Will OTAs ever own shop networks?

High Google acquisition costs have forced all major OTAs to invest heavily in Above The Line advertising mediums such as TV, in order to generate brand awareness. This has resulted in more customers visiting sites directly, or searching using brand terms, which could help bring down the cost of brand traffic from Google searches.

Few OTAs now make money from advertising on generic travel terms because of the highly competitive nature of PPC. High click costs and sub 1% conversion levels are making more OTAs encourage the phoning to book or online chat session methods. Not only are they saving on cost, but the human contact dramatically increases conversion levels. Hence, we are seeing the merging of online booking and call centre fulfilment, with relatively seamless interchange between the two media.

We are also seeing high street retailers like Hays Travel successfully supporting their shops network with websites, which pass phone call leads back to their shops for completion on bookings. It is therefore a surprise to me, that major OTAs like Travel Republic and On the Beach have not acquired a network of retail shops.

These shops would dramatically improve their brand visibility and provide physical shop locations, to add to their online brand presence. Logically, by offering a shop, click or call booking models would also make their TV campaigns more cost-effective and increase customer convenience.

However, the UK DNATA group which already owns the required assets (high street shop Global Travel, the OTA Travel Republic and the Sunmaster call centre business) has not yet made any moves to introduce common branding. I suspect a major reason is that their retail network is a franchised model, rather than an owned shop network. The key problem here is how do you motivate all the parties to work together and share bookings?

Online marketing progressed when sophisticated attribution models were introduced. These allocate the commission from a booking across its online “route”, rather than a last click model, and recognise early stage marketing activities. In the future we may need to adopt similar attribution models to allocate benefit to shop networks, not just for the customer leads that start via a shop, then concluded online, but also for the brand benefit they provide.

The implementation of the European Travel Directive in 2017, assuming the UK does not vote for BREXIT on the 23rd of June, may also provide a motivator for a combined online and shop network. There are clear financial benefits in basing a dynamic packaging tour operation outside of European boundaries (avoiding the threat of an estimated £20 per passenger TOMS VAT charge for one). This may tempt many retailers to stop dynamically packaging holidays within their shops and use a central offshore tour operation. Logically, these tour operations should also have an online presence, supported by an offshore call centre, to complete customer choice.

I still believe the most sustainable distribution models, are homeworker networks like Travel Counsellors, who have built a localised community brand recognition through exceptionally high customer service levels. High repeat customer levels, combined with minimal marketing costs, make this a highly profitable and sustainable model.

To me the ultimate distribution network is a shop network staffed by homeworkers, working in the shop on a rotational basis and using it as an office to support their own localised customer networks. Boost this with a centralised call centre, online bookable web site and offshore centralised tour operation in order to create a future-proofed, highly profitable travel model fit for the 21st Century.

However, unless somebody is willing to write some very large cheques, this ultimate distribution platform is likely to remain a work of fiction in blogs like these.

The Great Escape

Once glance at the latest financials from TUI and Thomas Cook tells you how tough 2012 looks, with substantial capacity and reduced sales.

Never before has the lates market been so crucial, but also so tough to predict, as multiple influences such as Euro 2012, the Olympics and not least the recession impact on customer demand.

However, the good old UK weather may still provide the increased demand required for the Great Escape.

The early weather patterns could not have been more favourable to the trade. Bright sunshine before Easter, followed by pouring rain as soon as the kids broke up for school holidays, repeated again over the half term holiday. Genius!!

This created a small surge in peak season bookings as families decided not to risk the UK weather, leaving operators with more manageable peak season load factors.

Combine this with the late appointment of an England football manager and little hype about the team’s chance in Euro 2012, and early season sales have remained remarkably strong. Given that the Olympics do not start in earnest until August and how few people have got tickets, I think we can also discount this as a major threat to peak season sales, leaving July as a the make or break month for the trade.The key issue for tour operators is hedging their costs this year has worked against them, locking in an average £10 cost increase per late holiday, when current exchange rates and fuel prices are more favourable.

This, combined with the need to clear their more expensive ‘differentiated’ stock in the lates market, means operators need a marked increase in late deal prices in July despite the recession.

Will it happen? I guess it depends on how much it rains, but the Great Escape looks like it might be on…

Filling the Commodity Gap?

Thomas Cook’s recent £1.4 Billion refinancing clearly shows that their banks remain confident in Cooks ability to turn their international business around and implement the strategic review presented by the management team.

In the UK market, Cooks have decided to follow the lead of their biggest competitor TUI and focus on differentiated tour operating product. Since it is virtually impossible to differentiate short haul flights compared to the excellent service provided by the likes of easyJet, this differentiation is focused on the hotel element of the holiday.

First Choice and latterly TUI via their merger, has been focused on differentiation for nearly 10 years via their Holiday Villages, Sensatori and Thomson Gold brands. In doing so they have developed a higher price, higher margin proposition that is in demand and can only be purchased  from them. Thomas Cook clearly has a lot of ground to catch up, but given their determination and new financial backing will make rapid progress.

So who is going to fill the “Commodity Gap”?

The birth of Flight Plus ATOL, may also signal the age of “Travel Agent Packages” (TAP’s). For many years we have seen the rapid growth of Online Travel Agents using Dynamic Packaging technology, but high street agents have been slower to adapt. However, as the majors shrink their capacities to focus on differentiated product, they will need less third party agency distribution, which may force evolution.

It is clear that independent agents have a gap to fill and the new Hays Travel packaging site is unlikely to be the only attempt to fill this space. It is likely most agents will use their own Flight Plus ATOL to package holidays using low cost carriers and bed banks like On Holiday Group’s “Holiday Brokers” brand.

The key driver of the “commodity” holiday market is the flight capacity on leisure routes provided by low cost carriers. This summer season has demonstrated that for every seat the traditional tour operators take out, the low cost carriers appear to be adding two!!

Years ago on joining MyTravel from Ryanair, Tim Jeans sat me down and explained how he could fly three Paris routes in the ten hours it took a charter flight to fly to and from Tenerife, creating 20% more revenue. However, as the recession has hit demand for city flights, the reverse argument has set in, with Low Cost Carriers switching aircraft to the Canaries in order to only have to fill one seat, instead of 3 to make the same revenue.

Although Low Cost Carriers would prefer to run their own direct sale tour operations e.g. Easyjet holidays, these have not enjoyed the massive success they expected. Similarly, although Ryanair may not like agents using their flights to package, it is virtually impossible for them to stop it and one day they may even wake up to the benefits.

The “Commodity Gap” is likely to be filled by the rapid expansion of online companies like On The Beach and Travel Republic. However, the advent of Flight Plus ATOL’s should give high street agents and homeworkers the confidence to build their own ATOL bonded holidays to fill the “Commodity Gap” created by the withdrawal of the major tour operators, so don’t write them off just yet.

Has the rain dance saved the lates market?

Who needs a downpour in a drought? Well you won’t find many tour operators or bed banks complaining as the recent weather has caused sales to sore by 40% year on year.

For once the weather gods have smiled on the industry with the perfect combination of sunshine while families where at work or school, followed by a wet Easter and a constant barrage of grey skies and pouring rain ever since. Even I’m sitting here planning a trip to get away from it!

More importantly however, is the impact it may have on the peak summer school holiday period. Although the Government may be pushing the “Staycation”, customers want relaxing sunshine as part of their holiday and the recent weather has rammed home how unreliable the UK weather is, which is likely to have strengthened demand for overseas holidays.

Another more obscure factor going in the industries favour is the lack of an England football manager! We are only 6 weeks away from England’s opening game against France on June 11th and have you heard a mention of it? The complete lack of hype this time around is a marked contrast to previous football tournaments and particularly compared to Euro 2008 in Germany when so many English fans jumped in cars, plans and trains to head out to watch first hand. Many fewer will be travelling to the less inviting Ukraine, so logically the impact on the nations holiday budgets will be less and even in the unlikely event England get to the final it will all be over by the 1st July.

The most difficult part of managing lates yield is getting prices up from the £149 price points that dominate early season to £399 plus required post 22nd July for school holidays. The points above should help early season prices and don’t forget that the Olympics do not start till after the schools have already broken up. Hence although I do expect them to dampen demand neither the Euro’s nor the Olympics will directly impact the crucial month of July when prices need to be wound up quickly.

However, please don’t think I am saying this year’s lates period is going to be easy. It looks like we are in the midst of a double dip recession and the year on year increase in fuel prices, whilst currency hedging has negated an benefit of the strengthening pound, means operators need to get £15 higher late holiday prices even to make the same losses as last year.

They say that every cloud has a “Silver lining” and as we look up at the depressing cloud cover over the next few weeks, think of the job security they may be delivering to some elements of our industry.

If only “Differentiation” was a Christmas Present

Thomas Cook recently announced a new strategic direction, focused on increasing its “Differentiated” product from a claimed 30% to a healthy 50%. But what exactly is “Differentiated” product??
The tour operators seem to have been slow to define this! My own definition is very simple “ Product demanded by customers, which can only be brought from that tour operator”. The key phase, which makes defining differentiated product hard, is “demanded by customers”. There is little point having “Exclusive” product that you cannot sell, because customers are buying the hotel next door for £50 per person cheaper!!!

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Me too says Thomas Cook…but is that wrong?

On Wednesday, after a torrid build up, Thomas Cook‘s management team got to announce its new Corporate Strategy….or was it TUI’s strategy they announced?…..Difficult to tell, considering how similar they now are! However, is it wrong to copy the “Right” strategy?

Personally, I think not, with Thomas Cook now clearly heading in the right direction in my opinion. Given the rapid advance of lower priced dynamic packaging, it is essential for traditional tour operators to differentiate their product by adding value to its proposition by investing in hotels, staffing levels and in-resort infrastructure to improve the quality of the holidays they offer. Therefore, the stated aim to increase their differentiated stock from 31% to 50% must be the right direction. However, in a cash strapped organisation this may prove difficult to achieve, since differentiation often equates to the long term commitment of cash and a considerable increase in risk stock and company gearing.

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Ryanair’s Million seat gamble

After years of ignorance, Ryanair have finally realised how many agents were booking their flights and packaging them into holidays, due to the heavy use of credit card surcharge avoidance techniques via virtual booking cards. Hence, in some ways the trade can only blame itself for the aggressive two pronged attack on travel agents Ryanair has launched this month, because in colloquial speak, the industry have “had Ryanair’s trousers down and given them a good financial spanking”

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Are On the Beach on the right payment track?

On the Beach off the back of their move to offer ATOL protection to its customers have now decided to allow customers to pay for their holiday 30 days before departure rather than the traditional 90 days still offered by its competitors.

Cynic’s in the industry claim that this because the customers funds are protected in a trust fund and can not be used to fund marketing. Hence, if it can not be spent, why collect it?

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