The collapse of Lowcost Holiday Group last week has had an immediate impact on the cost of advertising on Google, according to industry sources.
The OTA and trade beds supplier is understood to have been one of the heaviest UK travel advertisers on Google, regularly commanding top slots for many of the most expensive search terms.
The impact on Cost Per Click Advertising was expected, said Holiday Discount Center managing director Steve Campion.
“Lowcost were big spenders on PPC,” he said, “they were massive for most main travel terms, and regularly in the top three positions on Google.
“Given the margins they were working on you would question that level of spend. The failure may result in a little bit of downward pressure on costs.”
According to one rival leading OTA that Travolution has spoken to, there has been a reduction of costs in Google’s Adwords auctions and improved availability of some of the more costly travel terms.
The fallout of the collapse of Lowcost, one of the pioneering firms in the dynamic packaging sector over the last 20 years, is likely to focus on how online agents protect customer money paid upfront.
Customers of its Lowcost Holidays online agency are likely to have lost all their money, the administrator Smith and Williamson saying payouts will be negligible, around 1% and 2%.
Lowcost Holidays moved operations to Palma, Majorca, in 2013 to take advantage of less rigorous and expensive regulations in the Balearics.
As a result it lodged a guarantee of just €1.2 million, but the collapse is expected to generate claims of up to £50 million.
Campion said Lowcost’s OTA partners who bought beds through its Swiss-based Lowcost Beds subsidiary will have protected customer money under trust arrangements required by UK regulator the CAA.
However, they have had a major job re-booking customers to enable them to have their holiday, a task made more complex by price changes, the devalued pound and the complexity of the distribution network which sees other bed banks buying their bed stock from Lowcost.
The Lowcost failure was emblematic of the sector’s tight margins in the mass market holiday sector following the collapse of rival bed bank On Holiday Group in 2014.
Campion said just a few large suppliers now remain and questioned if there was room for any more.
“It’s relatively easy to set these businesses up because there’s not a huge barrier to entry. Even if you are paying hotelier after people have stayed they will accept that as a standard credit term. You do not need a huge amount of capital.
“There’s only two or three big ones left now, and lots of smaller niche ones. Whether there’s room for another one I do not know.”
Steve Byrne, managing director of leading travel agency Travel Counsellors, said the failure raised questions about the high volume low margin Lowcost business model.
“This is a business model competing on the basis of scale and price and it’s a race to the bottom and does not work unless you get massive scale.
“Bear in mind this is a business which at this time of year would have had positive cashflow. They were clearly addressing a gap in the market, but it’s difficult to police when companies are selling at rock bottom prices, in some cases lower than they bought at.
“Why should they be able to avoid consumer protection by moving offshore. Why is that right? It’s a wake-up call for anyone operating that sort of business model.
“If you generally care about the consumer experience why wouldn’t you follow a voluntary code that enables you to give protection for your customer? What’s most important? If you can’t afford to do that what does that say about your model?
“They say in times of economic turmoil there is more of a flight to quality with brands that are trusted and respected. I think we will see all travel companies review what they are saying about financial protection to make sure it’s higher up the pecking order.”