Rethinking Our Travel Trade

Now that I know that my next contract will take me back to London in a matter of days, I find myself again comparing the UK market to the Caribbean.  The biggest UK travel industry news story in July 2011 was arguably the profit warning from the travel industry giant, Thomas Cook Group plc.  This week, the CEO resigned.

There are two things for us to consider.  Firstly, given that Thomas Cook is probably the biggest seller of Caribbean holidays (including the Spanish Caribbean) in the UK, our regional economies should brace themselves for weaker numbers as we head towards the end of the 2011 travel season.  Secondly, many commentators are speaking about a more fundamental shift in how holidays are being sold in the UK and the United States.  It is this second point that is worthy of greater discussion.

Analysts at Investment Bank, Morgan Stanley, commented on the implications of the Thomas Cook profit warning.  They are quoted as saying that traditional package holidays seem to be seeing an accelerating market share loss to independent holidays, aided by the internet and low-cost airlines.  Legacy business models with high fixed costs stretched balance sheets, and a number of other concerns mean significant forecast risk.

I am seeing three distinct phases in how travel products have been sold in the past 13 years.  Firstly the internet saw explosive growth from Online Travel Agencies (OTAs) like Expedia, Orbitz, Lastminute.com, Travelocity, etc.  Year after year, they delivered double and triple-digit growth, which began to decline as we approached the middle of the last decade and entered the second phase.  In this second phase, the ‘airlines struck back’ as they developed and promoted their own cutting edge websites and, together with hotel websites, encouraged customers to bypass OTAs altogether.  This is the phase in which we now sit.

We in the Caribbean are not that far behind the US and the UK.  Ask any of the thousands of travel agents in the Caribbean about their biggest challenge. In their top 3, they will be competition from airlines that encourage customers to bypass travel agents.

With distribution costs being the third biggest line item in the average airline’s Income Statement, airlines have a huge incentive to do this.  As traditional airlines players struggle to adapt to this new lower-cost business model, new players like South West (in the US), Ryanair (in Europe), and now REDjet (in the Caribbean) are the up and coming giants.  Who would have thought the day would have come when a tiny upstart like Ryanair would carry 4 times as many passengers as the mighty British Airways?

As I mentioned in a previous column, their numbers are falling to our regional brick and mortar travel agents, but they will not disappear completely as some are saying.  Already amongst them are shrewd businessmen and women who embrace technology and fantastic customer service to ensure that they lead into a third phase.

I am among the millions who have booked flights on Low-Cost Carriers.  I remember my first GBP 9.99 flight to Spain on Ryanair some years ago.  Yet despite this, if ever I am traveling on a traditional carrier, I always prefer to use a travel agent because they are the best insurance policy against the unexpected.  My preferred travel agents ensure that my web check-in is done, confirm my flight times, notify me of delays, ensure I am quickly rebooked/rerouted in cases of flight cancelations, ensure my meal preferences, and guarantee that I get the best value for money because they are trained to see through hidden charges and penalties.

Part of the problem with Thomas Cook’s suffering UK business is their dependence on discounted holidays.  This is always a dangerous game because one becomes blind to other drivers of customer value – especially service.  After I last wrote about the local travel trade, I was asked to make suggestions to guide Caribbean-based travel agents.  My advice is simple – look at what is happening in northern markets.  In a relatively wealthy market like Trinidad, do not be fooled into thinking it is all about price.  Trinidadians still enjoy eating Haagen-Daas ice cream, patronizing exclusive All-Inclusive fetes at carnival time, and driving expensive SUVs.  So for many, price matters, but once they understand the real value of what they are getting, they are often willing to pay extra.
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My name is Derren Joseph, and I love my country and my region.  As always, I end by saying that we are so blessed to live in this beautiful land despite our challenges. Let us continue to have the audacity of hope in the future of our beloved country.

Feel free to email me at derren43@yahoo.com

You can reach me as well at derren@advancedamericantax.com.

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