Paul Evans – Proceed with caution

I wrote in February about the market being bullet proof against currency fluctuations and the general economic downturn, and that the dynamic packaging market in particular would be growing ahead of any decrease in total numbers. Well, now I am not so sure.

The big, vertically integrated companies have clearly got a strategy to take out duplicated capacity, buy niche businesses – particularly in new distribution areas, or in specialised activities, if they work – become low-cost airlines, lower their cost base, continue to have a multi-distribution strategy, with a little less retail, and compete every Sunday morning in the Sunday Times on their market capitalisation worth.

The low-cost carriers, one of the other powers in this industry, are moving fast into leisure resorts, multiple bases and, I believe, will shortly start buying ancillary businesses as the income from this starts to grow. There is only so much you can charge for on an aircraft. What next – pay to talk to the stewardess?

We at Lowcost are still well up year on year, though March looks slow – very slow – with Easter a month ahead, school holidays following on and April being traditionally weak. I now think this summer could be quite tough.

Currency has moved 15% year on year, hotels have yet to have a reality check that they need to lower their rates, fixed mortgage increases, even on interest-only, are biting, and with fuel at all-time high, I believe the market is in for a rocky patch.

Holidays, while top of the discretionary spend basket of most people, can be booked very late. This year we will see the market come, if at all, very late. Thank god we have built a risk-free model, with no bed or flight commitments of any kind. As load factors look low, and airlines panic, seat prices will drop, feeding our market. Let’s hope so at least.

Some will chase a non-existent market, spending too much on acquiring customers, as we have done in the past, while others will keep their powder dry, hold prices firm, and rely on the brand, the website functionality and navigation, and their repeat customers.

Someone last week told me that recent research showed that customers looked at 12 websites when shopping around and looking for their holiday. That is a lot. I clearly am not one of them, preferring to use sites that I understand and I know work, possibly at the expense of price.

While we can all see the commoditisation of aircraft seats, and a growing shift as well in hotel-only, a brand still does matter.

This leaves me slightly uneasy about the comparison websites that operate on price alone. Low-cost is absolutely not about low quality. If you stand in the queue of a genuine low-cost carrier ,and put it next to the passengers waiting for a charter carrier, as I do almost every week, you learn to see quickly the variances in their social demographics

Low-cost is about bright, fresh, new, any age, flexible, savvy, online, good quality, and above all, independence. Charter to me just reeks of stale, old, packed, brochures, dull, fixed and dying.

Sweeping statements I know, but this is how I feel.

That’s why I get so impassioned when I hear such rubbish, protectionist statements from some veteran industry commentators try to protect the status quo, when new players are driving coach and horses through old models, and the only bogus safety net they have is to either hide behind this supposed veil of quality, or try to construct legal and financial barriers to entry that are only geared to their own ends.

So, all in all, I am cautious about this year. I am positive, yet wary of cost increases, combined with a fall in confidence, that will make this a very hard year if we are not careful. Good luck!

Paul Evans is chief executive at Lowcostbeds

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