Will it rain with bookings for Travel agents in 2013?

For the last 3 years I have been a pessimist at this time of year during the annual budgeting exercise, telling my directors to “Baton down the hatches” and plan on keeping everything tight for the year ahead.

However, even through the number 13 may generally be deemed to be unlucky, I am feeling much more optimistic about the year ahead. This is partly down to my “naïve” expectation that there will be less negative impacts next year.

No ash clouds or Arab Springs on the horizon. Although sales to Egypt are likely to remain depressed, as it continues on its seemingly inevitable slide to being a secular Muslim state. No glorious summer of sport, to keep potential customers locked to their couches, watching Euro football or golden medals being delivered in their droves by both able and disabled British athletes.

Even the Queen may keep out of things, having spent the year attracting overseas and domestic tourists to the great summer of London pageantry.

There are also some positives to drive expectations. Historically, after a wash out summer, early demand surges for next summer’s overseas holidays. Holidaymakers, who got stuck in the wet and miserable UK during last summer, spending fortunes to keep the kids entertained, often vow to never do it again. Well until the memory fades a little at least and hence weeks of rain, just before the key January booking window, can only be a God send for sales.

At a more Macro level, the pound remains relatively strong against the Euro. Although it has dropped back from €1.25 to €1.22 during the last six weeks, it remains ahead of last December’s €1.19 to the pound, meaning both customer’s spending money is boosted and the hotel element for Euro destinations is reduced.

The Dollar and Fuel prices are also looking positive with the Pound hitting an annual high against the dollar this week at $1.62 to the pound and fuel prices drifting down to last year’s levels. In simpler language these variations should give tour operators an average £10 per person reduction in holiday costs. Initial indications are that tour operator capacities are tight and hence prices can be held, with these cost reductions dropping to the bottom line.

Unfortunately, in the commodity ”Dynamic packaging” market, competition is likely to force all these savings to be passed directly to the customer in the form of lower holiday prices. Given prices are already much lower than traditional tour operators; it is unlikely that this price reduction in its own right will drive more volume for the sector.

The Dynamic Packaging market is much more influenced by low cost airlines capacity. We are seeing a slow down of both low cost capacity growth and in the shift from city routes to leisure routes. However, it should be remembered that agents dynamically packaging have 100% access to a low cost flights, compared to the 30% of seats charter operators sell off as flight only and hence even small movements can have a big impact.

Probably more relevant is the statistic banded around by Low cost airlines, that Travel agents represent less than 10% of their seat sales. Do I believe this? Not for a second, but irrespective of the real number, there are clearly still millions of more seats for Agents to package into holidays and I am optimistic that the Dynamic Packaging sector will grow by a further 15%-20% this year. Why such a radical increase?

Well we are not quite there yet, but given all the noises coming out of the major tour operators, 2013 is likely to see Agents commissions on the “differentiated” holidays sold by the major tour operators cut to a flat 4% commission plus booking fee. This is because the growth of their internet sales combined with an oversized retail chain, will mean they have excess internal distribution capacity and therefore can take or leave third party shops on their terms.

The wiser agents will therefore use 2013 as a migration year, pushing their Dynamic Packaging sales up to 40-50% of total sales, giving a substantial boost to the demand side of our sector.

Hence, 2013 may be unlucky for some, but hopeful On Holiday Group will continue to ride the evolutionary wave and Happy New Year. Which I of course also wish to all readers.



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