Who needs brochures?

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call centres with lower overheads and more-convenient opening times to dominate the late-booking sector, until it was superseded in turn by more-convenient internet booking.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

Does Thomas Cook’s relaunch of Airtours make sense?

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.

Is capacity out of control?

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.

Will tax losses save the Thomas Cook brand?

Steve Endacott sees a future for the oldest name in holidays

There has been much speculation about the future of the Thomas Cook brand, given the recent £1.4 billion write down of assets and first-quarter loss.

The company is clearly seeking to reduce its debt mountain, by selling some core strategic assets in the form of its airline division and potentially its Nordic business.

But what does this leave of any value? Its tour operations may end up locked into a deal for airline seats at uncompetitive prices with the buyer or need to be dramatically reshaped in order to work with fewer fixed seat allocations and more flexible flight stock bought on the fly from low-cost airline partners like easyJet, Ryanair and Jet2.

The more flexible ‘dynamic packaging’ model has the attraction of removing the need to sell holidays in the lates market at a loss, but it may also reduce Thomas Cook’s ability to operate ‘differentiated hotels’.

These hotels are normally ‘guaranteed’ and need to be matched with flight seats to maximise yield. This is easily done in destinations with large low-cost flight capacities like Mallorca, but will be much harder in smaller Greek Island destinations which have traditionally depended on charter flights.

The sale of the airline is also likely to see the tour operations shrink in size if Thomas Cook stays an independent force, which in turn is likely to lead to further high street shop closures.

However, I don’t believe Thomas Cook will stay independent.

My experience at MyTravel, which I re-joined in the weeks before its own financial meltdown occurred, made me realise how resilient major tour operators like Thomas Cook are.

Investors owed billions are unlikely to try to enforce the repayment of the debt if they believe it will cause a collapse and lead to them getting nothing back.

As long as they are not forced to put in more cash, they will wait and hope for a rescuer to come over the horizon.

Similarly, although the CAA may be tempted to take action as Thomas Cook’s overseas customers decline rapidly at the end of the summer, pulling the bond will trigger a claim on the Atol fund that could easily wipe out most of its healthy reserve. Again, there will be a natural inclination to wait for a rescuer to emerge over the winter months.

Even overseas hoteliers have little ability to force overdue payment, unless they have leverage in the form of customers in the winter who they can threaten to throw on the street at a time when Thomas Cook cannot just move them to other hotels, for example at peak Christmas dates.

So the question is who could save Thomas Cook and why?

The answer is the same as why MyTravel was saved – the accumulated tax losses.

Thomas Cook this year alone has created tax losses of £1.4 billion that can be used by a profitable player in the same sector to offset any profits they make and remove all tax payments.

However, if Thomas Cook is allowed to collapse the brand equity is destroyed and the tax losses are lost.

In the longer term, the obvious buyers for Thomas Cook are the highly-profitable Jet2holidays or easyJet Holidays. You could even see a game of chess developing similar to when the big four became the big two.

The development of easyJet Holidays would be dramatically brought forward by the acquisition of Thomas Cook’s tour operations and high street distribution, in both the UK and other European source markets like Germany.

However, would Jet2holidays sit back and allow its major competitor in one swoop to catch up on its own massively successful tour operation or would it be forced to block the move by buying Thomas Cook itself?

Just imagine Thomas Cook’s strategic strength, if had preferential access to easyJet’s flight network at a £36 per booking price advantage over other OTAs (easyJet charges OTAs a £6-per-sector API fee).

It’s also easy to see how hoteliers would be attracted to working with a tour operation with access to such enormous and flexible aircraft lift.

However, as usual in these situations, the initial buyer may be a venture capitalist firm that can see the long-term strategic play and is willing to take the short-term restructuring pain to make Thomas Cook a more attractive proposition to an even wider range of potential buyers.

This could easily include the US Booking and Expedia groups, both of which are under-represented in the European holiday markets compared to North America.

Thomas Cook may be on the ropes, but I would not count this historic UK holiday brand out any time soon.

Expand high street travel shops or shut them?

Agents should match convenience found online, says Steve Endacott

Should traditional bricks and mortar travel agents expand their number of high street travel shops or shut them?

Like many strategic questions, the answer depends on what you are selling and how cheap high street shops become as non-travel retailers abandon high streets.

Thomas Cook simply does not need as many shops. If it sells its airline arm this is likely to result in a reduction in its tour operating capacity as the number of committed seats falls and it evolves into a more flexible capacity model.

Fewer holidays to sell, equals fewer shops and hence its shop closure program. However, should the independent sector be filling any gaps created?

There is no doubt that the internet and the “always on” experience offered by smartphones is dramatically impacting our shopping experience.

Why bother heading down the high street when virtually anything you want to buy is a click away via Amazon, eBay or the recently revitalised Google Shopping channel.

Music, electronics, white goods, mobile phones, estate agents and even clothes to a lesser extent, are rapidly moving online.

This is leaving great swaths of the high street empty because high rental costs and business rates make the high street an expensive channel, compared to online sales.

This equation however, is not as simple in the travel sector, where the shear range of products online and the emotive nature of holidays provides a natural counter balance.

The average online conversion of visitors to bookers, is less than 1%, as customers on average visit 23 sites and revisit the site they do book with, three or more times before booking.

Every year the cost of generating these leads from Google increases, with this year’s inflation rate running at above 20%.

Compare this to a high street shop, where conversion of people walking through the door ranges from 15% to 30%.

Now consider a world where landlords are losing tenants at the fastest rate ever seen.

This makes it inevitable that high street rental costs are going to collapse and local governments are also likely to be forced to cut business rates in order to prop up declining high streets.

So at a time the internet is becoming more expensive, the high street is set to become more attractive.

However, with low-cost carriers like Jet2 and EasyJet set to dominate the commodity beach holiday sector via direct online sales, the high street winners are likely to be independents specialising in more complex long-haul, cruise or high-value holidays.

But with a reduced number of people walking down the high street, it’s also important for travel agent shops to evolve their customer acquisition strategies.

In my view the advent of cloud-based phone systems mean that the next generation of high street retailers should evolve to service the following functions.

• Walk-in traffic. Still a key business driver.
• Brand building. A high street presence is a great local brand driver in itself and fulfilment centre for localised advertising within social, rugby, cricket and football clubs, as well free local papers if they still exist.
• Call centres. Why not have online bookable or phone to book web sites, supported by a call centre based in the high-street shop? Look at how successful Trailfinders are.
• Homeworkers office. Explore staffing the shop with homeworkers, whom work in the shop two days a week on a rotational basis and from home the rest of the week. They can then either travel to customers home’s, book over the phone or arrange appointments in the shop, for face-to-face consultations or to handing out brochures.

Moving forward, high street agents need to be as convenient to customers as the internet and this requires changing working practices to offer longer opening times and the ability to start a holiday purchase in a shop, but complete it by phone.

So, evolution may be required, but I’d advise renegotiating rents, not shutting shops.

Comment: Are OTAs eating each other’s profits?

Tough trading extends online, says Steve Endacott

I often flippantly describe online travel agents (OTAs) as “parasites living off the misery of others”.

Ironically, this is actually a positive description of their asset-light, non-risk model, where they buy flights and seats to package into holidays.

This lack of commitment allows them to exploit drops in flight and hotel prices in a market where customer demand is weak. These lower prices attract customers, so demand gradually matches supply price.

Unlike traditional tour operators’ committed models, OTAs do not take a hit to profits from unsold seats or being forced to sell seats below cost to fill aircraft.

The pain being taken by major tour operators Tui and Thomas Cook is clear in their recent financial reporting.

Cook has clearly decided to throw the kitchen sink at this year’s financials with a £1 billion write down, increasing winter losses to an eye-watering £1.5 billion. But a deficit of 12% on summer sales shows how tough summer 2019 trading is following a hot summer in 2018 and Brexit lingering in the background.

Historically, OTAs’ profits appear to have been relatively immune to downturns in demand and UK OTA On the Beach’s recent 12% rise in winter profits to £11.9 million strikes a positive note.

However, On the Beach’s strong growth in low-cost ‘brand’ traffic, driven by growth in repeat bookings and effective above-the-line advertising campaigns, hides a worrying underlying trend.

This trend is the 20%-plus price inflation seen on most Google pay-per-click (PPC) travel terms.

As search demand has declined by 10% in line with general UK market demand, OTAs which have been brought up on continued upward growth in turnover and passenger numbers are competing even harder to maintain growth, pushing up bid prices.

The impact on profits are further inflated by having to replace low-cost SEO traffic, which naturally declines in line with demand, with more-expensive paid traffic in order to just stand still.

This is why most OTAs are currently naval gazing at their process and customer care, as customer retention and positive brand building have never been more vital to continued profit growth.

After years of summer relaxation, confident that the pain of others will balance the books against lower demand, it may be that OTAs have now joined low-cost airlines and tour operators in fearing a hot summer and a continuing Brexit hangover in the UK.

Don’t be Beta Max in a VHS word. Get into voice activated search Now!

My teenage kids laugh at me, when I tell them that “Voice Search” is the future and in 10 years time typing into phones will be passie. Now that’s a Millenial view!!

For my generation, it was impossible to see beyond CD’s, to MP3 players, to streaming services like Spotify, so they be right, but I think they’re wrong and travel business’s should be putting resource into understanding how they can exploit the disruption that a shift to voice search may create.

The uptake on voice search is like to be very contextual to a users location and environment.

The home will be the first battle ground, as it provides a private environment reducing “Voice Embasement” (VE), with voice activation via simple commands like “lights on” or play Coldplay straight forward to deliver. Voice controlled TV’s will be next, with food shopping to follow shortly after once Tesco’s etc launch voice controlled shopping lists, linked to home delivery services.

The car provides private environment where typing is illegal but voice is not. Voice dialing, navigation or music selection are tools are uncorporated into most new models rolling of the production line.

Its inevitable that once people become used to the utility provided by these services that VE will decline and most interactions with mobile phones will become voice activated rather than typed. Just stop and think about it?

Its fine to talk to another person on your mobile walking down the street, but not to ask for directions or recommendations for a holiday?

Simple travel needs like booking hotels near X or flights to Y, will migrate to voice activation first, just as they where first to move from phone booking to online booking. The shorter and simpler the booking journey, the quicker it will migrate to full voice booking.

However, will booking a holiday be completed by full voice booking? Well in the 1990’s, did we think 60% of holidays would be booked online. The answer is a simple no, as its hard to see far ahead in a rapid evolving internet based world.

Although nobody can predict the future, here are three obvious things to consider.

  • Impact on search. Users have been trained to type as few words as possible to find companies that offer holidays that may meet their needs, as they know to then expect a “Search” box’s which harvests their key requirements, such as destination, departure airport, duration and party type. With voice activated search it will be much simpler to state all your requirements initially and get straight to results. So expect an explotion of long tail searchs with its knock on impact to PPC bidding and SEO optimisation.
  • Voice back to typing? Initially, voice is likely to be restricted to the “research” stage of booking e.g. “Find me cheap deals to majorca from Gatwick for 7 nights for a family of 4”. Results can then be returned, but what next? Will customers switch to typing and booking online or prefer to carry on talking to a call centre via their mobile.  I think the answer will be heavily dependent on their location. For example, yes if they are driving to work but no if they are on a train or in the office.
  • Pay more attention to Bing. Google is the dominant engine for typed search, but crucially Apple’s Siri, Amazon’s Alexa and Microsofts Cortana voice search results are all powered by Bing. It is going to a bit like the 1980’s battle between Beta Max and VHS!! For my money the Google voice recognitions software is much better than Bings current efforts, so Google may take the VHS slot.

Voice activation feels a bit like the Mobile debate 6 years ago. The experts all told us it was coming, but it was still hard to imagine the impact. Well start imaging guys, beause change often leads to disruption and disruption provides opportunities for first

BA CEO Alex Cruz’s, customer service is more Ryanair than British Airways.

I may be the only Silver Card holder who hates BA, but I sadly doubt it!

British Airways historically focused on servicing business class passengers focusing on service and flexibility, but seem to have completely lost their way under Alex Cruz’s guidance.

As a regular traveller on the BA shuttle between Manchester and Heathrow, I have learnt to my cost, that booking a return flight rather than two singles is a big mistake. Even though its exactly the same price either way, if you book a return and then your plans change and you don’t take the flight down, they automatically cancel your return and it simply disappears off the App without a word of explanation.

Having learnt this lesson, when my plans changed for a recent trip and I decided to stay south and fly directly from Heathrow to Los Angles, rather than from Manchester, I rang BA to notify them that I would not be catching the Manchester to Heathrow leg but would fly direct from Heathrow. A simple enough tweak for a business traveller I thought.

Oh, no. This is a major change requiring all four sectors to be re-ticketed or they cancel all my flights. The flight cost change was a reasonable £181 which I was willing to accept, until the agent then informed me I had to pay 4 X £60 change fees taking the total to a ridiculous £421.

So to summarise to not take one flight would cost me more than a return flight from Manchester to Heathrow on exactly the same flights as originally booked. How can BA justify this rip off?

BA still refused to budge even when I escalated the issue to the Silver Card customer service team, making a mockery of loyalty cards.

This experience follows 12 months on from BA forcefully down grading me from business calls on a 12 hour flight to Hyderabad, which was handled appallingly. Having not been notified at check in, in the lounge or at the gate, I was left to find my seat was not in business, when I walked past business!

On querying this with the purser I was told that I had been downgraded, because business had been over booked and that I should write in to complain. When I then sat in an empty business class seat and refused to move until compensation had been agreed, I was immediately threatened with the police being called! Then having moved it took 6 months to get the difference in fair back because BA demanded a copy of the boarding pass showing I had been downgraded.

Working in the travel sector, I recognise that it’s a complex world and mistakes can be made. However, BA’s policies seem antiquated and there is clearly no longer a focus on customer retention and a customer service approach make Ryanair look a friendly airline in comparison.

I may have no choice but to continue to fly BA from Manchester to Heathrow, but please beware that this is one very angry and upset Silver card holder, who will never recommend flying with BA to anybody, until it reverts to its old customer centric self and unfortunately this may require a change of leadership.

Why OTAs need to get a grip of the back end to avoid waving their customers goodbye

Last week saw a war of words break out between the alternative accommodation giant Airbnb and its more mainstream competitor Booking.com.

A recent Morgan Stanley report highlighted Booking.com’s rapid growth in the ‘alternative’ accommodation sector, leading bookings owner’s Priceline to crow about how their growth would squeeze Airbnb’s market share.

Fascinatingly, Airbnb’s response was to trumpet their back office tools for owners as the key to its future success, criticising Booking.com’s lack of investment in its own tools and resulting inconsistency of customer experience.

Airbnb issued an open challenge, that unless the major OTA’s invested at least 5% of its marketing budget into these tools, the peer-to-peer giant would win this crucial battle.

From a consumer point of view, I personally think Airbnb’s back office experience is far superior to Booking’s, with customers being put into direct contact with owners by phone or chat tools within the Airbnb app.

This creates a much easier dialogue with owners than Booking’s more traditional email route.

I’ve never been left waiting outside an Airbnb property but have several times struggled to get access to properties booked via Booking.com.

Given the importance of customer retention in controlling ever escalating Google or aggregators’ marketing costs, the UK’s beach holiday OTA community may need to take note and look at its own back office tools as a means of delivering competitor advantage.

How long before we see OTA apps offering online check-in for all low cost carriers and tracking technology to show how far away a coach is from picking up customers from their hotel to take them back to the airport?

Customers may also want to use the same app to book in resort restaurants or attractions, using consolidated consumer reviews of other like-minded UK guests, who have stayed in the same hotel previously.

Why not combine the provision of a 24-hour duty office with tools to help customers access medical assistance via virtual doctors over skype and app tools to capture medical expenses and assist with insurance claims?

The options are many and the bottom line is that when you are operating in a commodity market place, where competitors can source the same hotels at the same costs, it’s going to be a race to the bottom in terms of margin, unless brand loyalty can be created.

Ironically, in its core city hotel market Booking.com is a market leader in this art, using its higher frequency of booking, to drive stickiness via its secure retention of credit card details and clever suggestive marketing. However, in the beach sector, like most UK OTAs, it is guilty of the so-called ‘Tarmac wave’.

This is where an OTA lavishes care and attention on the booking journey and pre-departure communication, but then waves goodbye at the airport and simply hopes that the most crucial part of the purchase – the holiday itself – goes well.

In-resort experience is crucial to holiday enjoyment and this is where traditional tour operators like Tui score massively over OTA’s, with their extensive in-resort infrastructure and customer care.

In the past, concerns about principal status and triggering higher VAT liabilities have caused OTA’s to steer well clear of operating in-resort structures and consolidated third party services like Destination Care, which I invested my own cash in before it failed and was written off as being ahead of its time.

However, has that time finally arrived? Possibly, but I think it will be a while before the back end, drives the OTA car.

Booking.com grabs the cash, but will it impact sales?

Booking.com, the world’s largest OTA in terms of hotel nights sold, recent accounts highlight a major pivot in strategy, in terms of the importance of cash.

Booking.com built its business based on the “Pay at Hotel” agency model, because it believed hotels would sign up faster and give better rates to an OTA who delivered payment on arrival, compared to payment many months after departure in the case of the leisure beach market. Analyst in part, credit this stance as one of the reasons they expanded globally faster than arch rival Expedia, who primarily operate a “Merchant model” where customers pay them directly.

However, Bookings latest accounts show a marked shift towards the Merchant model with revenue jumping 53.4 percent to nearly $1.05 billion, while its agency revenue grew less than one percent to $3.54 billion.

The obvious advantage of the shift is the cash flow gained. Unlike ATOL bonded holiday revenues,  the cash does not need to be held in trust accounts and can be invested into more acquisitions or higher levels of brand advertising, to drive a virtuous circle of increased sales and cash flows.

Ironically, there also appears to be a “commission” advantage in the Merchant model with average commission being 20% compared to 18.6% for the pay at hotel model, but this may be down to mix issues, as it’s hard to see why Hotels would pay more to receive cash later.

Hoteliers reaction to the shift will clearly depend on the payment terms being offered by Booking.com under the Merchant model, but there unlikely to be better than payment of arrival and a lot likelier to be worse.

Interestingly the major European bed banks like Hotel Beds operate a very different cash flow model to gain their commercial advantage.

Bedbank’s operate “B2B2C” models, where the hotels they offer are sold via third party OTA’s who act as merchants, retaining the customers cash and only pass it to the bed bank on customer departure. The bed banks then pay most hotels 60-90 days after departure, to create a cash pot that they use to “pre-pay” and give turnover guarantees to other hotels. These “Castles”, as they are known, in return give the bed banks “Exclusive Rates” that allow them to dominate the price driven beach sector, whilst still allowing them to make higher than average margins.

Historically, this practice allowed booking.com to gain rapid entry into the leisure beach sector, because their payment terms where so much better than either the major tour operators or the bed banks.

It would appear therefore that booking.com are switching from a hotel “land grab” mode, to a brand dominance mode, where they grow faster than competitors by simple out spending them on brand awareness and  relying on superior platform technology to keep customers brand loyal.

 At the end of the day cash will always be King, but it’s how that cash is used which seems to be evolving.