Major tour operators put their programmes on sale typically 12 to 18 months prior to departure, and print prices for their products in millions of brochures.
This has led to a culture of ‘hedging’ (some might call it fixing) both currency and fuel rates in order to create more certainty about cost inputs and margins.
However, with the current financial crash and economic slow down, the price of fuel has dropped from the $128 dollars a barrel the majors firms have hedged, to $85, leaving them 33% out of line.
On average this will equate to a massive £16.50 per seat.
This is a huge incentive for brokers, such as Kiss Air etc to flood the UK market with cheap peak season flying on a wet leased basis, using aircraft that may otherwise have sat on the ground.
This combined with low cost carriers expansion onto leisure routes (see Easyjet recent announcement) is exactly the fuel that drives retail dynamic packaging engines.
Although some seem to be questioning the ‘moral’ of backing people who until recently were directors of the failed XL Group, one has to question where the industry would be if the same attitude had been taken to Peter Long, Manny Fontenla-Novoa or even myself after the collapse of ILG and the immediate creation of Sunworld.
The fact is that UK retailers need to secure their seat supplies in a market where the majors will seek to strangle the seat-only market and the dynamic packaging market it fuels.
On a similar note, the widely rumoured takeover of Medhotels by Thomas Cook will put over 50% of the bed bank market into the hands of the majors – so if I was a DP retailer I would be looking at the security of my bed supply as well as seats.
But then again as an independent bed bank, I would say such a thing, wouldn’t I??
Steve Endacott, chief executive, On Holiday Group