The dangers of a travel “Super Brand”

The recent TV and press coverage surrounding the mass cancelling of flights by various UK airlines due to staff shortages as travel restarts after Covid-19 disruptions, reminded me of the arguments for and against travel Super Brands.

 Back in 2002 the Airtours Group, decided that it was time to bring together its Going Places travel agency chain, Airtours tour operation and MyTravel airline under one super brand called MyTravel and ever since other travel groups have been following suit.

 The “Vertically” integrated model was born in the 1990s as the battle for high street distribution heated up. Three of the big four tour operators, due to the dominance of Thomson’s owned “Lunn Poly” shop network, decided to buy, and build their own chain of high street agents. This gave them guaranteed distribution and the ability to trade sales of competitors’ products in their shops, for sales of their tour operations in that competitor’s outlets.

 At the time the branding of the retailer was left independent of the tour operator, because it was felt that to be cost-effective the shop needed to serve all the needs of the local community, selling a wide range of holiday companies to maximise commission, whilst “directionally selling” to its inhouse tour operations. This also meant it had plenty of stock to sell in the “lates” market, in the unlikely case that its own tour operator had sold well and had little left to sell.

 Each division of integrated groups operated its own “Profit and Loss” account and not surprisingly initially far too much effort was spent on internal arguments about commissions, until “Matrix” earnings were introduced at a Group Level. Simply put, the retail division needs to believe that its highest commissions came from its in-house tour operation e.g., 15% and the tour operator regards its in-house shops as its cheapest distribution e.g., 10%. Clearly, an impossible task before David Crossland introduced a matrix group subsidy that consolidated out in top-level accounts.

 Similar arguments also existed between the tour operator and the airline division, which was often used as the “Bank”, with the tour operator being deliberately overcharged for seats compared to market rates, to ensure that they did not discount profits away. Not surprisingly the bank/ airline normally won any arguments.

 The motivation for the creation of a single “Super Brand”, stretching across tour operation, airline, and retail shops, was always the “brand synergy” that it created, with one TV campaign benefiting all divisions and customers being surrounded by a coherent and always present branding experience.

 The biggest opposition to the “Superbrand” came from the high street shops who feared for their commercial survival if customers believed they only sold in-house tour operations. In hindsight, they may have been right as the shrinking of in-house shops has been much faster than independents on the Highstreet, however, this argument is blurred by the growth of the lower-cost internet which clearly suited single brands.

 It was international expansion that finally finished the debate at Tui. How could Tui continue to retain the massive legacy Thomson Brand in the UK whilst bringing together all its other international brands under the common Tui Branding?

 Although this was initially resisted by the UK management team, they eventually yielded and the transition from Thomson’s to Tui was completed in an incredibly short period with minimal damage to its market position. I think however that this was mainly due to the strength of the “Exclusive and differentiated” hotel stock that Tui controlled, and the weakness of its biggest competitor Thomas Cook.

 The biggest fear of creating a “super brand” was that one of the group’s aircraft might crash crashing and potentially destroy the brand overnight.

 Thankfully this has never happened, but how much brand damage has cancelling 36,000 holidays due to  “operational” issues at the airline,  done to the Tui super brand in the UK.

 Travel requires a massive amount of “Brand Trust” as buying a holiday is one of a customer’s highest annual purchases, where effectively all they receive on booking is an email and/or paperwork promising to deliver the holiday in the future.

 Covid-19 has already damaged customers’ confidence in this “promise” with credit note refunds, but how much worse is large scale holiday cancellations?

 Tui will rightly argue that 36,000 holidays is a small fraction of its overall carryings, but cancellation is a major breach of the holiday promise and these disappointed customers are unlikely to book with Tui again, However, I fear that the “halo” impact of the widespread TV and press coverage could create a 50 times multiplier impact, creating 3.6m passengers who will hesitate to book Tui next year.

 Whatever the actual level of brand impact, the last thing the Tui Tour Operation needs is brand damage at a time when it has also lost a large amount of its exclusive stock. The large debt mountain Tui was forced to take on board during Covid-19, needs to be paid down by further rights issues of shares and this can only be done when sales and profits return to pre-Covid levels.

 This latest brand damage will push back further the date that this vital refinancing can occur.

 In the meantime, a shortage of working capital has forced Tui to reduce its hotel pre-payments dramatically, leading it to lose many of the exclusive hotels that created its “differentiated” product, creating a negative virtual spiral and leaving Tui competing head-to-head with Easyjet and Jet2 holidays in the “commodity” beach holiday market. A battle I think they may lose.

 I remain highly confident that Tui with its long history of holiday excellence and strong management, can trade out of this current situation, but they cannot continue to shoot themselves in the proverbial foot.

 I’m sure there will be some interesting internal debates regarding compensation between operating boards, but it’s all irrelevant compared to the prospering of the Super Brand itself.

 All I can say is good luck Tui, I genuinely wish you well as the last man standing of the original big four tour operators.

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