The failure of On Holiday Group is not unprecedented for the bed bank sector. Lee Hayhurst looks at the pressures facing firms in the dynamic packaging market
Asked whether On Holiday Group’s collapse last week marked the end of an era for dynamic packaging, its founder Steve Endacott insisted it was only “the end of the beginning”.
OHG was confirmed as having been put into administration last Friday. The collapse was not without precedence in the bed bank sector – June 2011 saw HotelConnect’s collapse leave many agents out of pocket – but it felt momentous nonetheless due to the brand’s and Endacott’s high profile.
A quick assessment of the main players in the dynamic packaging sector underlines how much has changed in this fast-evolving market, now just over a decade old.
Among UK bed banks, one has failed (OHG/Holiday Brokers); three have been bought (Youtravel.com by German operator FTI Group and Hotels4U. com and Medhotels by Thomas Cook); and one is based overseas (Lowcostbeds.com).
OHG offshored in July 2011 as part of a deal with Dubai-based Euro Rooms Direct when On Holiday Group (UK) ceased to trade and its assets and business were transferred to OHG Accommodation, the entity that failed last week.
On the travel agency side we’ve seen the two most successful exponents of dynamic packaging – Travel Republic and On The Beach – sold in recent years, the former attracting Dubai-based dnata with its huge financial clout, the latter a second private equity owner.
Bed banks feel the pinch
Underlining the changing times, On The Beach struck its first GDS deal last year with Travelport, and Ryanair’s deal with the GDS now formally links the budget airline with what it used to consider its enemy – screenscraping agents.
The collapses and the changes in models and ownership are symptomatic of how the competitive bed bank sector is cursed with low margins. It also shows how valuable a cog it is in the distribution of accommodation product to the travel industry.
Writing about the OHG collapse on Travelweekly.co.uk this week, leading industry accountant Chris Photi of White Hart Associates described bed banks as “the poor cousins in the profit league of dynamic packaging, which still continues to flourish”.
Unlevel playing field
As newly appointed Youtravel marketing director Andy Baker, formerly of Medhotels, recently told Travel Weekly: “The whole dynamic packaging concept was to help indies compete against the direct‑sell tactics of the big guys.”
There is, indeed, more need today than ever before to help the little guys as there are global giants – Booking.com, Skyscanner, TripAdvisor et al – that even the most aggressive of regulators cannot reach. And they all continue to grow at a frightening pace and flip their models to act more like agents than ever before.
In the days before and after OHG’s collapse, Endacott blasted the perceived injustice of unregulated mega-corporations being left to trade as they wish while a vibrant homegrown sector is attacked from all sides by red tape, bureaucracy and tax demands.HMRC blamed for failure
Endacott placed the blame for OHG’s failure on Her Majesty’s Revenue and Customs’ decision to pursue the bed bank sector for Tour Operators’ Margin Scheme (Toms) VAT, which cost it £4.5 million in withheld tax.
The European Package Travel Directive (PTD) and Atol reform have also represented a closing in of the regulatory net, although the UK’s Flight-Plus regime was a compromise the dynamic packaging sector was content with.
Add to that many traditional agents’ concerns about dynamic packaging, a recent renaissance of the package and the move by larger agents to contract their own product through their own technology – although tactical and small in volume – and the pressures are clear.
However, despite the challenges, Endacott predicted OHG’s collapse and the settling of the Medhotels VAT case would spawn new businesses and help rivals – he picked out Lowcostbeds, which this week claimed to be on track to become a £1 billion business.
“There is clearly a major gap left by OHG that can be filled, but it will take time for somebody to get back up to 650,000 passengers. It can and will be done, just not by me,” he said.