The power shift to Spanish hotels will give bed banks headaches and is helping drive consolidation.

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

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

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

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

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

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

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

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

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

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

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

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

Chinese App giant is about to arrive in Europe

Attending the Phocuswright conference in Los Angeles during November 2016 provided a fascinating insight on the strategic intentions of the Chinese travel giant C-Trip.

The Chinese market is entirely mobile focused, with smart phone penetration at 80% and the desktop market being bypassed as prosperity has exploded in the last 10 years. Countless research reports emphasise that although customers may download hundreds of Apps, they quickly focus down to using only 5-6 Apps daily, meaning that for their travel needs they expect a “one stop shop” service, with their every need being provided by the brand they choose to remain loyal to.

This degree of coverage and brand loyalty may seem odd to online Western customers, who have grown up with the range and diversity of specialist products, available with one click via a Google search on your laptop or desktop computer. However, as the Western world goes through its own mobile revolution, we are already seeing Facebook, due to its high mobile utilization, explode as a remarketing tool and one stop shops like Amazon take center stage for our shopping needs.

Just two years ago the Chinese market was a profit graveyard, that scared off even the deep pocketed USA travel giants like Expedia, as the dash for the dominance of the app market, in the mobile centric Chinese market reached its zenith.

However, two years later and the Chinese travel market is virtually unrecognizable, having become highly profitable on the back of a complete market consolidation by the giant C-Trip, taking majority stakes in its nearest rivals E-Long and Tunnar. This profitability, access to capital and ability to take a long-term view of profitability, suddenly provides serious competition to the global expansion ambitions of the USA giants Priceline and Expedia.

The first demonstration of this was C-Trip’s $180m investment into MakeMyTrip as the entry point to Indian Travel market. Like China this market requires a much longer term view of profitability and a massive investment to consolidate the currently heavily loss marking travel sector. C-Trip has experience of both the requirements and the benefit of this type of consolidation, which enables them to play the strategic long term game.

The publically quoted USA giants, seemingly must play by different rules, with every acquisition needing to be profit enhancing in a much shorter time frame. Hence, their acquisition strategies are more focused on adding products that they can market to their existing client base or globalizing the demand of e.g. Priceline’s acquisition of Rental Cars, Expedia’s purchase of HomeAway and Trip Advisors deal to take Viator.

At Phocuswright, C-Trip declared that their eyes are now set on the European market and immediately followed the conference with an eye watering £1.4 billion purchase of the UK’s Skyscanner.net. This is clearly just an entry point, providing a large volume of customer eyeballs and an essential building block of any European travel App e.g. a comprehensive market view of flight prices across the world. However, logic dictates that this will be followed by acquisitions in the online accommodation sector, ground transportation and potentially Dynamic packaging OTA area.

Don’t be shocked if we see a future shopping list including the likes of online hotel specialist Hotelopia (Ex TUI owned Hotel Beds), Bla Bla Cars or country specific OTA leaders like On the Beach in the UK. At the same time C-Trip will also be looking to hoover up popular app utilities like the National Rail app. There may even be opportunistic acquisitions like the specialist division of TUI, Travelopia which is currently on the market.

Major deals of this nature, will also herald a major upturn in the Venture Capital interest in the travel sector, as VC’s look to consolidate undervalued individual companies, which are too small to attract C-Trip’s attention, into a consolidated proposition that looks more attractive.

Therefore, for the first time since the spending sprees of the major integrated tour operators, the mid-term future could be looking good for travel owners, despite the current headwinds we are facing due to geopolitical unrest and the adverse head winds provided by Brexit.

Are Google and Facebook fighting the “Cold war” of the Internet Age?

As a child of the Cold War years between the capitalist USA and the socialist USSR, I was struck by how the ultimate internet capitalists Google, are now under attack from a rapidly expanding Facebook Social revolution within the mobile space.

Facebook’s presentation at last week’s PhocusWright conference in Delhi, India, spelled out just how dominant the Facebook group are becoming in the mobile app space.

Although the average smartphone user has 27 apps on their phone, 80% of usage is concentrated within just 4 apps, with the Facebook group owning the top 4 downloaded apps in Facebook, WhatsApp, Messenger and Instagram. However, the most prominent platform, Facebook, with its 1.5 billion active users has struggled to prove its commercial benefits to business.

Gaining likes and fans, has simply not delivered a ROI, and even Facebook’s massive remarketing capability is delivering questionable results. Yes, Facebook does provide the fastest remarketing platform, with users dipping in and out of Facebook frequently via their mobile phones.

However, these customers are in a social mode and accessing the internet via a smartphone. Is this an environment likely to drive booking conversion? I personally don’t think so, and would this marketing exist without Google to complement it?

The explosion of Messaging with 60 billion daily messages, which out guns traditional Text SMS messaging three to one, may provide a more commercial tool for business.

Facebook recently announced a set of “Chatbot” tools for business, which could revolutionise how businesses interact with their customers. Just as customers simply look up friends in Messenger to start chatting to them, they can now do the same with businesses. In turn business can use Artificial Intelligence and machine learning to allow electronic “Concierges” to chat with customers in order to answer their questions at incredibly low cost.

Post booking customer service is an obvious area to explore, with FAQ’s being databased and used to answer questions in a semantic language way, where customers can pose free form questions and enter into an extending conversation, until their questions have been fully answered.

However, it’s the contextualisation of the mobile sales process that interests me most. Much of our mobile usage takes place whilst travelling on trains, or in public places where phone conversations are less practical or desirable. However, imagine being able to start a travel enquiry by having a “chat” about potential destinations and dates? Chatbots can engage with customers to refine requirements before queuing the sales lead to a call centre agent, to make a call at an agreed time to run through pre-qualified options using co-browsing technologies. Change is coming fast!

Using 50m users as a benchmark allows us to see the massive acceleration in technology roll out and adoption speeds. Radio took 38 years, TV 13 years, but internet 4 years, Facebook 3.5 years and iPods 3 years. However, in today’s mobile enabled world, games like Temple Run 2 only took 13 days!

Secondly, we are beginning to see the spread of Apps into environments outside of the smartphone space. Shortly we will be seeing car dashboards and smart TV’s in hotel rooms, equipped with apps so that we can simply login to media apps, like Spotify, BBC iPlayer and Sky Go, to allow our music and TV services to be personalised to our specific tastes and requirements. Inevitably, this will lead to apps becoming more integrated into our daily lives, which in turn will drive further use of this ecosystem and, in particular, single login tools such as Facebook’s.

So although, to date, the Socialists at Facebook have lagged behind the massively profitable Google, relying on the potential of their huge reach to fund expansion. But the tide of the war seems to be shifting and massive profits will follow if Facebook can use the rapid migration to mobile to drive transactional revenue via Chatbots and commercial messaging.

The Cold War between the Facebook and Google ecosystems may be just about to really heat up.

 

Does Turkey hold the key to the Summer 2016’s late’s market?

Trying to accurately predict a UK lates market usually requires a crystal ball and a lot of luck, given the sheer number of influences that impact the UK travel market.

Unfortunately, the rise of ISIS and resulting terrorist attacks is having an increasing impact on the lates market, with the virtual removal of Egypt and Tunisia as winter sun late hot spots and the potential impact on the larger summer lates sector still to come.

January’s early bookings for summer 2016 have remained resilient, despite further terrorist incidents, with travel agents reporting 10% plus growth year on year. However, UK demand is polarising towards the perceived safer Spanish destinations, whilst other destinations such as Turkey and Greece lag well behind.

Turkey may hold the key to how the Summer 2016 late market turns out, as it looks destined to provide the highest volume of cheap late accommodation, combined with poorly loaded UK flight capacity.

Germany is seeing an even more polarised version of the UK trend, with industry commentators forecasting 2 million less German victors to Turkey, post the recent Istanbul and Ankara attacks. Some of these holidaymakers will simply not travel, but Spanish hoteliers are already putting up rates in the expectation of selling out due to buoyant German and UK markets.

This polarisation is likely to lead to very expensive late deals in Spain and very cheap deals to destinations such as Turkey and Greece.

Ironically, it is the big tour operators with their fixed capacity models that will suffer the most from this polarised lates market. It is much harder for their yield departments to manage a program with hundreds of seats flying empty close to departure and therefore the traditionally well-controlled market for charter seats to Turkey and Greece, looks ripe for exploitation by the major OTAs.

OTAs are geared up to exploit distressed markets, as they take no commitment and simply apply relatively fixed mark ups. This allows them to exploit the distress of airlines and hoteliers with committed stock, to create the low prices required to persuade customers to travel to less popular destinations.

However, further terrorist activity in these destinations could create a situation where customers will not travel at any price, creating a problem for all players, with little sellable stock being left available when we reach the lates market.

The impact on holiday demand as a result of UK weather has never been more pronounced. If we experience sunny weather leading up to the key school holiday period, many parents now opt to simply holiday at home, as the kids are perfectly happy playing on the Xbox, messaging friends over WhatsApp and watching hundreds of TV channels via Sky.

June’s European Football Championship in France, with easily accessible ferry crossings and low cost camping options, as demonstrated by 2008’s Euros in Germany, could dramatically impact lates demand. If Dad uses up precious holiday days in June it leaves less for the family beach holiday, leaving Mum to holiday at home with the kids.

Things could play out in many different ways in Summer 2016 with, not surprisingly, the location of the virtually inevitable Terrorist attacks being a key influence. It could be a great year for OTAs, but I think it’s more likely that we are all in for some sleepless nights ahead.

Google Destinations – Ultimate Meta site?

The shiver of collective OTA fear during the Google Destinations presentation at this week’s Phocus Wright conference in Fort Lauderdale was palpable.

Google has applied its vast technology resource to produce a product which could easily dominate the top of the travel search funnel; it’s called “Google Destinations”. With an emphasis on inspiration via content aggregation, and a laser focus on price comparison using cached pricing data, Google at first glance appear to have produced another killer application.

The key advantage Google has over any other travel player is its total dominance of search, which gives it the ability to deliver huge customer volumes to any new tools. So when Google launches a new travel product, we had better take notice.

Apparently 45% of travel searches start with a destination-led query e.g. ‘holidays to Majorca’. Google, via a visual carousel, will place “Google Destinations” at the top of organic listings and are therefore set to divert traffic from traditional link-driven search, to a content-rich format.

Once a destination has been chosen, customers will be delivered to an aggregated super page of relevant content, featuring destination and attraction information, video, weather etc. This is supplemented by a popularity index to show the best time and date to travel based on weather and price. Admittedly great content, but nothing too scary so far…

It was the ‘What’s next?’ section of the presentation that created the shiver.

Google are using cached flight and hotel data to create daily best-value destination and route pricing. This is presented as a simple slider, showing the cheapest periods to travel to the destination across the year within a month by month view or a more traditional specific date search. Alternatively, customers can utilise a budget slider to see which destinations fall within their budget and desired dates.

Once customers have decided on their destination and date of travel, they can drill down through results using traditional filters such as star ratings and UGC review scores, as well as continuously comparing prices between non-stop flying and via flying, or their chosen duration verses slightly longer or shorter stays e.g. the price to add an extra weekend on a 7-day trip to extend it to a 9-day trip.

Once the route and dates have been decided, the customers will be deep linked into the existing Google flight and hotel searches, which currently still link out to suppliers’ sites. However, it was 100% clear at the conference that instant booking and payment via Google Pay are fast approaching.

The scale of the data being aggregated and the speed of results being presented back are amazing. When combined with Google’s ability to deliver simple user interfaces, this creates a very impressive product that, in my opinion, could quickly become a game-changer.
Google continues to avoid the regulatory downsides of being an OTA by maintaining a media model where bookings are made directly with suppliers. However, the customer tools Google are providing squarely compete with the functionality delivered by the traditional OTA sites.

Google again stated that the motivation for the new “Destination Search” is to improve both customer inspiration and remove friction from the mobile booking process. I have to say they are doing a great job.

A less obvious but key motivation may also be to rebalance the power game in a USA OTA market, where 2015’s mega consolidation game resulted in Expedia and Priceline controlling 65% of the market. In a mobile-dominated world where real-estate is restricted, these two advertisers completely dominate. The new destination search will allow Google to flow bookings to a much more diverse customer base by acting as a virtual OTA, whilst maintaining its media model.

You may ask, “Why are Google bothered about other advertisers when competition between the big two keeps click cost high?” Google have always taken a long term view and realise that if they stop providing traffic to smaller players, these will be forced to work more closely with their biggest competitors i.e. social media giants like Facebook. Secondly, if competition in auctions is controlled by two players, competition could mysteriously disappear.

Being the best market place for advertisers, whilst reducing consumer friction in the mobile world remains the Holy Grail for Google, and they appear to be on the right track. Unfortunately, bi-product may be direct competition with OTAs.

If the only differentiator between the two offerings is how payment is made, it appears inevitable that OTAs will soon be complaining in the courts about an abuse of power by Google, in terms of how prominently “Google Destinations” is promoted within search results. An answer that its decided by a “secret source algorithm” may not cut it as a justification.

Will Google ever become an OTA?

Travel Weekly’s Breakfast briefing last week provided a fascinating insight into the thought processes of Google’s top UK team. For me it provided a clear indication of their future direction in travel.

As a “customer” centric business, Google described how customers’ demands for instant answers, rather than lists of relevant links, has driven much of their innovation as the market migrates to a mobile dominated search space.

This has driven the development of both their Flight and Hotel searches, which allow customers to enter the data required to move directly to a relevant result or “answer”, when they click through to the supplier. Add in the ability of a younger generation of early adopters, to use voice activation tools such as Siri, to drive their mobile searches and you can quickly see their point.

Google customer centric idealism is financially facilitated by the “Auction” nature of their bidding model. Reduced click volumes resulting from delivering higher quality answers to customers, are compensated by high bid costs making Google revenue neutral on almost all improvements in customer experience.

Interestingly, Google stated that the biggest driver of click inflation is a flat market, with little growth in search volumes, as this forces advertisers to spend more to maintain or increase their share. Currently, most desktop markets are in decline due to the big switch to mobile, which has resulted in bid cost inflation in this sector. Ironically, although mobile click cost started lower, rapid inflation has also occurred in this sector driven by competition for the reduced advertising space available.

Google’s auction model automatically means they are likely to be the biggest winners from the above market forces, unless customers can find answers more quickly and easily elsewhere. Hence Google’s move with its Flight and Hotel finder tools entering the travel price comparison sector in order to head off threats from sites like Skyscanner, Teletext and Travel Supermarket. Price comparison sites make it easier to answer a key customer question, “Who is the cheapest provider?” thus encroaching on Google’s desire to provide the most relevant answer to a customer’s search.

Google’s current model remains firmly a media play, with customers being handed off directly to the airline or to major OTAs within their hotel search to complete the booking.

In my opinion Google are like to remain a media play for the holiday transactions serviced by OTAs, because of the high regulatory burden that comes with being the “principal” and their inability to provide an answer quicker in this complex transaction.

In the flight sector Google is also faced by a customer’s clear preference to book directly with the airline carrier and are therefore unlikely to add value.

However, the hotel only sector is less clear-cut in my mind. Currently this sector remains highly fragmented with Google being forced by technology restrictions, to integrate with “intermediary” OTAs who aggregate hotel stock and take payment. The key question is can Google add value by removing this layer?

Unless there is a specific advantage of booking directly with the hotel, the answer is no. Google’s recent launch of “Hotel Offers”, where hotels can offer “discounts” or “added value” offers to a targeted range of Google customers, is a move at adding such a motivation and may indicate their future direction.

In my opinion, rather than becoming an OTA, Google are more focused on driving higher “answer” relevancy by working with advertisers to apply the “big data” they generate from customers movements within their sites, to drive more tailored advertising.

Remarketing advertising is a perfect example of this, with the highest converting OTAs already spending 30% plus of their PPC advertising funds on remarketing. We all know that currently remarketing is a relatively crude tool, and you’re often hounded for weeks by adverts for items you have already brought elsewhere. However, imagine the “Big Data” that Google can bring to the party.

Most websites use Google Analytics and attribution tools that tell Google which customers have brought items during a site visit and which ones have not. Imagine if this data could then be passed to a competitor, to allow them to identify what the customer was looking for but did not buy from their competition. This could then be used to target these customers with highly personalised and relevant “pre-visit” marketing adverts.

At the end of the day advertisers might not like this, but it is highly customer centric, allowing customers to find via Google the best provider for their needs quicker than ever before. Don’t rule it out guys, given the power Google has to dictate terms to the online advertising market place.

Endacott leads Teletext ‘book by phone’ push

Former On Holiday Group chief Steve Endacott has returned as chairman of Teletext Holidays as the company plots a major marketing push.

Teletext plans to put its brand name back in holiday-bookers’ minds as it champions a “book by phone” message.

The campaign will be the company’s first ‘above the line’ advertising – using TV, print, billboard and other traditional media – in four years.

Endacott will lead the move on behalf of a venture capital investor, having joined Teletext as non-executive chairman in July.

The company currently has a board of Endacott, product technology director Graham Farrugia and customer and marketing director Tom Sainsbury.

Endacott said: “Teletext is a freak of nature. No retail brand ever appeared on it, but 20 million people brought holidays through the brand.

“It’s a heritage brand. It stands for cheap holidays, late availability and booking by phone.”

The re-launched Teletext will offer package holidays by phone, sourced from single supplier Truly Travel.

Endacott believes its ‘book by phone’ message will fit perfectly with the consumer shift to mobile internet use.

He said: “The shift to mobile creates more opportunities over the phone.

“The average [online travel agency] customer visits 23 sites. The average conversion is 0.7%. Customers are getting data overload. We can provide a better customer experience by phone.”

Teletext launched press adverts and bus billboard ads on a minor scale this month, but plans a bigger push this spring.

Endacott said the marketing budget would be “substantial” but declined to give a figure.

However, he said: “We will be exploiting the same sort of media as Low Cost Travel Group which has spent a substantial amount.”

Teletext signed a single-supplier deal with TTA-member Truly Travel at the end of 2013 and now provides the sole distribution channel for the company, with Truly Travel fulfilling bookings through a call centre in Hyderabad, India.

The holidays will be fully protected both under the TTA trust account and Truly Travel’s Atol. But Endacott said: “We won’t be making a virtue of bonding because the CAA has failed to make it a differentiator.

Endacott said Teletext currently handles “circa 300,000” passengers a year.

Of his colleagues on the Teletext Holidays board, Sainsbury joined from Tesco three months ago and Farrugia has been with the company since September 2013.

Farrugia said: “We have dramatically overhauled the consumer experience, overhauled the website and given the call centre the tools to connect with the consumer.”

But Endacott said: “There is a lot further to go. Over the next three years we’ll re-engineer the whole booking process, for example to allow screen sharing and so customers can pay without entering their details.”

Endacott’s On Holiday Group ceased trading almost a year ago.

Dynamic Packaging 3.0 “The Age of the Brand”

Running the MyTravel retail and tour operations in 2003, I saw a big opportunity to exploit the fledgling Dynamic Packaging sector by creating a bed bank and building Dynamic Packaging (DP) technology via my technology business CWT Digital. Therefore, I jumped and have been deeply immersed in the Dynamic Packaging sector for the last 11 years.

Some of my investments such Holiday Taxis, CWT Digital, Rock Insurance and Internet Traveller have prospered and been extremely successful, however as widely reported the On Holiday Group’s bed bank operations collapsed in March 2014, under the weight of a £4.5m dispute with HMRC. Fortunately, my good friend Manny managed to pick up the assets and staff for virtually nothing, in order to create Magic Rooms, so not was the effort was wasted. However, even Manny has not been brave enough to venture into the B2C Consumer direct world yet. Why not you may ask?

The key problem with Dynamic packaging is that it’s a “Commodity” market, where each retailer has access to the same basic ingredients, in terms of flights, hotels and transfers. Unique, product is virtually unheard of.

The 1.0 DP battle involved taking the commodity holiday sector away from the then fat and inefficient traditional tour operators and forcing them to move their focus to “Differentiated” holidays. The internal DP battle between the first “On line Travel Agents” (OTA’s), revolved around who had the fastest and best web sites. Quickly a relatively level playing field was achieved and technology stopped being a key differentiator, with everybody expanding fast.

The 2.0 battle was focused on PPC and SEO spend within Google. Here, the Google algorithm around click history, created a massive barrier to new entrants and saw companies such as Travel Republic and On the Beach, given a major early mover advantage, as their PPC history protected their top positions within most destination, resort and hotel search results.

However, even these brands are now being strangled by the perfect nature of the Google advertising model. Given the complete measurability of PPC advertising within a commodity market, its not really surprising that click costs have risen so high, that they match or even exceed the commissions built into the holiday prices.

The recent rapid migration away from desktop (now 48% of Google clicks) to the newer tablets and mobile phones has also created massive issues for the On Line Travel Agent community (OTA’s). This is because cross platform tracking is hard and although mobile conversions are lower, OTA’s dare not be present in this growing sector. Hence, PPC performance has declined markedly on the last 18 months eroding profits.

In my view we are now entering the 3.0 stage of the Dynamic Packaging evolution. This stage will be the “Age of the Brand” with strong brands evolving and moving ahead of the pack.

My logic is hopefully relatively simple to follow.

• Brand traffic cost pence, compared to pounds for most other PPC traffic sources.
• Brands can afford to advertise across all platforms; since even brand clicks on mobiles   lasting minutes can be cost effective in the booking funnel.
• Companies with high brand traffic have markedly lower advertising cost.
• Lower advertising costs allow lower prices, which in turn drive more sales in a price sensitive commodity market place, creating a virtuous circle of growth.

This is exactly why the aggressive Low Cost Holidays management team have invested around £6m this year in “Above the line advertising” (ABL) to try to build their brand and direct brand traffic. Theoretically, over time this brand traffic will reduce their average Google costs enough to balance this massive investment.

However, its no longer practical to just spend millions on traditional interruption based marketing such as TV, Radio or outdoor media to create a brand. Social Media and in particular Consumer Reviews are having a massive impact on brand. The first thing consumer do when researching holidays is to look for pier-to-pier reviews on sites such as Feefo, Review Centre and Tripadvisor. If companies do not respond virtually instantly to complaints received via Face book or Twitter, whole streams of uncontrolled criticism can kick off. The bottom line is that if you do not offer a great booking experience and a great holiday you heading for trouble.

The sector is therefore faced with some massive challenges that need to be addressed to allow sustainable brands to be developed.

• Lack of inspiration. Most online sites insist the customers know exactly what they want before they can make a search and quickly try to force customers down a relatively inflexible booking funnel e.g. here are results for Majorca for 7 nights from Gatwick on date X. With an emotive product like travel, customers need to be inspired and explore in a much more flexible way. At the moment homeworkers and shop staff are much better positioned to perform this role, with most OTA’s just competing on price.
• Offer over load. Customers visit 23 online sites before booking and spend 24 hours researching holiday options. A key reason for this is that DP sites offer millions of options and do not in my opinion, have enough focus on making recommendations.
• Little product control. Few DP agents even know what is pulling through into their sites, as they have 20 plus XML bed suppliers, 49 airlines and multiple transfer providers. I am not convinced that they effectively control product quality, let alone Health and Safety compliance.
• Suppliers judged on price. Agents complain to suppliers about over bookings, customer complaints and general service levels, but still sale on solely based on price and do not effectively reward suppliers focused on quality. Hence, suppliers now focus on price and little else.
• In-Resort infrastructure. Few agents operate 24-hour duty offices or have local ground handling agents providing reps in resort to look after clients. Therefore, they are relatively ineffective in dealing with issues in resort and have to wait for written complaints upon the customers return. In general these customers are unrecoverable and likely to share their reviews using social media.

All of the above issues do have solutions, but most cost money, which historically companies have hesitated to spend whilst competing in such a low margin price competitive sector.

However, there is no point spending millions on advertising, if it’s all undone via poor service levels, which are shouted about via social media by unhappy customers. The benefits of repeat traffic are becoming so great and the damage social media can do to brands offering poor quality service or holidays, that change is inevitable.

Exploiting the 3.0 evolution is obviously going to be easier if you already have a brand. This does make successful entrepreneurial start ups in the DP sector look unlikely moving forward, unless they are exploiting specific niches and are focused on high quality differentiated holidays.

Given this I personally intend to keep my recent pledge to focus my start up energies outside of travel.

Within travel I will obviously continue working on my existing interests, but will focus more on consultancy work. There are still some very interesting travel brands capable of dealing with all the above issues and surging to the top of the pack. Sadly, its unlikely I will be own one unless somebody is willing to loan me a large check book, as the days of pure start ups appear to be over in travel.

$10 billion reasons to understand the potential of Airbnb.

I recently took two of my sons on a NBA Basketball tour of 5 American cities and was amazed at how easy it was to put together such a complex tour via the internet, using the ticket resell site Stubhub, booking.com for hotels and Airbnb for luxury private accommodation.

Interestingly, I’ve historically never had the confidence to book privately owned accommodation over the Web, but the advent of user reviews and one previous experience of using Airbnb services, has converted me into an avid advocate of this type of accommodation. For literally the same price as a single hotel room, I was able to secure a two bedroom luxury apartment in central Los Angeles and the same again in a prime location near Central Park in New York. These options provided great locations, increased privacy and most importantly space to unwind after several hectic days sightseeing, shopping and of course watching NBA Basketball.

Airbnb is currently valued at $10billion and recently announced its intention to provide a much wider range of travel services to its customers, in order to replicate the services offered by its hotel competitors. However, interestingly it is also getting increasingly tied up in what appear to be “hotel protectionist” legal actions, from people such as the Mayor of New York. Not surprisingly, he does not want to see all the lovely tax income New York gets from its hotels, disappearing into the internet ether of bank accounts of private owners. So clearly Airbnb is a massive threat to the traditional hotel sector.

Currently, I would suggest that few UK Travel Agents would even consider using Airbnb as a source of accommodation, even though most will now be Dynamically Packaging with a wide range of Bed Banks. In some ways they may be right to hesitate, since I doubt Airbnb are willing to offer “product indemnities” or provide even a basic “Health and Safety” audit on their supplied properties. However, this may be another “King Canute” approach by Travel Agents, to the way the internet is changing consumers purchasing patterns in the travel industry and perhaps they should be embracing it as a new product alternative.

In my opinion, it is clear that sites like Airbnb, of which there are already many, offer both superior accommodation and a much more in-depth cultural experience when travelling. Instead of the convenience of the hotel buffet breakfast, concierge or spa, you’re forced to explore the local area in order to find the equivalent services. For example, we ate in the local restaurant’s recommended by the property owners, who use them daily and sourced gym access by going online and signing up for free trial passes, offered by the major fitness chains such as 24 hour Fitness or LA Fitness.

The trip therefore felt much more like an exploration of the USA, rather than the usual “Culture Vulture” tours that I have previously experienced and had the added benefit of sport, more sport and even more sport to keep my two boys happy and bonded with their dad. Personally, I see events based trips visiting multiple cities and using private accommodation as a highly attractive niche, offering high margins and a large degree of differentiation if it is done correctly. It may not be my next venture, but it has certainly made it to the ideas shelf.

OHG business destroyed by HMRC withholding £4.5m disputed TOMS VAT

The directors of OHG Accommodation Ltd have today announced that they been forced by HMRC continuing to withhold £4.5m of disputed TOMS VAT to put the business into administration. This is because they are unable to pay all hotel bills as they are falling due and want to secure an orderly wind up of the business from a customer and travel agency partner perspective. As a result its Dubai based trading partner Euro Rooms Direct Ltd has also decided to stop taking forward bookings.

OHG has had lengthy discussions with most of the major bed banks over the last week, to try to persuade one of them to take over the client account and the £19m of forward bookings carrying £600k of profit. Again this would have minimised disruption to customers and OHG’s travel agency partners. However, we are saddened to report that only one bed bank was willing to complete a deal to help their travel agency partners. Unfortunately, this deal floundered last night, because of deliberate and inaccurate leaks to the Spanish press along with legal complexities relating to the client account.

All monies received from agents is held in ring fenced client accounts and will be returned by the On Holiday Group to agents in the next few days along with the bookings effected in resort. Unfortunately, this does mean customers will have to pay their bills in resort and reclaim the funds from our travel agency partners.

On Holiday Group CEO Steve Endacott commented, “The timing of the Supreme Court ruling in favour of Medhotels could not be more ironic and maddening. We are obviously glad that it gives a virtually guaranteed £4.5m pay out to our hotel partners, however it is likely that this will take a further 6-9 months to secure from HMRC and we have had legal advice that we can not trade until this point, without going into Administration.

I am outraged that HMRC have been able to take £4.5m of disputed VAT charges on a “guilty until proven innocent basis” and it has taken a ridiculous 4 years for to receive a Supreme court ruling that ratifies all our legal advice that we were acting correctly as the “Agent of the Hotelier” and HMRC where wrong in their stance.
The withholding of £4.5m money has effectively destroyed the OHG bed bank business, since it forced us to stop selling EU VAT zone hotels and removed the working capital required to effectively operate a bed bank. We are obviously exploring the potential for a damages claim, but our lawyers advise it is very hard to secure damages against HMRC who seem to have virtually unlimited rights when you are in a VAT reclaim position.

We have been forced to take the decision to put the company into administration due to pressure from hoteliers to make payments, which OHGA cannot do without the return of the £4.5m held by HMRC. Not surprisingly our hotel partners are not willing to wait up to another 9 months to receive payment. Obviously, I am absolutely gutted and deeply sorry to put 65 staff at risk today”

Endacott explained the background to the VAT dispute as follows, “Traditional tour operators, who own their own aircraft, shops networks and have ATOL licences, are deemed “principals” operating in the UK. As such, they have always paid VAT on the profit related to the accommodation element of holidays under the TOMS VAT scheme. However, when the UK market evolved and dynamic packing was invented, bed banks all set up on the basis that they were the “agent of the hotel” and the relevant VAT should be paid in the local market, where the actual product e.g. the hotel stay, is consumed. Unfortunately, Med Hotels (latterly renamed to Secrethotels2) made a mess of their structuring and actually changed in a matter of weeks from an agent to a principal and back again, sparking an investigation from HMRC.

Unbelievably this dispute has raged for over 4 years and in the meantime HMRC has applied a “guilty until proven innocent” approach to the rest of the UK bed bank sector, accessing all players retrospectively over a 4 year period and forcing bed banks to pay TOMS VAT under protest until their individual cases can be heard.

It has always been our lawyer’s opinion that OHG has followed the correct procedures from day one and has not breached the disputed Medhotels behaviours. However, because Medhotels has been the “case precedent” OHG has not been able to effectively progress our own case until this case was resolved and a clear ruling on the subject made.

The other key problem is that UK Travel Agents self-invoice and deduct VAT when making payments to bed banks on both EU VAT zone and non-EU VAT zone hotels where no VAT is payable. OHG then has to reclaim millions of pounds of this VAT from HMRC every year, before paying VAT on its much smaller profits. Hence, when the dispute arose HMRC just refused to pay back any travel agency VAT moneys. Although, there are numerous hardship protections for companies disputing what VAT they should pay to HMRC, unbelievably there is absolutely nothing you can effectively do if you’re in a reclaim position.”

The Supreme Court ruling has now been received and clears Medhotels but unfortunately it is to late to save OHG, however it does make it virtually certain that OHG’s administrators will be able to recover the disputed £4.5m of VAT and repay it to OHG’s creditors who are mostly overseas hoteliers.

Endacott explained that the directors had not been able sell On Holiday Group as a going concern. “On Holiday Group as the largest independent bed bank in the UK obviously has major strategic value to any of the large OTA’s. There are multi-million pound synergies by placing a higher proportion of OTA’s buying requirement in-house and the buying power advantages of combining B2C focused distribution with a broad B2B distribution networks. We have therefore had extensive and detailed discussion over the last 6 months with a number of interested parties, however all deals have floundered because of the £4.5m VAT dispute and its inherent risks. We obviously would have liked to resurrect these discussions, but again we have run out of time.

It is expected that the collapse of OHG will leave its creditors which are primarily its overseas hotel partners with unpaid debts of £7m plus, since the collapse will make worthless many of OHG’s assets such as investments in other source markets or IT systems.