The ATOL fund is finally back in the black, thanks to the introduction of Flight Plus ATOL and increased contributions from a whole range of retailers, but in particular OTA’s like Travel Republic who finally joined the scheme in 2012.

However, as usual when dealing with the Government, the goal posts have shifted again and instead of the expected reduction in the ATOL fee, we are faced with a “Call for evidence”. As part of this, they have made it clear that the Government wants the CAA to continue to provide “Repatriation cover”, but to remove the Governments role as insurer of last resort. Instead it is asking the travel industry to come up with its own scheme to provide financial security for the customer. In my opinion this is perfectly reasonable and actually not that hard to achieve for the Flight Plus sector, if the CAA will continue to play a key role.

The CAA has mooted “Trust funds” as one possible solution for Flight Plus travel agents, but in really this is a bit of a red hearing. Yes, “Trust funds” would extend current financial protection to cover pipeline moneys held by agents, but it does not deal with the key risk that ATOL currently covers i.e the failure of an airline, causing the failure of the Flight Plus ATOL holder.

The majority of Flight Plus holidays use Low cost carriers who demand payment on booking. Therefore, if an airline went bust, there would be no money in the trust fund to replace the flight and the ATOL holders still goes bust. The only real solution is compulsory insurance backed Supplier Failure Cover (SFC)

The collapse of an airline would cost insurers a large amount and is therefore regarded as a “Systemic Risk”. This is where the risk outweighs the annual premium paid to the insurance, to such an extent that it could take 5-15 years of premium before it’s covered. If the CAA leaves agents to get their own individual policies, then multiple insurers, all of which will have a percentage of the market, will face this one “Systemic Risk”. This is highly inefficient and in itself will lead to higher average premiums.

The logical party to aggregate all the demand for SFC and place a policy to cover this risk is actually the CAA, since its what it currently does. The only fundamental change is that the CAA would be swopping out a Government bond, for an insurer or panel of insurers who specialise in this type of risk covering.

Having researched the market extensively as part of my Non Executive duties at Rock Insurance, I know that an SFC policy could be placed for £1.50 per person or less and if £1.00 is put into a fund to cover repatriation cover, the current ATOL fee of £2.50 can be used to provide both repatriation and financial protection as it currently does.

The CAA could reduce the cost of insuring against airline failure, if it insisted that retailers used “Virtual’ credit card technology or company cards when booking flights. These allow re-charges non-delivery of service against any airline’s credit card clearer, if the airline fails and provides a level of defence in front of the insurance policy.

The CAA could then use this saving to extend the SFC policy to also cover the collapse of Flight Plus agents and any “pipe line” money. Although, some travel agents do regularly fail, these failures represent relatively small hits to insurers and therefore are relatively cheap to insure. Also by pooling the risk of failure across all Flight Plus agents, it removes the need for the CAA to insist on differential premiums depending on the risk of the agent and in turn the need operate complex trust fund schemes or financial regulation.

The above model is simple to introduce across the Flight Plus sector since it can all be achieved with no visible change to the scheme. ATOL holders still pay £2.50; customers still get financial and repatriation protection.

I wish the same could be said in the case of the major tour operators since most insurance companies will be scared by the shear scale of cost if one of the big two collapsed, irrespective of its likelihood. However, for once hopefully the CAA will not burden the Flight Plus sector with this risk as well, since after all, we are only agents!!

For the last 3 years I have been a pessimist at this time of year during the annual budgeting exercise, telling my directors to “Baton down the hatches” and plan on keeping everything tight for the year ahead.

However, even through the number 13 may generally be deemed to be unlucky, I am feeling much more optimistic about the year ahead. This is partly down to my “naïve” expectation that there will be less negative impacts next year.

No ash clouds or Arab Springs on the horizon. Although sales to Egypt are likely to remain depressed, as it continues on its seemingly inevitable slide to being a secular Muslim state. No glorious summer of sport, to keep potential customers locked to their couches, watching Euro football or golden medals being delivered in their droves by both able and disabled British athletes.

Even the Queen may keep out of things, having spent the year attracting overseas and domestic tourists to the great summer of London pageantry.

There are also some positives to drive expectations. Historically, after a wash out summer, early demand surges for next summer’s overseas holidays. Holidaymakers, who got stuck in the wet and miserable UK during last summer, spending fortunes to keep the kids entertained, often vow to never do it again. Well until the memory fades a little at least and hence weeks of rain, just before the key January booking window, can only be a God send for sales.

At a more Macro level, the pound remains relatively strong against the Euro. Although it has dropped back from €1.25 to €1.22 during the last six weeks, it remains ahead of last December’s €1.19 to the pound, meaning both customer’s spending money is boosted and the hotel element for Euro destinations is reduced.

The Dollar and Fuel prices are also looking positive with the Pound hitting an annual high against the dollar this week at $1.62 to the pound and fuel prices drifting down to last year’s levels. In simpler language these variations should give tour operators an average £10 per person reduction in holiday costs. Initial indications are that tour operator capacities are tight and hence prices can be held, with these cost reductions dropping to the bottom line.

Unfortunately, in the commodity ”Dynamic packaging” market, competition is likely to force all these savings to be passed directly to the customer in the form of lower holiday prices. Given prices are already much lower than traditional tour operators; it is unlikely that this price reduction in its own right will drive more volume for the sector.

The Dynamic Packaging market is much more influenced by low cost airlines capacity. We are seeing a slow down of both low cost capacity growth and in the shift from city routes to leisure routes. However, it should be remembered that agents dynamically packaging have 100% access to a low cost flights, compared to the 30% of seats charter operators sell off as flight only and hence even small movements can have a big impact.

Probably more relevant is the statistic banded around by Low cost airlines, that Travel agents represent less than 10% of their seat sales. Do I believe this? Not for a second, but irrespective of the real number, there are clearly still millions of more seats for Agents to package into holidays and I am optimistic that the Dynamic Packaging sector will grow by a further 15%-20% this year. Why such a radical increase?

Well we are not quite there yet, but given all the noises coming out of the major tour operators, 2013 is likely to see Agents commissions on the “differentiated” holidays sold by the major tour operators cut to a flat 4% commission plus booking fee. This is because the growth of their internet sales combined with an oversized retail chain, will mean they have excess internal distribution capacity and therefore can take or leave third party shops on their terms.

The wiser agents will therefore use 2013 as a migration year, pushing their Dynamic Packaging sales up to 40-50% of total sales, giving a substantial boost to the demand side of our sector.

Hence, 2013 may be unlucky for some, but hopeful On Holiday Group will continue to ride the evolutionary wave and Happy New Year. Which I of course also wish to all readers.

Few UK travel agents will be aware that European bureaucrats (Eurocrats) in their Brussels’s Ivory tower, are in the process of re-drafting the Package Travel Regulations and in doing so could effectively outlaw the agency model within the European holiday market.

Yet again it would appear that the opportunity to make the asset holders i.e. airlines and hotels responsible for their product, has been passed over in favour of targeting the much more fragmented and therefore weaker Travel agency community with increased regulation.

I argued forcefully during the “Flight Plus ATOL” debate, that the best way to give customers financial protection was to charge a flat £1.00 levee across all flights to cover financial failure and repatriation. It is simply ludicrous, to legislate that customers who buy a hotel stay along with their flight via a travel agent require protection, but if they buy just the flight or the two elements independently, they do not need protection. Due to a lack of effective lobbying, the UK Travel agency community lost this argument and where lumbered with the financial cost and liability imposed by Flight Plus ATOL cover.

Now, the “Eurocrats” are telling ABTA’s lobbying team that Flight Plus does not go far enough, since customers have to sue Hotels in the market they operate in e.g. Spain.

Online Travel Agents (OTA’s) often feature over 100,000 hotels and can not practically physically check the safety of each hotel and nor could independent high street agents even If they only sale 10 hotels. Logically, it must be the hotel themselves that have to be responsible for the health and safety of the product they sale. How does it make sense to remove the liability from the hotel owner delivering the product and give it to an agent selling it? This is a guaranteed route to reducing the safety focus of hotels, which is not presumably what the Eurocrats want?

If the above points do not show a fundamental misunderstanding of the market, wait to you hear about the plans to impose 14 day cooling off period on “Holiday sales”, but not to impose the same burden on airlines selling Flight only?

How can a agent book a low cost flights as part of a holiday, when the customer can cancel at any time within 14 days, but the airline will still charge agents the full flight price. The key point being missed by the Eurocrats is that the internet has fundamentally changed how holiday are purchased over the last 10 years and going back to the “good old days” of all holidays being sold as packages is just not an option. If they impose these regulations on Travel Agents it will kill their ability to compete on price with DIY holidays put together via Google as it will increase cost by around £20 per person. When asked what research has been done on the impact of this £20 per person or £80 a family disadvantage, we are meet with stony silence. Neither does it appear that customers have even been asked if they feel the need for more protection and whether they are willing to pay for it. So who even decided Europe had a problem that required fixing?

ABTA has been told airline “Click through’s” will be brought into scope, but no practical suggestions on how to do so have been put forward and Its difficult to see how legally this could be achieved. Do the Eurocrats intend bringing Google into scope? I doubt it, yet Google is the main tool used by customers to create holidays.

The first formal drafts of the new regulations are due in March 2013 and implementation will not come into force to 2016, however if UK Travel agents do not form an effective lobbying group now, it’s like that they will be regulated out of the dynamic packaging market.

I continue to work with ABTA and hope they will represent their Travel Agency members effectively, but I am greatly concerned about the clear internal conflicts with the major tour operators. These not surprisingly would welcome reduced competition from Dynamic Packaging and are pushing ABTA to support the proposed scope of the new regulations if not all of its details.

Agents accepted flight plus as a reasonable compromise to extend ATOL protection in the UK, but must fight the Eurocrats over their current intentions to try to revise the Package Travel Regulations in such a way that it will undo 10 years of progress in terms of customer choice and value for money delivered by Dynamic packaging.

Well the sun’s finally made an appearance and may even stay a week or
too. But it’s too late to dent what is rapidly becoming a bumper harvest inthe crucial lates holiday market.

On Holiday Groups sales have been running 33% up year on year for June and July and feedback from the Dynamic packaging sector shows that this is just reflecting the very strong demand in the market place.Customers have had enough of the depressing weather and simply will not trust their precious holiday allowance to the UK weather.

The recent demand surge has come at a perfect time for the major operators, allowing them to maintain peak season prices and minimise the amount of stock they need to clear at a loss. The key peak season
is now locked away at high profits and the expectation is that the strong
demand will flow through into September/October where there is still a
high volume of holidays to sell.

Years ago when I ran the Airtours yield department, we had the luxury of being able to bring in last minute peak season flying from overseas airlines, to maximise capacity on strong selling destinations. However, the long recession has killed most of these airlines off and the majors programs appear to have remained fairly static. Hence, they may be regretting cutting capacity by 9% this year, but who could have predicted this weather?

Of the major two, it looks like TUI will be the biggest winner this year since they had the larger capacity and biggest lates stock. However, in a market where demand is strong and bed stock remains plentiful, seat capacity is the key ingredient. The Dynamic Packaging sector feasting off low cost carrier seats, have seen the strongest growth, by simply adding extra load factor points to the low cost carriers programs, which have probably never been so full.

History also shows us that when the UK has a really bad summer,customers book their next summer holiday early. So I would be very surprised if the recent trend for tour operators to cut capacity is not reversed next year.

The temptation to increase capacity will also be boosted by lower brochure prices on the back of reduced fuel prices and a stronger pound.This will give the major operators the option of boosting margins or decide to put the extra margin to the bottom line, as it would be nice if as the benefits of this perfect summer for tour operating.

Ten years ago I used to talk about “Click, Walk, Talk” distribution and the rapid migration from walking to shops, to talking by phone via call centres, driven by online research. Followed by the migration from calling to just clicking, once online technology matured. Given this view I have positioned the On Holiday Group business to be strong online, supported by call centres, without a high street shop in sight.

TenHowever, I have never predicted the death of High Street shops and believe independent high street agents could be in a strong position once the major operators have decimated their current over weight shop networks.

TenHarriet Green the new CEO of Thomas Cook comes from a background of modernisation, using the Internet as a key distribution platform to cut costs. I therefore think she will take a hatchet to Thomas Cooks 1,200 shops, cutting them to less than 400 over the next 5 years, as she maximises the benefit of the massively strong Thomas Cook brand online.

TenAlthough, Google click costs have escalated massively in recent years, reducing the cost effectiveness of the Internet for travel companies without a strong brand, for those who attract customers directly to their brand, the Internet is massively more cost effective than shops.

TenHence logically the big 2 UK brands Thomson and Thomas Cook will continue cut shops as Internet sales naturally grow or more rapidly if they drive this channel.

TenThis cut back provides a massive opportunity for independent high street shops or homeworkers if they evolve slightly. They are best positioned to offer customers independent advice on the whole travel market, across both the price sensitive commodity market driven by Dynamic packaging systems and the higher priced “Differentiated” product offered by the major operators. This will be a key advantage over the single product focused shops of the majors and may give them an advantage over the online players such as Travel Republic. Currently these only sell dynamic packages and it’s unlikely that the tour operators, focused on driving their own online sites, will allow other online players to sell their products.

TenHowever, Independent shops do need to evolve to make themselves more convenient for customers. Personally, I would look to make a shop the central point for a local network of homeworkers. Each homeworker would be rotated between staffing the shops, where they would deal with personal appointments or walk in enquires and offsite work such as house visits or out of hours phone support.

TenEach shop would have its own personalised web site where customers could review availability, but still look for personal advice before making their selection via the shop, on the phone or in their homes.

TenSo will I be putting my money where my mouth is and opening shops? Possibly, but more likely I will be partnering with people who have them and want to evolve. Know anybody?