Like most industry observers I think Corona Virus has been massively overhyped and much of the current down turn in sales is media induced, since for most people the heath impact of the Virus will be minimal. However, the impact on travel business is real and unlikely to go away.

Having worked in the industry during 9:11, the gulf war and 2008 financial crisis, the current Corona Virus worries me more as its impossible to predict the length of the impact, so in my opinion its definatly time to baton down the hatch’s. All businesses are different, but here are 10 actions I’d recommend people consider.

1. Cut overheads by 20%-30% immediately.

Unfortunately, the easiest cut is often staff. Every business I have ever worked with has a layer of “Fat”, that is only dealt with in a down turn. Cutting staff forces a business to become more efficient, by either using new technology or by stopping work that has no real benefit. Once you have cut staff this drastically, every working practice gets revisited and staff simple don’t have time to “do it the way it’s always been done”. I know readers may not want to hear this, but business survival is crucial for the 70% of staff left and bluntly some jobs are better than none.

• Implement 4 day week and homeworking.

It’s important to keep key staff so you can expand again once the crisis recedes and to manage the business through tough times. However, these people are often your most expensive resource.

Moving to a 4 days week and giving key staff an extra day off a work a week, greatly softens the 20% wage cut you need them to take. Maybe get them in a room as ask “which one of you do you want me to get rid of, as if you don’t all agree to take the pain equally, that’s my only choice.” Setting up full homeworking capabilities using Zoom or Google hang outs video conferencing is also a must. We have to assume that major cities will be shut down making homeworking capabilities a necessity for virtually all businesses.

• Stop ALL IT spend immediately.

Businesses need to worry about today and not tomorrow in a crisis. If it works now, don’t try to fix it! Expenditure on IT is often one of the major cost of a business and of course some expenditure will be locked in contractually with third parties, but most can be post postponed.

• Marketing.

Cut back to the essentials that drive 60% of your current traffic. Cancel any above the line TV, radio etc and focus on immediate calls to action, which have the lowest cost. Google advertising costs should fall as companies cut back, but I’m not convinced google will allow this easily, so it needs to be driven by players cutting back bid terms aggressively.

• Chasing every lead and maximizes margins per booking

With less leads, its vital to increase conversion. In a shop or online, its vital that every lead gets chased down. Within shops this may involve implementing further data gathering and a 100% follow up procedure, either by phone or email. Similarly, in call centres a target of 1-2 call backs per inbound call might be a sensible metric, whilst online players may increase their remarketing targets using social media like Facebook. Maximising margins by yielding higher and upselling Ancillaries is probably also a good idea is a slow market.

• Removing reasons not to book.

Customers will clearly be worried about booking at the moment, in case they need to cancel their holiday because of an outbreak of Corona Virus in their holiday destination. Tour operators and retailers dynamically packaging are acting as principals and will be responsible for refunding customers, if FCO advice is changed to tell customers can not travel to a destination, so why not make this 100% clear? Offering Travel Insurance that also covers medical costs will provide reassurance whilst also providing increased revenue per sale.

• Reduce the “Principal Risk”

Tour operators and retailers dynamically packaging are acting as principals and will be responsible for refunding customers if FCO advice is changed to say customers can not travel to a destination. A dynamically packaging retailers should be booking all low cost carrier flights via virtual cards, so that if a flight is cancelled they can recharge all bookings via their virtual card provider for non-delivery of product. All hotel accommodation needs to be booked on a payment on arrival basis, with all use of non-cancellable or pre-paid rooms stopped. This will reduce cancelation loses to lost margin, which is painful enough, but not as deadly as a full agent funded refund.

• Cut the number of Suppliers.

In times of reduced demand, it’s important to cut the number of suppliers you have and work more closely with a smaller number who you can negotiate better payment terms or over rides with. The more fixed assets a level of the travel chain has, the more they will be feeling the pain. For example, Hoteliers will be desperate to fill rooms and will offer lower rates and/or higher commissions. Make sure your business benefits.

• Manage cash brutally.

Revised forecasts for trading 15,30 or 50% down are required, with a realism level about cancellation. What you thought was in the bag, may not be for long. Every business needs to ensure that they stock pile cash as much as possible

For retailers this may involve scraping low deposits and bringing final balance payment dates earlier, however Trust funds often mean this consumer cash cannot be used, mitigating any benefit. Similarly, low cost carriers are not going to allow booking without full payment, but hotel partners may be forced to take later payment if demand is switchable.

1. Renegotiate everything.

In times of crises, the 20 biggest expenses need to be reviewed and if at all possible “renegotiated”. For example, will a high street landlord give a “rent holiday” rather than losing a tenant, they are unlikely to be able to replace in the short term. The same applies to office rents, equipment rental and all third party contracts. It may even be time to negotiate a delay in payment of rates to the local councils. Just remember having something is better than nothing to most suppliers, when they are unlikely to be able to resale the assets your using.

Travel insurance is not a cure for the many issues facing travel companies, but it might be a useful tool in pushing a hesitant booker over the line, says Steve Endacott

Many customers are worried about booking holidays, in case an outbreak of coronavirus in their holiday destination puts their health at risk or forces them to cancel their holiday. Google is already reporting a 25% drop in holiday searches.

We all know that the current media hype is an overreaction to a disease that has a death rate no higher than the average flu, but unlike the flu we currently have no natural immunity or treatment for it. Unless you are old, have pre-existing medical conditions or underlying health issues, coronavirus is unlikely to kill you, but will make you ill and bed bound for a short period of time. Obviously, not something you want to happen on holiday.

The problem with the current media coverage for the travel industry, is it’s highlighting the quarantine risk, of being caught on a “plagued ship” or a “plagued hotel” for two weeks, ruining your holiday experience. In real terms, this risk is infinitesimal, however it’s the one being placed forefront in most travellers’ minds and in my opinion, doing the most damage to demand.

The other major perceived risk is that travelling via airports is high risk, because of the mingling of people from multiple destinations, increasing the risk of spreading the virus. I have to confess to walking slightly faster past people with an Italian accent at Heathrow recently.

Some people also believe that close proximity and recycled air on aircraft make them havens for the disease, even though little documented evidence of this exists.

While we don’t have outbreaks of coronavirus in the UK, the fear of travelling to a destination like Tenerife, where just one hotel is affected, is obviously intensified and bookings have dropped like a stone.

Like most people, when I’m ill, I’d rather be at home with access to my local doctor or NHS hospital if anything escalates. Therefore, I’m likely to avoid booking a holiday to a destination with coronavirus as I’d rather suffer at home than overseas.

So it’s easy to see why holiday searches have dropped by 25% and unfortunately how things could get worse.

However, what happens when, inevitably, it does reach the UK and you are just as likely to get infected at home as abroad? The answer I’m hoping is that the dam will break and a lot of people take the ‘it’s only the flu’ approach and continue to travel on holiday.

Travel insurance is not a cure for any of the issues above, but can be a useful tool in pushing a hesitant booker over the line.

Holiday insurance companies are still offering cover to destinations currently unaffected by coronavirus and would allow you to cancel and get your money back, provided the Foreign and Commonwealth Office does not advise against travel.

So today customers who have already booked holidays to Tenerife, are able to take out insurance. Put more bluntly, customers would be mad not to immediately make the most of this opportunity, as it’s one of the few times customers can still get insurance for a known issue, before it escalates.

I’m sure insurers will quickly tighten restrictions for destinations where the virus has been found and may even push up premiums, so I’d advise people with existing holiday bookings to act fast, while reading the small print of their insurance policy to ensure they will be covered.

Given a 25% drop in searches, it will not be long before tour operators and airlines are forced to drop prices to stimulate demand. Very soon we will be seeing some real holiday bargains being presented to customers.

If these are combined with the sale of a travel insurance policy that guarantees customers their money back in the case of the FCO advising not to travel to a destination, or in the unfortunate case a customer does get ill on holiday, then I personally might be persuaded to continue with my plans and book my usual summer holiday.

Travel insurance is never going to drive demand, but it may help with conversion!

The more Big Data an OTA has, the more it can expect higher conversions or higher margins, says Steve Endacott

Back in 2003, when we launched the On Holiday Group to exploit the changes dynamic packaging would drive in the beach holiday sector, our primary focus was growing passenger volumes fast.

Our logic was that when operating in a commodity market with low barriers to entry where most players can source exactly the same flights and hotels for the same price as you the key differentiator was how efficiently you operated.

In other words, you have to drive the highest possible volume through the lowest overhead.

Basically, the bigger you get the lower your overhead per passenger and the cheaper you can sell holidays for, whilst still making a profit.

In general, this point still applies, however very quickly Google advertising costs became the biggest business overhead and slightly different rules apply.

Google’s paid bidding algorithms (Paid Per Click) favours bigger companies, because a key element of what companies pay is their CTR – how many times customers click on an advert compared to being shown it.

Obviously, companies at the top of the listings get the highest levels of clicks, thus favouring bigger companies, with large budgets, who have been around for a while.

However, the key online marketing metric is mix of direct brand traffic, measured by how many customers type your brand name into Google or, ideally, type in your URL.

The better known a brand is, the more people come direct at a fraction of the cost of generic destination or resort-based advertising within Google.

The virtuous cycle is where increasing brand traffic reduces Google advertising costs, which in turn allows the OTA to sell at lower prices to drive higher passenger volumes, which drives more brand traffic.

Obviously, customers also only return to a brand if it has a good customer service experience and delivers the promised holidays seamlessly.

Direct traffic is also influenced by the ability to afford large scale brand building TV advertising.

The UK’s largest beach OTA, On the Beach, markedly boosted its direct traffic in January via a very successful above the line TV campaign which increased its market share.

However, market share has to come from somewhere and Travel Republic’s recent financial accounts, showing dropping passenger volumes and heavy losses, seems to indicate that they are in the opposite negative cycle.

Hence, my view that the bigger are getting bigger and the rest maybe losing out.

Of course, this does not apply across all sectors and many specialist businesses with have high satisfaction levels also have high levels of repeat business and can also avoid the Google-created “death zone”.

For instance, homeworking networks like Travel Counsellors completely avoid Google, relying on personal contact and customer loyalty to drive ongoing relationships.

The other area where being big matters, is so-called Big Data.

Travel companies have millions of data points, created while customers travel through the holiday booking journey and understanding these is key to modern yield management.

In the early days of dynamic packaging, simplistic margins models where deployed, based on competitor pricing analysis.

Hotels where marked by a flat percentage across a destination or resort, with a pounds amount added by airline to flight prices.

However, now competitors prices are often ignored, in favour of Big Data analysis of an OTA’s own customer journeys.

Whether prices are increased or decreased, is triggered by comparing a resort’s average conversion level to that of the site as a whole or historic conversion levels.

This automatically allows for competitor pricing, since uncompetitive pricing drops conversion which drops prices.

More importantly, pricing based on internal traffic allows for the right pricing to be applied based on traffic source or purchasing indicators.

Pricing by source of traffic is now very common, with the highest prices being charged to loyal customers coming straight to the brand and lowest prices to customers coming from price comparison sites, which by definition are the more price sensitive.

Hot spotting pages, to identify the flights and hotels being reviewed for the longest period is just as important to pricing as reviewing the final hotel or flights booked.

This is because it gives you a much bigger volume of data, earlier in the booking path and allows you to adjust pricing on a prior-to-sale basis.

OTA’s also recognise how important it is to appear cheap at the early stages of the booking process in order to drag people further down the booking funnel.

This is why OTA’s always try to get customers to widen their departure airport choice to London Any and automatically return the cheapest flights within a week of a customer’s chosen data, rather than just the day they asked for.

Combine this with mixing and matching airlines and OTA’s can appear to offer cheaper prices than the airlines themselves, whilst still actually making some healthy mark ups.

Within the hotel results, everybody has moved away from a cheapest first price order, to a merchandised list, based on the highest converting hotels.

This allows the OTA to focus demand into a smaller range of hotels and use the higher volumes within these hotels to secure bigger margins.

Simplistically, the bigger an OTA the more Big Data it has and the more it can expect to turn this data into either higher conversions or higher margins through right pricing for customers based on where they have come to the site from and their purchasing indicators while on site.

Sophistication costs money and hence in my view the big will get bigger and the rest need to differentiate themselves from these companies to survive. Do you agree and if so what’s your strategy?
 

Extract from Steve and Ian’s Pub-cast https://podcasts.apple.com/gb/podcast/travel-industry-pubcast/id1487319392

A reduction in lease costs and the development of an out-of-hours homeworking network will be key to ensuring Hays Travel’s expanded retail presence has a long-term future, according to former Airtours chief Steve Endacott.

Speaking to fellow travel industry veteran Ian Brooks during the first episode of a new Travel Industry Pubcast, Endacott insisted high street travel retail continued to have a future following the collapse of Thomas Cook, but must evolve to become more convenient for customers.

The demise of Thomas Cook caused significant pain for the industry but led to Hays Travel acquiring all 555 of the travel giant’s agency branches for £6 million.

Brooks, partner in Gail Kenny Executive Recruitment and a non-executive director at Arena Travel, said: “The more you look into that deal, the more you can see he [John Hays] has bought himself wriggle room.”

Endacott doubted whether all the shops will be retained with the key element being how many leases can be re-negotiated. Given the current difficulty on the high street, he predicted that Hays will end up with 350-400 outlets.

“It won’t be 550, I can guarantee that, but I think it will work for him,” predicted Endacott. “It depends who will provide the stock for him, which leads on to our second question – who is going to replace the capacity taken out by Thomas Cook?”

Brooks backed the Hays deal but questioned how much longevity there is in the high street and how long retail can work in travel.

Endacott responded: “The key thing is customer access. If you are relying on Google to recruit customers it’s too expensive, so you have to have a 30%-40% return loyalty factor and it’s quite difficult to deliver in an online world where you don’t actually control the end result experience which is the case of most OTAs.

“Looking at the cost dynamics, I think that if he can get the lease costs of the high street down, if he can potentially put a homeworking network to support those shops to make them more convenient in terms of opening hours, I think the high street has a long-term future.

“They key issue is how it manufactures its own product, to go alongside the product of Jet2 and Thomson [Tui] because we both know they will drive as much direct to their channels as they can. If they perceive the independent channels weak, they will cut commissions.

“So I don’t think independent retailers can rely completely on those products, although in certain areas you have to sell them, but they have to complement them and complement with what?

“Yes, there’s expansion in long-haul, yes there’s expansion of tailor-made, yes there’s expansion of experiential but they still need beach product and I wouldn’t be 100% relying on the only two big players at the moment replacing that stock.”

Brooks admitted to being “quite shocked” to hear Endacott promoting high street retail to online.

Endacott responded by describing homeworking as the number one model followed by OTAs and the high street.

He added that the high street must still evolve to be more convenient for the customer at a time when homeworkers are available in the evenings and for home visits.

“They don’t demand that the customer has to repeatedly walk into their shop,” he said. “So, therefore, I think there is still an evolution to go but the relationships in the shops can and will be extended as we move forward into the next generation high street retailer.”

One of the key reasons for Thomas Cook’s collapse was that unlike Tui, it did not manage to create a differentiated holiday product. This left it in the commodity holiday market that was disrupted by fundamental differences in yield-management procedures between low-cost carriers and traditional tour operators.

Traditionally, tour operators received a flat fixed-price from its in-house airline across the season. For example, a flight seat to Majorca would cost £135 per person from April 1 to October 31.

Tour operators then overlaid accommodation costs and margin profiles, to create base brochure prices per hotel, which were then overlaid by relatively crude “flight supplements” to differentiate between different departure airports and times. These prices were then printed in brochures and remained relatively fixed, until the lates market, which is defined as three months before departure.

In the lates market, tour operators moved to a per flight pricing model and would move allocated on arrival and named hotel prices up/down per departure, based on how many seats they had left to sell.

Historically, tour operators sold 40% of their capacity in the lates market and of this 70% was sold at a loss, in order to hit its target of 98% load factors on its flights.

Over the years this model evolved with fluid brochure pricing being introduced, but this did not change the fundamental proposition that early brochure bookers were charged the highest price and late bookers were often rewarded with lower prices.

Low-cost carriers’ yield models are diametrically opposite, with prices starting low and moving up as buckets of four seats are sold. They aim to do their yield-management early and penalise late bookers with higher prices, to create a virtual circle of rewarding and encouraging early booking, which I have to say is a much more logical model!

OTAs have exploited this model and could often buy seats to Majorca in the early market for £75 per seat, allowing them to package these flights with the same generic hotels as the tour operator and undercut them on price.

Tui recognised this threat and quickly moved to offer differentiated hotel product that was only available from them and could not be replicated by OTAs or low-cost airline holiday divisions. However, Thomas Cook, due to its debt levels, could not invest in hotels as much and so continued to be undercut, causing its profits to collapse and its tour operator carryings to shrink.

The obvious question is why did they not simply switch to the low-cost yield model?

The answer is relatively simply. As a Plc, its directors were paid millions in annual bonuses to improve profits and the radical change in pricing policy was likely to damage short-term profits.

This is because for 40 years customers have been told to book early to get the best deal, only to see cheaper late deals. It would have taken several years of re-education and could easily have resulted in cheap prices in both early and lates markets, as competition to dispose of committed seats drove prices down.

However, with Thomas Cook gone, there is likely to be a dramatic reduction in cheap deals in the lates market moving forward because of how the Thomas Cook capacity is being replaced.

A large element is being replaced by Jet2 and easyJet which do their yield management early and try to avoid last-minute stock. It will be interesting to see if their yield teams can cope with such a massive jump in capacity this year and in the short term they may still have to dump seats in opaque package prices. However, this is likely to be done months before departure and not at the last minute.

Tui, which is adding two million seats, still operate the old tour operator yield model, but importantly no longer face competition from Thomas Cook in the late booking market. Having a lates market controlled by one player only is likely to result in a major increase in late deal prices.

So after all these years of lying, it may be the first year that the industry can honestly advise customers to book early in January in order to get the best deal, not only in terms of availability, but also price.

A new species of company is set to dominate the next generation of holidays, says Steve Endacott

Comments from opposition MPs in parliament and Thomas Cook pilots, saying that the “profitable” Thomas Cook airline should have been saved, even if the rest of the group collapsed, highlights how little these people understand about the traditional vertically integrated model.

I often describe vertical integration as a “funnel”. The largest part needs to be consumer access via in-house or third-party distribution, which then feeds customers to an in-house tour operation and then on to the airline.

Traditionally, tour operators have hidden as much profit as possible in the in- house airline, because it allows them to reduce TOMS VAT by over £30 million a year. This is because VAT is only paid on the non-flight element of a package holiday profit, as transportation is zero rated for VAT purposes.

This combined with the fact that the airline is guaranteed a fixed price for 100% of the seats they fly, means that in a vertically integrated group it’s impossible for the airline not to be profitable.

It is the tour operation that carries the risk management and often this can lead to losses, as they have to fill guaranteed aircraft or hotel beds in the lates market below cost.

While running Airtours/Mytravel holidays, I often found myself arguing with the airline about having to cancel poor selling routes, since unsurprisingly these were often the airline’s most profitable.

With only Tui left of the traditional vertically integrated groups, it’s interesting to look at how different the new players Jet2 and easyJet Holidays operate.

First and foremost, these are low-cost airlines, with tour operations that use less than 20% of their total seat capacity currently. Therefore, the profitability of the airline is real and not subsidised by other elements of the group.

The tour operation is the junior brother, but is seen as a benefit because it allows the airline to “dump” distressed seats in an “opaque” manner, within package holiday prices, that are not visible to competing airlines price scanners.

It also delivers earlier booking holiday customers, from different channels that complement, rather than competes with its flight-only sales and allows base load factors to be reached quicker.

Given that low-cost carriers move prices up in buckets of four seats, these early sales allow it to achieve a higher yield on average compared to routes without the support of holiday sales, I’m told.

Interestingly, the new players show no interest in owning high street shops and predominantly rely on customers coming directly to their websites via above the line brand advertising.

However, their web activity is now evolving as they develop their tour operations, with a massive increase in the level of destination, resort and hotel name bidding via Google. This is set to force Google PPC costs even higher this January and could be a real headache for online OTAs like On the Beach and Love Holidays.

So just as the dinosaurs died out to never roam the earth again, it would appear that a new species of holiday company is set to dominate the next generation of holidays. It’s going to be a fascinating few years.

The impact of the Thomas Cook collapse is set to rumble for many months more, but the positioning to capture their customers has already commenced.

When ILG collapsed in the 1990’s, the clear winner was the fast moving Airtours and in 2019 Jet2holidays appear to be a mirror image, with their Northern heartland, price conscious brand and aggressive approach.

The Friday before Thomas Cook collapsed, Jet2 just happened to take the unprecedented step, of putting a 3.3m seat program on sale 18 months in advance of departure covering up to Winter 2020/21, giving a clear signal to the trade that they intend to take as much share of Thomas Cooks ex-customer base as possible.

The biggest headwind Jet2 face in the race for expansion, is their choice of fleet provider. Like main package rivals TUI and low cost competitor Ryanair,  Jet2 operate a fleet of Boeing aircraft. With the grounding of the new Boeing Max Jet continuing to run, there is a world-wide shortage of Boeing aircraft and deliveries schedules are up in the air.

However, currently only 3.81m of Jet2’s 9 million seats are sold as packages, so it’s a relatively easy move to switch more capacity into its tour operation on holiday routes and push up its flight only prices.

A similar reaction is likely from Tui, leaving only Ryanair and Easyjet as major sources of capacity for the Dynamic Packaging sector. Whether these two giants will also push up prices is less clear, but if capacity remains tight on leisure routes such as Turkey, it is a likely outcome.

Easyjet being a Airbus configured airline, has none of the Max Jet disruption issues, but is playing catch up in the package holiday market, with its tour operation re-launching on new platform in December. No volumes are being quoted, but expect cautious expansion in its first year of operations under the new management team.

Unfortunately, by the time they are ready Jet2 may be out of sight in terms of mass market holiday scale, having absorbed a lot of the market share made available by the Thomas Cook collapse.

Independent retails also look likely to be benefactors with 600 less competing shops on the high street and partner in Jet2 that will replace the holiday capacity of Thomas Cook rapidly, but has no high street chain to sell via.

Obviously, in the longer run Jet2 would like as much distribution as possible to come via its online sites and may use preferential pricing tactics to drive this, but in the short/medium term while they are expanding rapidly, they are highly unlikely to antagonise their trade partners.

The same cannot be said for the supply of seats to dynamically packaging OTA’s ,who compete head to head with Jet2’s online platform. Why would you give price parity to a competitor? Therefore, expect even higher price differences between Jet2’s website and XML supply to third parties.

OTA’s in the longer term are going to have deal with the difficult issue of reducing third party seat supply, after the recent losses of both Monarch and Thomas Cook as seat providers and the increasing price disadvantages being applied by Easyjet and Jet2 as they ramp up volume in their own tour operations.

Ryanair and Easyjet will continue to provide enough capacity in the short term, but in the longer term “Charter” partners may be needed, which will require a radical change in operating models for the ultra-low commitment OTA community.

So the question of who’s my long term airline partner has never been more crucial.

Tui’s decision to keep brochures is like holding back an internet tide of its own creation, says Steve Endacott.

In the 1990s, when travel agents worked from black and green Viewdata terminals, brochures were an essential part of the sales process.

We used to talk about three stages for booking a holiday: dream, research, book.

The dream stage has always been a weakness of the booking journey.

Historically, it often comprised conversations with friends and families in the pub or at the school gate, although dedicated TV travel channels and programmes like Wish You Were Here also helped shape destination selection.

Customers then wandered down the high street to pick up a range of brochures to complete the research stage and most would then return to the same shop to book, even though by the late 1990s tour operators were trying to erode this by advertising direct booking numbers in brochures.

The high street lost out on ‘late’ allocation-on-arrival bookings because the customer did not need to see brochure pictures.

This allowed Teletext-fulfilled call centres with lower overheads and more-convenient opening times to dominate the late-booking sector, until it was superseded in turn by more-convenient internet booking.

An average cost of £1 per brochure and 20 brochures per booking created a high cost of sale which encouraged major tour operators to invest in online channels at the expense of shops.

The roll out of high-speed broadband in the last 10 years has also allowed Tui to develop excellent video content which, when combined with millions of detailed user reviews, makes the online experience far superior to traditional brochures.

So why, after pushing so hard to scrap brochures, has Tui reversed its position and announced it will continue to produce brochures?

I think the answer is that customers’ purchasing habits have been slower to evolve than expected and brochures still facilitate the high-street booking process in the following ways:

Flickability

A key weakness of most travel websites remains that you need to know where you want to go before you can search.

Brochures offer ‘flickability’ with customers able to scan prices and pictures for a whole range of destinations quickly and effectively allowing them to help shape the ‘dream’ stage. 

Reassurance

Holidays are the most expensive annual purchase but end with customers leaving a shop with nothing tangible except a promise to deliver a holiday months later.

Brochures act as a psychological voucher that allows customers to show friends and family what they have purchased.

Ethical bonds

Brochures create an ethical bond between customer and shop as they remind customers of the effort the travel agent has put into assisting them with their holiday selection, which often leads them back to the shop to complete the transaction.

This is one of the reasons high street shops convert 25%-40% of customers who walk through their doors even though few book on the first visit.

Conversely, online competitor sites are only one click away and, because no emotional bond is created, customers feel free to shop around leaving conversion levels at a sub-1%.

Even given the above, Tui’s decision to continue to produce brochures feels like the action of a King Canute, trying to hold back an internet tide of their own creation. Bluntly, the better Tui’s online experience becomes the faster its shop network is going to close.

So although I see a strong future for independent agents selling complex holidays such as long haul, touring and cruising, from multiple suppliers, but it’s hard to predict such a healthy future for employees of major tour operators’ retail chains.

The industry has seen many travel groups created by acquisition and consolidation over the years.

The big four tour operators – Thomson, First Choice, Thomas Cook, Airtours – become the big two of Tui and Thomas Cook while many independent travel businesses were hoovered up to create specialist groups like Travelopia.

Have these deals ever delivered shareholder value?

Given the recent £1.1 billion write off by Thomas Cook of its MyTravel (Airtours) acquisition, it’s clear two plus two did not even make three in this case.

The merger of Thomson and First Choice to create Tui is less clear cut, but the First Choice brand has been downweighed markedly and now only offers a relatively limited range of all-inclusive holidays.

The basic problem is that it’s hard to create differentiated hotel product and, when you do, it’s natural to want to offer this via your strongest brand which is also displayed on your aircraft and retail divisions.

This leaves little room for secondary brands – hence these start to shrivel and disappear.

Similarly, although there are demonstrable synergies from the use of central IT and finance functions within specialist groups, the process of acquisition often leads to founders leaving which, over a period of years, leads in turn to a loss of brand identity as more junior managers are employed or senior managers asked to manage multiple brands.

Specialist groups like Travelopia can work, but many have not.

Given the above, Thomas Cook’s decision to re-launch Airtours as a dynamic-packaging brand appears sensible, but at the same time challenging.

It certainly makes sense to separate out the differentiated hotel product, operated exclusively on inhouse flying, and have common Thomas Cook branding across the retail shops, airline and tour operation.

Using the Airtours’ brand to sell the commodity bed-bank hotels combined with a range of low-cost carrier seats within its own retail outlets and online could also work.

However, it will always be a difficult balancing act within the Thomas Cook retail network.

The main tour operation will not want one million dynamically packaged holidays to be sold at relatively low margins via its shop network, as happened previously, while some of its own charter-flight seats are empty.

It also won’t be easy to re-establish the Airtours’ brand in a Google-dominated distribution space against the established, technology-driven OTAs On the Beach and Love Holidays with their slick marketing.

What makes less sense is expecting independent travel agents to sell Airtours’ dynamically packaged holidays, when they can dynamically package at higher margins using their own technology and the same prices from low-cost airlines and bed banks that Airtours has access to.

Jet2Holidays’ and easyJet Holidays’ trade sales are driven by access to exclusive discounted seats from their airlines, which drive their price competitiveness and give independent agents reason to book.

Creating clearly differentiated products between brands is to be applauded, but Thomas Cook will need to be willing to make a major investment in technology and marketing for the Airtours’ relaunch to be a success.

However, as a debt-free tour operation owning historically recognised brands, they are in a better position than most to pull it off.

Too many holidays are on offer this summer, argues Steve Endacott

The merger of MyTravel with Thomas Cook in February 2007 was credited with triggering a wider market consolidation, being shortly followed in September 2007 by the merger of Tui Travel and First Choice.

As well as obvious synergies from cutting duplicated overheads much was made of the mergers allowing the volume of holidays in the market to be reduced, bringing capacity back in line with demand.

‘Beach boredom’ had shortened the average holiday length to 7.2 days as we saw the growth of city breaks and long-haul alternatives.

The impact is clearly shown in the Atol returns between 2007 and 2011, when the annual total of Atol-protected holidays shrank from 26.7 million to 18.5 million.

This allowed the big-two tour operators. Tui Travel (as it then was) and Thomas Cook, to control capacity in the marketplace and, most important, during the key late-booking period when losses from selling distressed late-availability holidays were markedly reduced.

However, a quick review of the 2019 Atol figures shows capacity has shot back up to 27.2 million.

The emergence of players like Jet2holidays (3.8 million), On the Beach (1.6 million), loveholidays (1.2 million) and easyJet Holidays (0.7 million) has replaced the capacity that was cut.

It should not be a surprise that the increased capacity has combined with the hangover from Brexit and last year’s hot summer to leave the beach holiday market awash with cheap, late deals.

The yield-management systems of low-cost carriers may also be causing downward pressure on prices.

These systems move the price of a flight up in ‘buckets’ of four seats depending on how the load factor is improving against a forecast booking graph.

In normal a year, prices should rise sharply towards the departure date as carriers approach a target load factor and seek to maximise the returns from remaining seats.

However, in a poor year when the demand curve is not being met prices remain low or can even reduce 12 to eight weeks before departure, just at a time when the major tour operators bring on sale their own late-availability stock.

This glut of low prices is now highly visible to customers on their laptops and phones, reducing any pressure to get holidays plans sorted as there are clearly plenty of holidays left for sale.

As I have argued previously, a glut of capacity suits a late-availability specialist like my own Teletext Holidays. But as for most online travel agents, it’s only the recent poor UK weather that has driven sufficient demand for us to benefit from the distress of tour operators and low-cost carriers.

With the expansion of easyJet Holidays in 2020 under the guidance of its ‘TUI mark II’management team, it’s hard to see the rapid increase in holiday capacity reversing.

In my opinion, capacity in the UK beach-holiday market is spiraling out of control.