High-cost distribution models look increasingly risky as trading conditions get tougher, says former Hoseasons boss Richard Carrick
When Wyndham acquired Hoseasons earlier this year, I began trying to build a group of medium sized travel companies. As a result, I have been afforded a rare insight into the current state of the UK travel industry.
I have now had close scrutiny of the books of a dozen or so travel businesses and most are finding it very difficult to keep their heads above water. It seems that whatever niche or sector you’re in, things are tough and likely to get much tougher.
Consumer confidence is fragile and becoming more so, as food and transport prices continue to rise, the housing market deteriorates and thousands, especially in the public sector, face the real prospect of losing their livelihoods.
Holidays are being bought, but only after long and serious consideration of what, how much and when they have to be paid for.
For sure, upmarket and truly differentiated products are still selling at decent margins. The UK has done well and is probably up on last year, which was up on the year before that. Cruise has seemingly come back well in volume terms, but margins are still not where cruiselines would want them to be.
Charter holiday companies have managed their businesses skillfully and kept capacity under tight control, but still had to discount the peak season and as recent redundancy announcements demonstrate, feel they need to slash their costs to maintain earnings.
Those that know the ski market very well tell me that tens of thousands of what people see as their ‘expendable holiday’ fell out of the market last winter.
Few companies are significantly up in both volume and profit on 2009. An on par performance is highly creditable given the quadruple whammy of volcanic ash, BA strikes and general election and world cup distractions.
It seems that the biggest challenge companies have faced is chasing customers. Spending money to attract them has been a key feature of 2010 and those businesses with a dependency on high cost distribution models have suffered most, especially if they’ve had committed stock to fill.
If they’re not overly web-savvy and still depend heavily on brochures and travel agent distribution, they’ve found it very difficult to attract customers who have searched around for the best deals more than ever before and left it even later to commit.
Search engine spend has increased massively, its appeal being its trackability and the fact that you only need pay when the bookings happen. In contrast, brochures and filed sales teams are a fixed cost you have to bear irrespective of sales.
Many of the smaller companies I’ve looked at seem hamstrung by poor websites, high legacy technology costs, poor websites and insufficiently developed online marketing skills.
I can’t see this position improving quickly. Next year will see those same companies having to work even harder to get their customers. And yet, many of their owners are saying that now is not a good time to sell. I take a different view!