hover up and combine Hotel Beds, Tourico and GTA into a “Super bed Bank” that can easily ride through the storms ahead. However, VC’s are normally only motivated by the “Exit” potential, so don’t be surprised if this new group is quickly sold on. Its now a strategic gem that Pricelines, Expedia and the ultra agrressive Chineese are likely to fighting over shortly.

So yet again we see a continuation of a travel threme. The big get bigger and smaller players need to be gobbled up or simple disappear.