Paul Evans – Survival of the fittest

No-one can say this summer has been dull, with global warming, floods, mergers, ATOL changes, security scares and airport queues all dominating UK travel. However, I am not so sure it has been such a profitable summer.

UK holidays have suffered, both domestically and with lower overseas visitors. After all, who would want to come to an expensive country, with lousy weather, a yob culture and terrorism threats, where the infrastructure just can’t cope? Not me!

Cruising has held up well. It keeps expanding, and the moves to widen its appeal seem to be paying dividends. The new ships in the Mediterranean, Caribbean, and ex-UK are feeding an ever-more competitive and diverse market.

Cruise will soon mirror the changes in hotel and flight distribution: fully bookable online, where you choose your flight from your local airport; you then build your holiday as you wish, with hotels, transfers and the cruise element added in a shopping basket format. Yes, online; yes, in the evenings; yes, at weekends; and, yes, when cruiselines might currently be shut.

The phone will always be important in cruise, as with other areas of travel, but I can see that part of the sustained growth will come from full online bookability as inventory opens up with direct connectivity, 24/7. This will mean lower flight costs, instant ticketing, greater flexibility and, above all, lower prices.

We at Lowcost will seek to lead the way, as we launch stage two of and give the customer what, until now, they have never had – real choice of quality cruising, hotels and flights, at home, online, to new customers and at a lower price.

I wish I could be so positive about profits in the package holiday market, or even the dynamic packaging market. Long-haul has held up well (20% of the market), and niche businesses are delivering consistently high margins. The strength of the pound has helped as both fuel and ground costs are mostly dollar-based.

Lower-cost long-haul has started to develop over time to the main hubs, but not at the expense of traditional long-haul. The big two beasties have had to move more capacity to mid-haul and long-haul to get away from the no-frills carriers, as they struggle to compete with the flexibility and genuine lower operating costs of the new kids on the block.

However, short-haul has not done so well. March, April and May were particularly awful, while June, July and August were better. Once the new big boys have made all their synergies through their mergers, made swathes of staff redundant and shut shops etc, I wonder what will be left of the traditional package market in the UK? Not much, I suspect.

To me, the biggest footnote not really commented on, has been Thomson’s decision to add other airlines and hotels (ie. not its own) to its websites, which is a fundamental structural change in vertical integration. What it is saying is this: ‘we will be an Expedia-type portal, but with differences: some exclusive hotel stock, and a quasi low-cost airline’. Smart.

Dynamic packaging in the UK has also had a mixed year so far, margins have been under pressure with rising pay-per-click costs, and one bed bank not having sufficient basic controls in place to buy at one price and sell at a higher price. Other new private equity start-ups have had to buy the business at a loss, both resulting in artificially high sales but low margins.

I am particularly glad Lowcost decided to have a different model from day one, allowing us to sell flights, insurance and transfers as well as our own hotel stock to consumers direct, as well as to the trade, on all channels, while at the same time developing a brand. I would not like to be just selling hotel stock to the trade, as two or three of the players are doing, as it is cut-throat out there.

Paul Evans is chief executive of LowCostBeds

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