Big two drive market changes
Edward Robertson
When former Kuoni managing director Sue Biggs predicted consolidation among the big four at the start of last year, even she couldn’t have forecast the speed and scale of change to come in the travel industry.
Biggs made her guess as part of efforts to scotch rumours of a Kuoni-First Choice tie-up.
A month later Thomas Cook and MyTravel caught everyone on the hop when they announced plans for a merger – giving the proposed Thomas Cook Group a 21% share of the package market.
As expected, capacity cuts have followed. But the group has remained bullish, mirroring MyTravel UK managing director John Bloodworth’s comments at the time. “We are not going to be a shrinking violet; we will be aggressive with our position,” he said.
The subsequent £4.5 billion merger of First Choice and Thomson in March 2007 created Europe’s largest operator – serving 200 destinations and carrying 27 million customers annually. And the entry of both new companies into the FTSE 100 share index demonstrates their power in the European tour operating arena.
Rival operators should be in no doubt about where both see their future profits. Thomas Cook Group chief executive Manny Fontenla-Novoa has announced plans to cut mainstream sales from 80% of its overall business to 72% by 2009/10.
In their place comes sales from niche sectors – previously the domain of independent specialist operators – with sales predicted to grow by €1.1 billion to €3.3 billion by 2009/10.
TUI Travel has already slashed its summer 2008 short-haul capacity by 25% and will presumably look to compensate for the ensuing drop in sales through First Choice’s well-established and profitable long-haul holiday market – one of the traditional preserves of the independent sector.
Association of Independent Tour Operators chairman Derek Moore has already warned his members: “They [the big two] are after your customers.”
However, the changes aren’t necessarily bad, the consolidation coupled with the end of ATOL bonding for most companies in April, will likely spark a rash of acquisitions in the independent sector.
Tour operators: predictions
Nigel Harris, chairman, Truly Independent Professional Travel Organisation
No one needs a crystal ball to predict that 2008 will see pressure continuing to build on high-street travel agents.
There will be more talk of the web, dynamic packaging and other factors that the doom-merchants claim will be the death of the traditional retailer. But we must remember that it is the consumer who ultimately dictates the pace of change.
This is a crunch year for agents. Agents with knowledge, expertise and great customer service will reassert themselves and confirm the high street retailer is very much alive.
The good agent will always find a market. The great agent, the one who looks for niche business, effectively markets their services and demonstrates good value, will prosper.
The majority of such agencies are independents staffed by motivated professionals. TIPTO realised the value of such agents many years ago and that
is why our supplier members are keen to nurture relationships with this powerful force.
Andy Cooper, director-general, Federation of Tour Operators
Tour operators continue to face a series of competitive and regulatory pressures that are unlikely to go away.
So what does 2008 hold? The no-frills carriers continue to expand, and both Ryanair and easyJet have more aircraft on the way. EasyJet now holds 24% of the slots at Gatwick, and has recently announced its intention to expand into Manchester.
Both will look to expand on new routes, operating to new destinations, and must continue to bite into tour operators’ markets.
The bigger operators will respond by developing new markets. The consolidation caused by the creation of the big two will no doubt continue, and the move from ATOL bonding to a levy will free up capital, creating opportunities for further consolidation.
Holidays have now become a necessity for most people, but a weakening economy may put pressure on some businesses. At the same time, the pressure coming from the environmental lobby to restrict aviation will not abate, and there is no doubt the proposed third runway at Heathrow will become a cause celebre for the campaigners – despite the need for extra runway capacity.
Derek Moore, chairman, Association of Independent Tour Operators
Opinions seem divided as to whether 2008 will see a recession; either way it will not be a boom year.
Shorter breaks will be the norm thanks to the low-cost carriers route expansion. Even skiing will see a growth in weekend trips while special interest holidays will continue to be popular.
Following England’s failure to qualify for Euro 2008, I hope football fans will take family holidays.
Cruising is growing and the publicity from the arrival of Queen Victoria and the launch in late 2008 of the next Royal Caribbean ship will add impetus to this growth.
Publicity of climate change will increase. However, the industry is starting to fight back as a consumer’s home is more polluting than their holiday.
Finally, when we get the long-awaited guidance notes on what constitutes a package we might see agents realise it is best to have an ATOL, which many of them won’t want to do. This could encourage a return to the use of tour operators, and growth in the tailor-made sector.
