BrightOn Travel to explore “Roads to the Supermarket”

The upcoming BrightOn Travel seminar, on Friday 25 September, will focus on different ways to drive cost effective traffic to travel websites and look at how the advent of mobile traffic may require a complete re-engineering of many booking paths.

I often use a supermarket analogy when looking at travel websites. In my opinion, too many companies focus their attention on re-arranging the shelves, putting up special offers and training check out staff, when their main focus should be on making sure people can find their supermarket, and park.

Google has long powered the main travel to our theoretical supermarket. Google is the motorway, and has well signposted SEO routes and increasingly expensive PPC ‘toll roads’. However, alternative roads are now being constructed, such as social media channels and mobile; to use our analogy, these act as satellite navigation tools which are changing the way we find and travel to the supermarket.

As PPC costs continue to escalate, travel companies are reverting to traditional marketing methods in order to develop brand identity. However, offline advertising on TV, radio and billboards still present challenges for the marketer.

An obvious one, is that companies seem to be re-allocating spend from highly measurable PPC budgets, to areas such as TV. Demonstrating the return on investment from offline advertising is much harder. Years ago one major price comparison site, described their TV advertising campaign as “Taking a big bucket of water, chucking it against a wall and then making sure you have an even bigger online bucket to catch it with”. The implication being that, ironically, PPC budgets need to increase when you do offline advertising and not decrease!

Historically, accountants within many organisations typically treat marketing expenditure as an overhead with fixed annual budgets. However, to accommodate the above quandary, many are now moving to defined metrics around Cost Per Acquisition (CPA) and treating marketing spend as operating costs; as long as the increased spend is delivering a return, why restrict it?

How companies are rated by review sites such as Feefo, Trust Pilot and Review Centre, contributes to the size of the catchment bucket. A lack of star rating, or poorer star ratings than competitors, operates in reverse to offline advertising, driving higher CPA costs. Review metrics are bit like making sure you have sufficient parking at the Supermarket.

The second big topic of the BrightOn Travel seminar is trying to get companies to look beyond responsive design, as their main mobile first strategy. Marketing directors tend to lead mobile first strategies focused on allowing their existing sites to be used via mobile devices via responsive design, but few have the power to force other departments to review how they work in a mobile-first world.

The seminar will look at how companies like Teletext Holidays are trying to re-engineer their search and booking process. Teletext is reviewing ways to encourage mobile customers to call or web chat, with their call centre staff, using techniques such as mobile push recommendations. It is amazing how many different elements of the business are impacted by what looks like a simple change in process.

I personally think many travel companies are failing to engage in the process of understanding how customers’ interactions with them will be impacted by device size, and the environment in which people are searching. Here are a few examples:

  •         Environment: Customers on a train surfing via their mobile, are unlikely to want to phone to book, so providing online chat is important.
  •         Recommendations: The combination of slower connectivity via mobile devices and smaller screen sizes, make it harder for customers to review results, giving a preference for more recommendations.
  •         Facebook. The Facebook app on people’s phones dominates internet usage, so how does your Facebook advertising reflect this.

BrightOn Travel intends to create discussion around these topics, with speakers from leading travel brands sharing their experiences and flagging key areas for review. We will have a lively daytime event and an even more dynamic discussion afterwards in the sponsored bar at the boutique MyHotel.

Ensure your place at the event via the Eventbrite page.

Does the Tunisia crisis show the need for an OTA Trade body?

Like the rest of the travel industry my initial reaction to the Tunisia atrocity was one of shock, followed by reaching for the phone, to make sure the various companies I consult with had kicked their emergency response plans into top gear.

The TUI management team, along with their staff, must be congratulated for a superbly organised and rapid response in such difficult circumstance. Its impossible to know at this stage, but in my opinion TUI enhanced their brand perception with the UK public, because they made exactly the right key calls, by repatriating all guests who wanted to leave Tunisia immediately and allowing free amendment or cancellation to the end of the season. They also fielded their most senior team for UK PR purposes and deployed emergency teams in resort, to assist their guest in any way they could. It really was a well planned and executed response that the industry should be proud of.

Several commentators have pointed out in the press the differences between traditional tour operators and Online Travel Agents (OTAs in terms of how they are able to deal with incidents like Tunisia and to be fair most make highly valid points.

The major tour operators do indeed have a much greater degree of control over how they are able to protect their brand propositions, in crisis situations like the recent Tunisia attacks. Their greater levels of in-resort staff, infrastructure and the control over their airlines, are indeed key assets.

However, this does not mean that OTAs and dynamic packaging firms cannot learn from the major operators and follow their excellent example in terms of disaster planning. Most reasonable sized companies already had in place emergency teams compromising key personal, who would have instantly been contacted on Friday when the UK first became aware of the Tunisia atrocity and kicked into action.

In this particular case the customers directly impacted where Thomson’s, meaning the primary responsibility of OTAs was dealing with other customers in Tunisia as a whole and customers who where due to travel.

Therefore, the requirement was to instantly understand which airlines and bed bank suppliers an OTAs customers where booked with, in order to communicate their respective policies to customers, before the customers had time to react and contact the OTA. This is vital in terms of controlling inbound call volumes and allowing personalised proactive communication to customers, to compensate for OTAs key weakness in these situation. This is their inability to control policy, in order to be as customer centric as possible and the complexity of communicating differing policies that tend to change on a rolling departure date basis.

The lack of control over airlines amendment and cancellation policy is a key weakness in terms of protecting an OTA brand, but to be fair the OTA can hardly expect to take all the benefits that

Dynamic packaging gives them without some downsides. It is unlikely that airlines will take any notice of OTAs when setting policies, but pre-agreeing policies with bed banks or pressurising them for more sensible terms is completely achievable and something that could be improved I believe.

The impending “Greek Euro Exit” meant that most OTAs would have recently reviewed their emergency procedures prior to Tunisia, but I personally think that the sector would benefit from a central trade body of OTAs, where “best practice” could be shared and pressure exerted by joint buying power. Ideally this body would also include the major bed banks, to allow a more coordinated approach by the DP sector.

Should this body be a sub-set of ABTA or does the DP sector need to dust off the “Association of Travel Agents” framework, put in place for the failed fight to shape the European Package Regulations? I’m not sure, but Tunisia did highlight that more coordination is required.

One of the key benefit OTAs and dynamic packagers have over traditional tour operators is the flexibility that their “asset light” model gives them. For example I would not like to be TUI’s yield planner trying to work out were to move 20 plus flights from Tunisia to the end of the season. As well as the impact on demand posed by the seemingly inevitable Greek Euro exit, initial post Tunisia sales indicate customers are also showing concern about booking holidays to Egypt, Morocco and to a lesser extent Turkey, because of their perceived closeness to ISIS strong holds. Hopefully this may prove to be just a short-term blip for these great destinations.

Being able to play a wait an see game at such crucial juncture, may be the key asset enjoyed by dynamic packaging OTAs, that outweighs the clear advantages the major integrated groups have in terms of protecting their brands in times of crisis. Personally, trying to get the best of both worlds needs to an something the whole OTA community would benefit from working together on.

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.

Build the roads and they will come!

I seem to have gained the habit of explaining my web concepts by relating them to a “supermarket” analogy.

In my opinion, too many companies focus all their attention on re-arranging shelves and the placement of special offers, rather than worrying about building the “roads” to their Supermarket or where repeat customers can most conveniently park.

As an OTA industry, we seem to have reached a technology slow down in terms of travel site innovation, with most sites following the same booking flow and offering identical products. The key battlefield is now about who can generate the most cost effective customer flows or “roads” to their sites.

“Brand” in my opinion remains the key differentiator, as this allows OTAs to avoid expensive Google advertising, with direct site visits or low cost Google brand name clicks.

However, what other low cost or high converting traffic options are there?

Affiliate traffic from price comparison or review sites, is undoubtedly the most reliable source of traffic outside of Google, in terms of costs and quality of leads, with most OTAs working closely with sites like TripAdvisor, Travel Supermarket, Trivago and Cheapflights etc. However, the recent move to mobile has raised question marks over the effectiveness of some of these “Cost per click” pass through sites. This because they charge the same rate for a lower quality mobile leads, as higher quality desk top leads, even though the conversion is much lower.

The levels of customers travelling the Facebook super highway are massive, yet so far few players have effectively managed to divert traffic via the off ramps to their Supermarkets. The consensus of opinion seems to be that traditional commercial advertising via Social Media channels is ineffective, with customers rarely interacting with what they regard as “in personal brands” within a social environment. in my opinion are leading the way in utilising Facebook, by adopting an approach where their 109 passionate Cruise home workers, have become the “Face” of the brand. These individuals, under their own names, rather than a central marketing department, drive all activity. The individuals are the “Social Brands”, interacting with their personal customer base via blogs, posts and Facebook pages, with the brand being a kite mark for quality.

Cleverly however each activity is linked back to the “mother ship” web site, with staff being paid “Social Media Revenue” which they earn commission on, for driving traffic. In turn this is invested, by them in Facebook “boosts”, to increase the prominence of their posts or in traditional Google PPC / Facebook advertising of their personal names and blog sites.

The move to mobile is also prompting a different approach to engaging customers during the booking process. The advent of “Co-browsing” technologies is allowing call centre agents to drive the search process for customers and to quickly make online recommendations. It’s very early days for this type of technology, but the increases in conversion levels it promises are significant.

One of the most enjoyable aspects of my new “Consulting” focus, is the ability to engage with a wide range of companies and bright people. The rapid migration to mobile platforms clearly presents many challenges, but as with every market disruption, it also offers wonderful opportunities for innovation and game changing new approaches.

The UK travel sector is again becoming a very interesting place to work.

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, 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.

Have Low Cost Holidays torn a gaping hole in the UK regulatory environment?

This week Paul Evans (Low Cost Holidays), one of the co-founders of the Association of Travel Agents (ATA) resigned with a simple message: “Sorry, solved the problem by moving to Spain. We are out”.
This location move out of the UK by a major OTA is, ironically, one of the outcomes the ATA had predicted to regulators and has been lobbying to prevent.
The combination of the impending reforms to the European Package Travel Regulations (PDT’s) and ever increasing regulatory costs of operating on the UK, compared to other European member states or so called “off shore” solutions outside of the EU, make such moves virtually inevitable.
Whilst operating based in the UK, Low Cost Holidays (LCH) incurred ATOL charges of £2.50 per pax, which on its approximate 1m passengers, would cost a whopping £2.5m. Compare this to Spanish Tour Operating bonds which start as low as €60k. It will literally save LCH millions by moving to Spain via this lower cost alone.
Add to this the much lighter regulatory touch, where balance sheet inspections and requirements are not as arduous as those imposed by the CAA, and you have reason enough to make the move to Spain, right now as Low Cost have.
However, these costs shrink into insignificance when compared to the cost of TOMS VAT, which could be imposed on every travel agent selling holidays by the revised European PTD.
ABTA has taken the view that even thought the revised PTD’s will impose “Principal” status on UK travel agents selling holidays, that this does not necessarily mean they will become liable to pay TOMS. However, the ATA believes this is highly naïve position.
Why would the major UK tour operators stomach a position where they have to pay TOMS, but other Principals selling dynamic packages do not?
I can guarantee they will be lobbying hard for HMRC to impose TOMS VAT on dynamically packaging agents, and in an environment where the UK Government is desperately seeking increased tax revenues, why would this not occur? The TOMS VAT charge has been estimated as £20 per passenger and therefore in Low Cost’s case alone would equate to £20m extra cost.
Spain has demonstrated how their “Bed Bank” sector has been treated by Spanish tax regulators recognising the “Agent of the Hotel” approach – expecting their locally based hotels to pay IVA (Spanish form of VAT) rather than their agency distribution partners.

When applied to packages sold under a Spanish licence, it in effect dramatically reduces the IVA on any holiday package and makes it highly attractive to be based in Spain. Hence, even though the majority of Low Cost’s passenger volume still originates from the UK, they can deliver at a lower cost by being based in Spain. In a price sensitive market is likely to grow their market share, at the expense of UK based business.
So in one neat and highly legal move, Low Cost have torn a gaping loop-hole on the UK regulatory framework, which the CAA are now running around looking for ways to close.
Andy Cohen of the CAA could not have put out a more strongly worded condemnation of the Low Cost move, but in reality European Law makes the CAA powerless to stop Low Cost continuing to sell holidays in the UK, completely out of the their control.
The UK Industry may like to think that without the ability to show either an ATOL or ABTA logo that Low Cost’s booking levels will drop. Unfortunately, the evidence to support this hope does not exist, as demonstrated by the fact that less than 5% of holiday makers decided to cancel their holidays when notified of the change of bonding by Low Cost.
I can only recommend therefore that the CAA continue with its current sensible approach; of commercial negotiation with the major OTA’s and airline holiday companies to get them to join the ATOL environment on a voluntary basis at a sensible cost. Remove the short term cost advantage and few players will disrupt their business models by moving to Spain unless the saving is substantial.
However, the TOMS VAT threat imposed by the revised European PTD’s as they stand will make the cost advantage of moving so great it may not be resistible.
This is why the ATA will continue to work closely with the CAA to push the continuation of the current Flight Plus regime with both UK and European regulators. This recognises the need for Travel agents to trade as agents and not principals and as such avoids the imposition of TOMS VAT.
If Flight Plus is not retained and principal status is imposed it will create an uneven playing field against the unregulated giants of and low cost carriers sourced by a few Google clicks. If this occurs the commodity holiday sector, currently serviced by OTA’s and UK high street agents, will either be destroyed or forced to move out of the UK reducing both tax and bonding revenues.
Personally, I regard Paul Evans and his Low Cost Holidays group as smart players, who were able to adjust their trading model to save millions, and have done so.
However, abandoning the ATA cause is something I hope to persuade Paul was a premature and short-term decision that he should not have made. If not, some of the other ATA members may end up buying Paul a beer in Palma every Friday night come 2016!

Does the Beach need to get connected?

This summer’s heat wave put the topic of “Connected Kids” and the evolution of their holiday requirements at the forefront of my planning for Summer ‘14.  For as long as I can remember, mum’s have dreaded the 6 week summer school holidays because of their kid’s need for intensive interaction, play dates or days out, to offset their inevitable boredom.

However, the Internet, game consuls and Sky TV have brought massive changes in our children’s behaviour, with the new challenge being how to get them out of their bedrooms and outside.  Over the last 10 years beach destinations have embraced Sky TV, with football games, Coronation Street etc. being available in bars in virtually every major destination. Owners simply consider it a cost of doing business – if they do not offer this service their revenues decline rapidly.

Oddly, most hotels regard Digital TV and Internet access as revenue opportunities via paid for services, rather than being willing to invest in them as service differentiators. This might be acceptable if the service they provided was actually effective. I have lost count how many times I had to sit in a hotel reception to use the Wi-Fi or gone to connect in the room only to realise my iPhone, iPad or Mac cannot be plugged into the out-dated Internet cable provided.

To be fair, a key problem is the sheer size of most hotels. It is relatively simple for a bar or coffee shop to provide a free Wi-Fi service, since their maximum concurrent capacity is likely to be 10-20 people trying to use the service. Also customers are less likely to want to use streaming services for watching Netflick’s etc. and more likely to just be downloading emails or accessing Facebook.

Conversely, most beach hotels will have 200 plus rooms on multiple floors over a wide expanse of space. Hence, whilst most provide Internet access often it simply cannot cope with the demand and this results in a poor impression for hotel. Soon, a key search criterion for beach hotels, driven my kid’s requirements, will not just be “Does it have Wi-Fi”, but what broadband speed does it offer! Believe me this is coming.

At next month’s World Travel Market event in London, I have organised a session with key industry players to discuss this exact topic and try to raise the awareness of the importance of the issue with our hotel partners.  Personally, I want to take a radical look at the whole in-resort entertainment experience for kids and will be suggesting some of the following

Þ      My DJ set. Keep some of the traditional cheese of the nightly kids discos, but allow the slightly older kids to create play lists on their iPhones so they can have their own DJ sets during the evening.

Þ      International electro Olympics. Most online games support multi player action. So allow kids to create national teams and compete against each other. You never know we might finally be able to beat the Germans at a penalty shoot out on FIFA ‘14.

Þ      Game Hardware. As online gaming has developed, the equipment for playing games on has become incredibly cheap relative to the Game discs themselves. In my opinion hotels should put space aside and invest in 10-20 game consul and TV combinations, whilst leaving the kids to bring their own game discs or renting game disc’s in order to generate a revenue stream to pay for the initial £5-10k investment required. However, more progressive hotels will follow the bar owners approach to this and just see it for what it is; a basic cost of doing business.

Þ      FREE WiFi per Floor. Make the investment and put in a broadband connection in per floor and Wi-Fi routers labelled with the floor number. This will make it incredibly simple for customers to know which one to connect to. Wi-Fi cannot continue to be a revenue opportunity in the future since it is going to be a basic hotel service.

Þ      Capturing customers email address. Make customers access passwords to the Wi-Fi their email address. This will open up a new world of cost effective CRM, where hotels can encourage customers to leave online reviews and pass on discount codes, which can turn customers in to hotel advocates that bring in other customers.

 Even this approach will have to evolve over the next 5 years, as the EU finally move to banish outrageous and completely unjustifiable “roaming” charges that customers are currently ripped off by, when using their mobile phones overseas.

Realistic roaming fees will see individual mobile phones becoming the access point for all customers computing devices via tethering. However speed may remain a big restrictor in some beach countries where 3 or 4G networks have not been rolled out.

The bottom line is that if hotels do not evolve their offering it will be harder to get kids to go on the traditional beach holidays and if they do not experience them as kids, don’t assume they will prefer them over other holiday option when they become adults themselves. We really are talking about an investment in to the future of beach holidays here.