The Trump effect on holiday prices!

The main drivers of change in year on year holiday prices are Fuel prices, dollar aircraft leasing costs and individual destinations exchange rates. The impact of these changes is also effected by when and how much tour operators or airlines, hedge fuel price and currency costs.

Historically, tour operators printed brochures with fixed prices and hedged enough fuel and currency to cover the first print run up until December. The aim was always to hedge at the same time as your major competitors, to remove any fluctuations within the competitive landscape. However, as brochures have become less relevant in the internet age and fluid pricing has become prevalent, the period and dates tour operators hedge have aligned themselves more to those of low cost carriers, who tend to hedge as they put the next seasons programs on sale in October.

As I explained in my last blog, rising fuel costs are likely to reduce flight capacity in the market place as airlines cut back the amount of marginal early morning and mid-week flights they operate. Unfortunately, for airlines the dollar to pound exchange rate, although it soared as high at 1.48 is now level with the start of the year at 1.28 to the pound, meaning that there is no reduction in aircraft leasing costs to dampen the rising fuel costs.

At the moment it seems Donald Trump’s announcements can have a major impact on  currencies relevant to beach holidays.

With Brexit looming it seems inevitable that the Sterling/Euro exchange rate will become more volatile over the next year as we appear to be staggering towards a hard Brexit. We have already seen what impact a Trump announcement about Brexit and a quick trade deal with the UK can have on the value of the pound.

Less expected was a doubling of steel trade tariffs against Turkey. This combined with a fragile Turkish economy has led to a 20% reduction in the value of the Turkish Lira in the last week and a year on year devaluation of over 40% versus the pound.

You would naturally expect that this devaluation would feed directly into lower holiday prices and make Turkish holidays better value against Euro beach destinations, however in reality it’s not as simple as that.

For a long time Turkish hoteliers have contracted with UK tour operators and bed banks primarily in pounds sterling or to a lesser extent dollars. Therefore, Turkey has seen a benefit as the Sterling to Euro exchange rate has deteriorated over the last few years, but most of this is already backed into holiday prices as the fall in the last year has only been from 1.17 to 1.12.

Obviously, customers in resort spending power has been dramatically increased and the average cost of a beer down to £1.60. However, again this is mitigated by a 65% plus mix of All Inclusive sales, which where contracted in sterling and the customer rarely wonders away from their Free bar!

Here it is the hotelier who is getting the short term benefit of being able to buy more Lira with their sterling receipts, which in turn reduces their costs of operating.  Unfortunately, with an inflation rate of 17% this benefit will be eroded quickly and is not likely to be passed on in lower hotel prices next year.

With self-catering properties being available from £1 per night in Turkey during  October, there is likely to be a strong late demand for self-catering in the next few months, but with Google advertising costs relatively fixed, OTA’s need to make sure there are not selling this product at a loss given the low average booking values!!

Love him or hate him, the Trump factor is likely to impact into next year’s market. The problem is that it’s virtually impossible to predict how!


Will good UK weather impact this year lates market?

Having managed Airtours yield team for many years, I’m more than aware of the impact good UK weather can have on holiday sales in the lates market.


With historically 45% of all package holidays sold within 3 months of departure, minimising losses whilst achieving 99% load factors, was a crucial element of the financial performance for the year. That’s why we often looked out of the window and prayed for rain!


A pattern of good mid-week weather, followed by rain at weekends maximises customer frustration and boosted sales the most, but it was good weather in May and June period that we feared the most. This often lead to a slowdown in sales and a build-up of excess capacity as we approached the peak summer period. With four major tour operators in those days, competitive pressure was also a key influence in driving rapidly decreasing prices and holidays being sold for £99 at the last minute.


Structural changes to our industry, with the consolidation of four to two major UK tour operators and a switch to “differentiated product” to drive early sales, has massively reduced the “excess” package stock in the market place. Similarly, the low cost yield models of Easyjet, Jet2 and Ryanair all seek to do their yielding early, leaving less stock available in the latest market, which in turn has led to a much more controllable lates market in recent years.


However, I think this has masked the impact of the “Connected” Internet world, which in my opinion has made the overseas lates holiday market more vulnerable to good weather in the UK.


When the pre-millennial generation were growing up, mothers dreaded the 6 weeks summer holidays, as kids quickly became bored at home. An overseas holiday was a welcome break and theoretically, an opportunity for Dad to step up to the mark and share the work load, by splashing with the kids in the pool or building sand castles.


But today’s kids have been brought up in a world with 1,000s of satellite TV channels, on demand TV and PlayStation’s that allow them to play games with a wide range of friends, without even stepping out of the house. One of my kids wouldn’t even come on beach holidays, as he did not see the point and did not like the sun. I’m sure these days he may not be alone!


If the kids are happy at home, it’s not surprising that if the weather in the UK is good over the summer, more mums and dads are opting for a few days in the garden gathered with friends around a barbeque, supplemented with a few days trips.


This is less of an issue for the asset light dynamic packing OTA’s as not holding perishable assets means its normally flight and hotel prices that take the pain required to get prices low enough to tempt customers, so the day jobs probably safe.


However, I personally think “UK Staycationers” are missing out on other key aspects of an overseas holiday. Namely, the experiencing of different cultures, sites, languages, food and even swimming in the sea. Not to mention the detox that the entire family experience by unplugging from the “Constantly on” internet world and enjoying meals out where the whole family engage in conversation. I know, a rarity in my house hold as well!

Does the OTA community need a new Monarch?

Easyjet’s appointment of Johan Lundgren as CEO, was bound to herald an increased focus on their holiday division and the poaching of Tui’s highly experienced product and contracting director Gary Wilson clearly heralds the start of a big push.


Given the introduction of the new Package Travel reforms and the increased costs imposed upon “Dynamic Packaging” retailers, the launch of a Easyjet Holidays B2B trade proposition for high-street travel agents looks inevitable. Why would Easyjet Holidays leave the trade Jet2holidays?


It may even be possible that Easyjet Holiday’s launch’s their first summer brochure to the trade in January 2019, but it’s a tight timeline to increase its direct buying to build a competitive product and a launch for Summer 2020 may be more realistic.


The high-street will welcome the move back to a “big four” tour operators, with the new boys of Jet2 and Easyjet servicing the “commodity” beach market, that both Tui and Thomas Cook have deserted in their quest for “Differentiated” product.


More competition normally means more commission for a high street distribution channel that only charges for results, unlike Google or Meta sites which primarily operate relatively high risk cost per click (CPC) models.


The news is more worrying for the OTA community, which historically has relied upon access to low cost carrier seats to fuel their packages. Until recently, OTA’s actively welcomed the shift away from charter flights on routes, where they only had access to 25% of seats, to low cost carriers where they had free access to 100% of seats.


However, the launch of low cost carrier tour operations has begun to change the rules of this access.


Jet2’s yield team, use “opaque” packages to boost its yield curve on routes, by pushing heavily discounted seats into its package holidays. These are invisible to its competitors pricing teams and allows them to maintain a stable flight only market price. This quite legitimate yield tool, also guarantees it’s in house tour operation has package prices that cannot be matched by DIY customers or OTA’s.


Easyjet take a different approach and make their seats freely available via an XML feed, but charge a substantial premium for the service at £6.00 per passenger per sector, which on average is £30 per booking over its standard flight prices. This has been in operation for a number of years and clearly works for all parties, however OTA’s will now be concerned that they may be competing with an inhouse tour operation, where such a charge is a mere “wooden dollar” internal transfer, that’s unlikely to effect the final holiday price.


Ironically, OTA’s key commercial advantage, remains the fact that they are NOT the asset holder and are free to sell the widest range of flights with the best flight times. They can also often generate substantial savings for customers via “Split Flying” where they combine outbound seats with Easyjet with cheap inbound seats from Ryanair or even Thomas Cook on routes like Turkey which is suffering excess capacity. Therefore, OTA’s will remain a key part of the holiday ecosystem providing competition for the new “Big four” in the B2C market and potentially moving forward via B2B products sold via the trade.


However, strategically the OTA community would welcome a new airline partner without its own tour operation and collaboration with airlines such as Emirates, Etihad, Turkish Airways or Norwegian to establish a new short haul network is not beyond the realms of possibility.


As ever cost effective customer acquisition and retention is likely to be the key decider between the winners and losers in the holiday battle and I would argue that OTA’s independence gives them a strong counter balance to the new big four “airline owning” tour operators.

Will Uber evolve into a major disruptor of the Travel Market?

The rapid migration of customer interactions to mobile devices undoubtedly poses a major challenge to travel businesses, who need to contextualise their booking path to users’ locations, as well as device size.

Clearly, this will allow some businesses to gain an edge for a period of time before the chasing pack copy all their good ideas, which they unfortunately have to publish to the world wide web!

With marketing costs remaining the biggest online cost of sale, it is difficult to see beyond the existing major brands in terms of who will dominate online travel in the near future. I say this because the likes of Expedia and Priceline have the resources to either copy new concepts and introduce them to a wider audience, or simply buy the innovative start ups.

The only threats to their dominance, that I can see, are likely to come from the domineers of mobile traffic, such as Facebook or Google e.g. Google Destinations or the sharing economy in the form of Uber and Airbnb.

Within the sharing economy, the massive valuations that Uber and Airbnb currently enjoy reflect the view of the financial community, that both are only just at the start of their massive growth potential. Obviously, financiers can get it completely wrong but in my experience, it is rare on companies of this scale.

Just as the online travel community has consolidated into two major camps, headed by Priceline and Expedia, I would not be shocked to see consolidation in the sharing economy given the major players’ abilities to raise the vast sums required to buy the likes of BlaBlaCar etc. The logic of combining Uber’s city-centric taxi services with BlaBlaCars’ 200 mile plus intercity service seems a highly synergistic move for territories outside of the US. However, given BlaBlaCar’s stated intent to avoid the US in order to concentrate on emerging markets, this deal may not be a high priority for Uber’s US-based financiers. A merger of Uber with Airbnb may initially appear less obvious, although audience synergies and cross-selling opportunities do exist.

The high transaction frequency of Uber makes it a logical creator of a “Western Super App,” in similar way to how C-Trip now dominates the Chinese travel market.
Apps allow a richer consumer experience, but “Appnesia”, where even customers who have downloaded the app forget about it, is a key problem. C-Trip overcame this by driving the frequency of use up, packing every conceivable travel service into one app in order to create a deep and broad travel vertical within a one stop shop.

High frequency usage drivers, like taxi services or domestic train/bus services could be the key bedrock for a “Western Super App.” Hence Uber with its high valuation and deep pockets, may be better positioned than Expedia to deliver this app via an acquisition drive. I say this because as an established player, Expedia can take less risk on acquisitions, as each one is expected to be earnings-enhancing. Conversely, the loss making Uber’s valuation is based on its potential and as such, it probably has more scope for riskier acquisitions.

Airbnb poses a major threat to hotels because its individual home owners often take a “Sunk cost” approach to pricing, looking to cover just their operating costs whilst making capital gains on disposal as house prices increase. This makes this accomodation much cheaper than traditional hotel stock.

I have recently invested in a start up called “Experiential Breaks,” which seeks to “package” private accommodation with tickets to “Events” e.g. NBA basketball and shopping/dining, to deliver a “Live Like a Local” holiday experience.

Ironically, the biggest problem with this niche type of product is that customers do not know they want it until they know it exists. Creating B2C brands to carry out this form of marketing is very expensive. Hence, Experiential Breaks’ strategy will be to work via travel agents on a B2B2C basis, selling ATOL bonded packages with the required H&S policies and insurance required to take this type of accommodation into a packaged environment.

However, this is just one niche and so far, sharing economy businesses such as Airbnb or Uber, have shown little appetite to disrupt the holiday market, focusing instead on the lower hanging fruit of the business traveller sector.

Disruption seems like an every day event in travel as a whole, but it’s hard to see the top online players loosing their grip on the current travel market.

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.

Me too says Thomas Cook…but is that wrong?

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

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

Continue reading