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17
September 2008
Paul writes:
The market seems to be dividing into some
clear winners and losers. The big integrated
operators have matched capacity with demand,
and have sold seats in non low-cost carrier
areas at a high price, making money that
would
otherwise have been sold as distressed
packages.
Consequently, the late package market
remained buoyant, with less committed beds
that would normally be sold off at a loss.
Remember, when Turkey is doing well, it is
in part to do with the charter carriers
moving capacity out of Spain, and being able
to sell those same seats, as seat-only, at
higher prices to the dynamic packaging
sector.
Despite this, the traditional larger online
dynamic packaging players have continued
their inexorable advance, growing in
double-digit figures, and capitalising on
the growing low-cost carriers now spreading
into Greece, Cyprus Egypt and even Turkey.
Their brand advertising may have had to be
curtailed, as margins have fallen, but they
still remain the powerhouses of the sector,
increasingly selling ancillaries to boost
lower flight and hotel margins.
Some of the new online companies have also
found a winning formula, based on high
pay-per-click spend, low margins, low
overheads, with higher turnover and good
conversions over the phone and web. I will
be fascinated to see if they either get
bought, or take control of their own stock,
to try to increase margins, as growth will
naturally slow as competition grows.
Call centres continue to boom, with the need
to talk to someone when spending so much
money in advance still seemingly crucial.
Comparison sites now seem two a penny, I
just hope travel does not follow the same
route as car insurance, where no one
dominates the space. So who are the losers?
Firstly, it’s the shareholders in airlines
or any publicly owned travel company who
have lost a fortune as fuel, currency,
inflation and the credit crunch panic
investors. Secondly, it’s the underfunded
premium carriers that could not deal with
the fuel squeeze and subsequently went bust.
Furthermore, it’s the high-street agents
selling beach holidays, unable to compete
versus the new online wave. Or perhaps it’s
some Spanish resorts and eurozone areas that
have seen little growth, with diminished
charter capacity arriving at their airports,
and who are over reliant on low-cost
carriers to replace that capacity.
Certainly, all-inclusive hotels have had to
compete with over supply, and have become
part of a commoditised product, squeezing
rates down. They are now having to compete
again with self-catering, as margins have
got so low that self-catering is now as
profitable as all-inclusive.
Transport companies that have had growing
competition are squeezing their margins at
both ends – with rising fuel prices, more
competition, yet no increase in selling
prices.
However, the biggest losers are all those
that have reduced their margins to compete,
as we see the ongoing impact of little
differentiation and commoditisation, with no
volume increase to compensate. These are the
ones that will go to the wall, with poor
models, poor cash flows, weak balance
sheets, and weak shareholders, who are maybe
over reliant on single distribution sources.
Technology has just levelled the playing
field to the benefit of the consumer. It is
the consumer who is getting the best deal,
as our industry chases bookings at any
margin. So to survive you had better have at
least some of the above.
To me, speed is the most important attribute
of a website, then price, then a pretty
website and, last of all, the brand. I am
sure others would beg to differ. The more I
see our sales rise on the back of great
speed, keen prices, the less I worry about
brand, or even clever gizmos.
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