esterday’s trading update from TUI Travel showed it still has 42% of its capacity to sell in the lates market.
It has tried to pitch a positive message, with late recent sales only 11% down compared to a cumulative 17% down.
This is not surprising given it is in the lates period for May and June departures and has to sell at any price. So what other key issues did the statement not cover?
We can expect a swing back to the eurozone in the lates market. Brochure sales have been focused on non eurozone destinations such as Turkey and Egypt, with eurozone destinations having sold badly, for example, Menorca and Majorca.
But in the lates market the majority of charter flight seats left to sell will be eurozone destinations at low prices.
Supposedly, low cost carriers charge higher prices close to departure and historically have not been a major part of the lates market.
However, poor load factors on most of their leisure routes, for example, mainland Spain and Portugal, will force them to be more active in the lates market, with many of the headline prices coming from this sector.
Demand for mass market holiday destinations is down across the three important European source markets for holidays – UK, Germany and Scandinavia.
Spain has also been hit by a major economic downturn, which has impacted domestic bookings. With occupancy levels 50% lower than last year many Spanish hoteliers are dropping rates much more aggressively than Greek or Turkish hotels, who do not need to or cannot go much lower.
Distressed bed stock
The bed bank sector is geared up to bring “distressed hotels” to the market quickly via their online contracting and distribution platforms.
Combining these with cheap charter or low cost carrier seats will create very aggressive lead prices – 15% of a £1,000 dynamically packaged booking is going to be much more profitable than 12% on cheap late deals from tour operators.
The key battle ground this year will be fought on who can bring distressed hotel stock to the market quickest.
It will be an interesting battle between the major bed banks with traditional operators not even considered contenders.
So far the summer has been relatively warm and the forecast appears to be for relatively good UK weather compared to the last two years wash-outs.
This could have a major dampening impact on late demand and is the biggest threat faced by tour operators with fixed capacity. The impact is normally less for retailers as most holidays are eventually sold, just at a lower price, and they normally only have to take 10% to 15% of this price hit – their commission on the lost revenue.
A crucial date in the late sales market is the weekend July 11-12. It is always difficult to drive customers up the price hill. The prices in May start at £149 for a seven-night holiday and operators need to force these up as they progress through the season.
Schools break up on July 22 and after this date holidays are £200 higher on average, which creates a “price dam”.
Normally customers book within an eight-week window in the lates market, but this shortens dramatically as the industry approaches the price dam and it becomes a game of chicken between the customer and the operators.
If any companies are going to lose their nerve and drop prices they will do it around July 11-12 to give them two weeks to clear the stock. Now that there are only two operators it is much less likely that one player can cause peak prices to come tumbling down.
Operators tend to have front-loaded sales with the worst load factors in September and October. The less flexible family market has now booked and we are likely to see the real impact of any credit crunch on the lates market, which is dominated by the adult market place.
Good prices in September and October are dependent on high peak season prices and relatively poor peak season weather in the UK. Both are obviously an unknown at this stage.
Steve Endacott is chief executive of On Holiday Group