Paul Evans – Winners and losers

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.

Paul Evans is chief executive of Lowcostbeds

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