What’s the future for highstreet shops?

Posted on July 9, 2012 by admin

Ten years ago I used to talk about “Click, Walk, Talk” distribution and the rapid migration from walking to shops, to talking by phone via call centres, driven by online research. Followed by the migration from calling to just clicking, once online technology matured. Given this view I have positioned the On Holiday Group business to be strong online, supported by call centres, without a high street shop in sight.

TenHowever, I have never predicted the death of High Street shops and believe independent high street agents could be in a strong position once the major operators have decimated their current over weight shop networks.

TenHarriet Green the new CEO of Thomas Cook comes from a background of modernisation, using the Internet as a key distribution platform to cut costs. I therefore think she will take a hatchet to Thomas Cooks 1,200 shops, cutting them to less than 400 over the next 5 years, as she maximises the benefit of the massively strong Thomas Cook brand online.

TenAlthough, Google click costs have escalated massively in recent years, reducing the cost effectiveness of the Internet for travel companies without a strong brand, for those who attract customers directly to their brand, the Internet is massively more cost effective than shops.

TenHence logically the big 2 UK brands Thomson and Thomas Cook will continue cut shops as Internet sales naturally grow or more rapidly if they drive this channel.

TenThis cut back provides a massive opportunity for independent high street shops or homeworkers if they evolve slightly. They are best positioned to offer customers independent advice on the whole travel market, across both the price sensitive commodity market driven by Dynamic packaging systems and the higher priced “Differentiated” product offered by the major operators. This will be a key advantage over the single product focused shops of the majors and may give them an advantage over the online players such as Travel Republic. Currently these only sell dynamic packages and it’s unlikely that the tour operators, focused on driving their own online sites, will allow other online players to sell their products.

TenHowever, Independent shops do need to evolve to make themselves more convenient for customers. Personally, I would look to make a shop the central point for a local network of homeworkers. Each homeworker would be rotated between staffing the shops, where they would deal with personal appointments or walk in enquires and offsite work such as house visits or out of hours phone support.

TenEach shop would have its own personalised web site where customers could review availability, but still look for personal advice before making their selection via the shop, on the phone or in their homes.

TenSo will I be putting my money where my mouth is and opening shops? Possibly, but more likely I will be partnering with people who have them and want to evolve. Know anybody?

The Great Escape

Posted on June 22, 2012 by admin

Once glance at the latest financials from TUI and Thomas Cook tells you how tough 2012 looks, with substantial capacity and reduced sales.

Never before has the lates market been so crucial, but also so tough to predict, as multiple influences such as Euro 2012, the Olympics and not least the recession impact on customer demand.

However, the good old UK weather may still provide the increased demand required for the Great Escape.

The early weather patterns could not have been more favourable to the trade. Bright sunshine before Easter, followed by pouring rain as soon as the kids broke up for school holidays, repeated again over the half term holiday. Genius!!

This created a small surge in peak season bookings as families decided not to risk the UK weather, leaving operators with more manageable peak season load factors.

Combine this with the late appointment of an England football manager and little hype about the team’s chance in Euro 2012, and early season sales have remained remarkably strong. Given that the Olympics do not start in earnest until August and how few people have got tickets, I think we can also discount this as a major threat to peak season sales, leaving July as a the make or break month for the trade.The key issue for tour operators is hedging their costs this year has worked against them, locking in an average £10 cost increase per late holiday, when current exchange rates and fuel prices are more favourable.

This, combined with the need to clear their more expensive ‘differentiated’ stock in the lates market, means operators need a marked increase in late deal prices in July despite the recession.

Will it happen? I guess it depends on how much it rains, but the Great Escape looks like it might be on…

Filling the Commodity Gap?

Posted on May 6, 2012 by admin

Thomas Cook’s recent £1.4 Billion refinancing clearly shows that their banks remain confident in Cooks ability to turn their international business around and implement the strategic review presented by the management team.

In the UK market, Cooks have decided to follow the lead of their biggest competitor TUI and focus on differentiated tour operating product. Since it is virtually impossible to differentiate short haul flights compared to the excellent service provided by the likes of easyJet, this differentiation is focused on the hotel element of the holiday.

First Choice and latterly TUI via their merger, has been focused on differentiation for nearly 10 years via their Holiday Villages, Sensatori and Thomson Gold brands. In doing so they have developed a higher price, higher margin proposition that is in demand and can only be purchased from them. Thomas Cook clearly has a lot of ground to catch up, but given their determination and new financial backing will make rapid progress.

So who is going to fill the “Commodity Gap”?

The birth of Flight Plus ATOL, may also signal the age of “Travel Agent Packages” (TAP’s). For many years we have seen the rapid growth of Online Travel Agents using Dynamic Packaging technology, but high street agents have been slower to adapt. However, as the majors shrink their capacities to focus on differentiated product, they will need less third party agency distribution, which may force evolution.

It is clear that independent agents have a gap to fill and the new Hays Travel packaging site is unlikely to be the only attempt to fill this space. It is likely most agents will use their own Flight Plus ATOL to package holidays using low cost carriers and bed banks like On Holiday Group’s “Holiday Brokers” brand.

The key driver of the “commodity” holiday market is the flight capacity on leisure routes provided by low cost carriers. This summer season has demonstrated that for every seat the traditional tour operators take out, the low cost carriers appear to be adding two!!

Years ago on joining MyTravel from Ryanair, Tim Jeans sat me down and explained how he could fly three Paris routes in the ten hours it took a charter flight to fly to and from Tenerife, creating 20% more revenue. However, as the recession has hit demand for city flights, the reverse argument has set in, with Low Cost Carriers switching aircraft to the Canaries in order to only have to fill one seat, instead of 3 to make the same revenue.

Although Low Cost Carriers would prefer to run their own direct sale tour operations e.g. Easyjet holidays, these have not enjoyed the massive success they expected. Similarly, although Ryanair may not like agents using their flights to package, it is virtually impossible for them to stop it and one day they may even wake up to the benefits.

The “Commodity Gap” is likely to be filled by the rapid expansion of online companies like On The Beach and Travel Republic. However, the advent of Flight Plus ATOL’s should give high street agents and homeworkers the confidence to build their own ATOL bonded holidays to fill the “Commodity Gap” created by the withdrawal of the major tour operators, so don’t write them off just yet.

Has the rain dance saved the lates market?

Posted on April 29, 2012 by admin

Who needs a downpour in a drought? Well you won’t find many tour operators or bed banks complaining as the recent weather has caused sales to sore by 40% year on year.

For once the weather gods have smiled on the industry with the perfect combination of sunshine while families where at work or school, followed by a wet Easter and a constant barrage of grey skies and pouring rain ever since. Even I’m sitting here planning a trip to get away from it!

More importantly however, is the impact it may have on the peak summer school holiday period. Although the Government may be pushing the “Staycation”, customers want relaxing sunshine as part of their holiday and the recent weather has rammed home how unreliable the UK weather is, which is likely to have strengthened demand for overseas holidays.

Another more obscure factor going in the industries favour is the lack of an England football manager! We are only 6 weeks away from England’s opening game against France on June 11th and have you heard a mention of it? The complete lack of hype this time around is a marked contrast to previous football tournaments and particularly compared to Euro 2008 in Germany when so many English fans jumped in cars, plans and trains to head out to watch first hand. Many fewer will be travelling to the less inviting Ukraine, so logically the impact on the nations holiday budgets will be less and even in the unlikely event England get to the final it will all be over by the 1st July.

The most difficult part of managing lates yield is getting prices up from the £149 price points that dominate early season to £399 plus required post 22nd July for school holidays. The points above should help early season prices and don’t forget that the Olympics do not start till after the schools have already broken up. Hence although I do expect them to dampen demand neither the Euro’s nor the Olympics will directly impact the crucial month of July when prices need to be wound up quickly.

However, please don’t think I am saying this year’s lates period is going to be easy. It looks like we are in the midst of a double dip recession and the year on year increase in fuel prices, whilst currency hedging has negated an benefit of the strengthening pound, means operators need to get £15 higher late holiday prices even to make the same losses as last year.

They say that every cloud has a “Silver lining” and as we look up at the depressing cloud cover over the next few weeks, think of the job security they may be delivering to some elements of our industry.

ATOL Flight Plus | Flight Plus from ATOL

Posted on April 23, 2012 by admin

Congratulations to the CAA…you pulled it off and have brought the Dynamically Packaging sector to heal and into the ATOL fold as of May 2012.

There have been a few keystrokes of luck along the way. For example if DNATA had not acquired Travel Republic, it is likely that they would have again taken the CAA on head to head and gone down the perfectly legal “Agent of the Customer” route avoiding the requirement to offer Flight Plus ATOL cover. This in turn would have left the rest of the sector with the difficult choice of giving a competitor a significant pricing advantage or following suit scuppering Flight Plus in the process.

Secondly, Flight Plus is being launched at a time when the weakest airline players like Excel, Globespan, etc. have already bitten the dust leaving the bulk of flight supply in the hands of stable airlines like Ryanair and Easyjet. Hence, the market for SAFI and Supplier Failure Cover have opened up enough to allow Agents to re-insure their increased risk from supplier failures.

Flight Plus ATOL will definitely benefit the CAA and the Government, but I have reservations whether the changes will actually benefit the customer, as I can see even more delays in customers getting their holiday money back in the case of a major airline failure.

Historically when a tour operator collapsed agents made customers pay again for their holiday and then reclaim their money back from the CAA, which often takes up to 9 months. Under Flight Plus, legally the agent cannot charge the customer again and must replace the flight at their own expense and reclaim the cost from their insurers if they have SAFI or Supplier Failure Cover.

However, there is no legal requirement for agents to have such insurance cover and no way for customers to know which agents do or do not have insurance. So what happens when an agent does not have insurance and cannot afford to replace the flight? The customer can no longer directly claim from the CAA as it’s the travel agent’s liability and therefore they would have to take legal action against the agents and only if this forces them into bankruptcy would the CAA pay out.

The simple question is, how long would this take and how is this clearer for the customer?

Given that all major Dynamically Packaging companies have been providing SAFI or Supplier failure cover as financial protection for the holidays they sell, its hard to see how the move to Flight Plus ATOL has improved the protection offered to customers, but it is clear that a the ATOL logo is not the uncomplicated insurance customers may think it is.

The “Have’s and the Have not’s”

Posted on January 12, 2012 by admin

I can honestly say I was one of the few people in my circle of travel friends who was confident before Christmas that January would be as strong a booking period as ever. My logic has remained unchanged since the recession started 2 years ago and is based on the premise of the “Have’s and Have not’s.

The “Have’s”
Have mortgages, have kids and most importantly have job’s. This customer segment have never been better off financially, due to the exceptionally low interest rates on their family homes, which historically have tied up a lot of their disposable income. This sector books early and hence its not surprising to me that the current January booking period has remained buoyant.

However, like most companies involved with Online Travel sector, we have been surprised by the sharp rise in online searches this year with On Holiday Groups B2B search traffic running 85% up year on year, with Google reporting a 26% year on year increase in search’s overall for the travel sector. Unfortunately, bookings have not risen at the same rate, as it appears customers are searching around much harder for their online holiday deals. This in itself is not a massive surprise given the recession, but it does mean that yet again the biggest winner is Google who must be rubbing their hands and whilst many OTA’s are seeing margins eroded due to falling conversion levels.

It would also appear that Thomas Cook’s financial woes have impacted both its tour operation whose bookings are rumoured to be running 33% down year on year and its 1,200 strong high street shop network. How much of this is due to the recent negative PR about the Thomas Cook brands or a very passive discounting policy compared to TUI is not clear. However, the increased online traffic has to have come from somewhere and this is an obvious potential source.

“The Have Not’s”
Have not got job security and have not got the same access to credit they had pre-recession. Traditionally a lot of the late holiday market has been funded by credit cards and last year we saw a relatively weak late’s market due to this.

Make hay now, as it may not last.
Sorry to be the harbinger of doom in such a good sales period, but I can only recommend you fill your boosts now, since its likely to be long hard late booking market.
Sales may be great now, but the “Have not’s” have not kicked in yet and this year we have to deal with both Euro 2012 in June and the London Olympics in August. So be warned its still going to be a tough year with the only obvious ray of sunlight being the strengthening pound which will boost holiday makers overseas spending power compared to UK holidays and of course the unreliability of the UK weather!!

If only “Differentiation” was a Christmas Present

Posted on January 1, 2012 by admin

Thomas Cook recently announced a new strategic direction, focused on increasing its “Differentiated” product from a claimed 30% to a healthy 50%. But what exactly is “Differentiated” product??
The tour operators seem to have been slow to define this! My own definition is very simple “ Product demanded by customers, which can only be brought from that tour operator”. The key phase, which makes defining differentiated product hard, is “demanded by customers”. There is little point having “Exclusive” product that you cannot sell, because customers are buying the hotel next door for £50 per person cheaper!!!

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Me too says Thomas Cook…but is that wrong?

Posted on December 18, 2011 by admin

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.

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My Review of Antigua….

Posted on December 5, 2011 by admin

I was lucky enough to be in the Rock Insurance Party who won the inaugural Antigua sponsored sailing Regatta that took place in Southampton in September. Actually to be truthful I was too busy that day but once I found out that they had won the event and an all expenses trip to Antigua to go sailing for 3 days I pulled rank!!!

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Ryanair’s Million seat gamble

Posted on November 24, 2011 by admin

After years of ignorance, Ryanair have finally realised how many agents were booking their flights and packaging them into holidays, due to the heavy use of credit card surcharge avoidance techniques via virtual booking cards. Hence, in some ways the trade can only blame itself for the aggressive two pronged attack on travel agents Ryanair has launched this month, because in colloquial speak, the industry have “had Ryanair’s trousers down and given them a good financial spanking”

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