Opinion: No insight, no innovation – travel hasn’t changed in 25 years

Richard Carrick I am struck by how far the UK travel industry is behind other consumer sectors. Take M&S, which is driven by consumer insight and constant re-invention of its product lines and shop environment.

By being incessantly self critical, it leads and forms new markets rather than being dragged down to a level of mediocrity where price and discounting drive demand.

Of course, it hasn’t always been like this. M&S was in the doldrums for much of the 1990s, but dug itself out with a focus on giving customers something relevant, of value, that met their needs.

We can use the excuse that travel product is different, less tangible, disproportionately affected by geopolitical factors and so on. But we operate in the same consumer markets, with less insight and much less product innovation.

Our research record as an industry is poor by comparison with other sectors which value data and are prepared to pay for it. Our consumer intelligence is lacking and dominated by outdated research methods such as the customer satisfaction questionnaire, much of it self-serving unlikely to lead to new product concepts.

Yes, First Choice has Holiday Villages and SplashWorld and Thomson has Sensatori, and Thomas Cook used the Redknapps in TV advertising, but tour operator product is largely unchanged in 25 years. We identify holidays by board basis, duration, destination and age group, not sufficiently by activity, life stage, interests, lifestyle, fashion. All too often it’s not the seller that inspires, but the consumer who finds their way through our offering by their own graft.

If we don’t develop clearly defined products that people want to buy, develop them imaginatively and promote them aggressively, we are left with a mediocre commodity that gets sold on price – and in a recession, price tends to go only one way. When you are left discounting your peak family product, which historically is where you have made your money, you have failed to give people good reasons to buy.

Tui Travel chief executive Peter Long has said repeatedly that First Choice makes more money from differentiated product. However, there is precious little of it on offer and, I’m sorry, all inclusive is a board basis, not a product.

Virgin Atlantic has proved the point with its in-flight and airport innovations. Royal Caribbean has done a lot to spice up its cruise offering. But because our performance is so patchy, we don’t have any volume, stand-out tour operator brands. Thomson has arguably lost the lead it had in the 1980s, and why Thomas Cook isn’t today’s leading European travel brand – given its heritage – is beyond me.

The margin trap

Of course, the risk is you don’t get it right and it costs you. However, our development costs and risks are much lower than a business that has to build plant and machinery to bring a product to market. In travel, we have a product which is attractive and which people are predisposed to buy. Could it be we don’t have senior people with the right abilities? Or is it the margins on our products that stop us innovating?

Many of the smaller, specialist holiday companies I’ve worked with are generating margins of 25-30% – mostly because they have differentiated product offerings. Center Parcs seem pretty full year round and it is not cheap. Develop something exclusive that people want, or can be persuaded to want, and they will buy.

Of course, many businesses get stuck with high cost bases, selling products in large volumes at low margins with expensive legacy technology or a high cost of sale. This is where many of the cruise companies have found themselves, and hence the pressure to change the commission model.

High margins might be available, but the way products are brought to market erodes the return. Technology plays a key part here: companies are often saddled with expensive, out-of-date technology. This is where some of the smaller businesses I’ve worked with have struggled – with great product but the wrong technology.

I could name several well-known companies that have a fantastic offering in the sport/activity/hobby sectors, but which constantly underperform because their business models are flawed. There are still companies that fail to embrace online distribution – cruise companies included. Often they confuse online demand generation with transactional capability. You don’t need to be transactional to use the web to generate large amounts of business – indeed, in some cases you should not be transactional. I still come across businesses that call their online marketing teams ‘new media’.

The companies making money at the moment are those offering differentiated holidays, effectively promoted and distributed at an efficient cost of sale, underpinned by robust, modern technology backed by exceptional customer service. They re-invent constantly, pay slavish attention to costs and have high levels of online expertise. There are not too many of them, but these businesses have seen double-digit growth over the last five years.

There is nothing wrong with commodity-driven, high volume, low cost, low unit margin, price-led business models, but they need to be all those things. They need a low cost of supply, sale and fulfilment, and of course they need volume. Lowcost Holidays, Travel Republic and On The Beach make money because they have efficient business models and they strive to keep costs and risks down and volumes up, not because they offer anything especially different.

The squeezed middle

In the US there is now talk of an ‘hourglass society’, with middle-income groups increasingly squeezed between the affluent and the poor. As the volume demand of this group has declined, companies have culled their mid-range brands and focused on those at the higher and lower ends of the price spectrum. Premium brands have been launched by companies which have never operated at that end of the market before.

In the UK, the core middle market for holidays is feeling the pinch from rising food, energy, transport and school fees. Inflation is outstripping wage growth and savings rates. Tui has reported 24% growth in 10-11 night breaks as people downgrade from 14. ‘Expendable’ ski or city-break holidays are being culled from household spending.

A YouGov survey in September found 49% of people were cutting back on the weekly food shop, 44% on leisure activities, 26% on smoking and drinking, 21% cancelling summer holidays, 18% cancelling magazine and other subscriptions, 11% cancelling gym and sports club memberships, and 6% selling their cars or replacing them with smaller models. More than half of households (58%) believe their financial situation will worsen over the next year.

We have seen the closure of shops belonging to Jane Norman, Thorntons, T J Hughes, Habitat, Moben, Dolphin, Focus DIY, Oddbins, JJB Sports, HMV, Mothercare – all retailers in the middle ground of UK high-street retailing.

Consumers are behaving differently. Some companies are working hard to understand and respond. Are you?

Richard Carrick is a consultant to several tour operators, chairman of PrivateFly, a non-executive director of Blue Chip Holidays and Club la Costa, president of Cimtig and a board trustee of People First, the sector skills council for hospitality, travel and tourism

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