A clear indication of the impact of desperate attempts to keep online agent Lowcost Travel Group alive last year was revealed in rival On The Beach’s half year trading update.
The Manchester-based publicly listed OTA saw half year profits jump by a quarter to £9.9million, fuelled in part by a reduction in its online marketing costs, predominantly Google paid search.
The trading update reports On The Beach’s marketing expenses in the first six months of this year compared to the same period in 2016 fell from 46.3% of revenue to 40.5%.
Lowcost failed in July last year removing a significant player in the Google paid search auction in the UK travel sector.
On The Beach chief executive Simon Cooper said Lowcost was pumping money into the Google auction in a last ditch bid to get cash into the business.
“It’s eminently clear they were not bothered about profitability. They were overbidding in the auction and selling holidays for less than cost,” he said. “It’s easy to sell holidays you don’t intend to make any money on.”
Low cost’s “disruptive activity” combined with hotel pricing policies was said to have to depressed On The Beach’s year on year performance in H1 2017 but are expected to have the opposite effect in H2.
The OTA expects to benefit in H2 from the ending of tour operator currency hedging arrangements and early sale hotel deals which has seen more competitively priced peak season product coming back into the market.
Cooper said official industry figures supplied by GFK, which put season to date bookings for summer 6% up on last year, are skewed by Thomas Cook and Thomson parent Tui Travel data.
He said the major operators benefit from getting their programmes into market early but that there has been a change of mindset among hotel suppliers, particularly in popular western Mediterranean destinations, as the summer period looms.
“Last year they [hotels] did not realise how sellable they were and sold out of peak stock too early,” Cooper said.
“This year they decided let’s not let the same thing happen again so they started more expensive and have got cheaper. There’s a whole swath of special offers coming in for peak departures.”
Cooper said On The Beach has also been achieving increasing marketing efficiency by employing technology to measure the impact of its spending.
“Google’s not cheap, it’s not a charity,” he said. “The important thing is to have clarity over the returns regardless of the channel.
“We have been building the sophistication of our data science and we have effective ways of modelling our returns in offline as well as online marketing.”
An investment of £2.9 million in TV advertising, including the sponsorship of the new series of sitcom Benidorm, which has helped to establish the On The Beach brand further.
The firm said free brand traffic accounted for 56.7% of its overall traffic in the first half of the year. Daily unique visitors increased 9.5% to 27.5 million.