LAST week was a watershed for the industry. If you read the newspapers you would be excused for believing that Thomson Holidays was finished. In fact, all that has happened is that profits won’t be so good this year.
The company has been brought to its knees by the City. It has now paid the price for going public and for having to deliver higher and higher profits each year, in order to satisfy clamouring shareholders who all thought the lumbering giant was a sure path to life-long discounts and an ever-rising share price.
Any business person will tell you (Ryanair take note) that discounts and profits just don’t go together. No matter how many niche companies you buy, how many teletext operators you bring on board and how plentiful the discounts splashed across Lunn Poly’s windows, you just cannot get away from the fact that growth created by discounting will catch up with the best of us.
There is no doubt Thomson now has a serious problem in the eyes of investors in this country. How do you increase volume yet maintain margins?
The cause of the market leader’s downfall is the uncontrolled rise of Thomas Cook, a company that answers to nobody and which has done a Thomson on Thomson. When you look back you can see where it’s all gone wrong.
Lunn Poly, once the darling of retail distribution, is now recognised by the public as a discount warehouse. You can’t even see in through the windows for the money off posters.
Lunn Poly created the discount culture which has ruined so many livelihoods and has now realised it has just not worked. Discounting linked to overcapacity is a deadly combination, especially in the short-term eyes of the City.
Directional selling is not doing anyone any good and the latest Which? survey points very clearly to the fact the public prefers its travel agents to be independent and impartial.
All in all, the industry is in a mess and guess what the City will call for now? Yes, a period of consolidation. Hardly anyone knows who owns what any more. The process has already begun with Thomson wanting a selection of its specialist brands under one roof in Kingston. The despecialisation of the specialists has begun.
Next year will be no easier.
The low-cost airlines are starting to encroach on the leisure market, taking business away from the charter companies. Sooner or later, and in order to maintain volume, one of the big four will probably have to buy one of these airlines. Currently, any growth necessitates constant discounting and this will make any increase in profits for the big four virtually impossible.
No matter what you do, no matter how many retail shops you own, how many Web sites you put up, how many adverts you take, how many bucket shops you buy, when there is overcapacity you are a dead duck.
There is gross overcapacity in the UK market with market share and domination being sought by several players. Nothing is ever full any more.
For the time being the public is loving it. But, all you have to do is look over to the US and see how fares have risen and how the market is now dominated by just a few companies.
It’s only a matter of time before it happens here too.