New rules could will lead to more consolidation and the rise of easyJet holidays, writes Teletext Holidays chairman Steve Endacott.
Travel Agents quickly adapted to the dynamic package (DP) revolution, developing their own systems or buying relatively cheap pre-built dynamic packaging platforms which allowed them to combine low-cost carrier seats with multiple bed bank XML feeds.
The initial DP battle was all about price and range, with agents looking to have the biggest range of hotels and the most suppliers per hotel to ensure they could always offer the cheapest price. Many smaller travel agents and online tavel agents (OTAs) have never moved past this ‘range is everything’ model.
However, over time, bigger OTAs like On the Beach have consolidated consumer demand into a much smaller range of recommended hotels so that they have enough volume to justify contracting the hotels directly via an in-house buying team. This in turn yields lower rates and/or higher margins, which has allowed them to advertise these hotels harder and create a virtuous circle of growth, with 65% of all sales going into directly-contracted product and expanding sales over all.
The introduction of the European Package Travel Directive, which comes into force in June 2018, effectively bans ‘flight plus’ Atols and will force all UK dynamic packaging companies to move from their current status as agent for the hotel to full ‘principal’ status.
We are told by legal experts that this will not affect the VAT status, keeping DP agents out of the extra £20 per passenger cost imposed by UK TOMS (tour operators’ margin scheme) VAT, however there is no avoiding the extra legal responsibilities principal status gives.
As ‘principals’, each agent will be responsible for implementing their own health and safety checking procedure and have at least one person in the company trained and responsible for implementing the policy.
In reality, health and safety is a relatively low cost issue as there are a number of independent industry experts offering off-the-shelf ‘self-assessment’ systems that can provide the required protection. In my experience, it is very difficult for DP agents with relatively scattered sales across thousands of hotels to actually influence the health and safety implementation of an individual hotel. However, it is vital to identify any high-risk properties and to drop them immediately. In a world where you have hundreds of alternatives to offer your customers, not doing so is reckless and potential commercial suicide. Agents should also be warned, that the worst possible outcome is to implement a health and safety policy and not follow it 100%, as this ratchets up the criminal liabilities of the management of the business.
In my opinion the biggest issue facing agents when they become principals is the cost of public liability insurance.
Currently, either customers or more beneficially the ambulance chasing lawyers powering the wave of alleged sickness claims sweeping the industry, do not bother with DP agents who are acting as the agent of the hotel, as they cannot effectively sue them in the UK and would have to take cases to the hotels’ home country.
But from June 2018, DP agents will become UK principals, allowing customers to sue them in the UK for any accidents or sickness issues, which is obviously a major concern for the insurance companies providing public liability quotes. Currently, most agents have just extended their current policies up to the change of law date in June 2018 as insurers simply will not quote yet or are asking for up to tenfold increases in premiums.
I personally expect that the cost of public liability insurance will quickly stabilize and reduce as claims histories under the new principal status are understood. However, the need to reduce public liability cost may force agents to cut the number of bed bank suppliers based on the health and safety policies and public liability indemnities that each supplier is willing to give. This is because these ‘pass on indemnities’ will have a major influence on the agents’ own public liability costs.
On the other hand, not having a bed bank provider to pass on public liability costs may make the benefit of direct contracting less attractive where passenger volumes are lower in the major OTAs, although I expect this impact to me minimal.
It is also likely that DP agents will ask the question “Why should we have thousands of hotels on sale that we have not sold in the last year?” as doing so increases costs.
Chuck into the mix the need to have a 24-hour duty office and emergency procedure training for all senior management and you quickly get a strong case for consolidation of product supply.
Therefore, within the next two years, I expect all major consortia such as TTNG, Advantage, Global, Hays Travel etc. to be powering not just part of their agents’ DP operations, but 100% with there also being an increase in sales for low-cost carriers’ holiday operations.
Jet2 Holidays have led the rush to replace the supply of ‘standard’ beach holidays to the independent travel agent sector as both Tui, and more recently Thomas Cook, abandoned the ‘commodity’ beach holiday market in favour of ‘differentiated hotels’. And the appointment of Johan Lundgren, the ex-Tui boss, as chief executive of easyJet must spell a major move by the airline into the holiday sector.
I have previously been critical in articles on easyJet’s insistence of finding outsourced partners to run their holiday division but believe that given Johan’s vast experience he will quickly move the holiday operation in-house and launch a major programme to the UK travel agent community in time for Summer 2019. I may be wrong, but I’m willing to take some large wagers if anybody but Johan is willing to make them.