High-volume, low-margin model failed to get the injection it needed says Noel Josephides Chairman of Abta and Sunvil
Many comments on the failure of the Lowcost Travel Group come from those who do not understand how a tour operator works in the cut-throat sector of high-volume, low-margin, cheap holidays.
This is not about booking flights from distressed stock on Multicom or a no-frills carrier’s website, packaging these with hotels from a bed bank or individually-negotiated hotel contracts and carrying 50,000-80,000 passengers.
A business boasting an annual turnover of £500 million is about global presence, huge risks, millions spent on technology and advertising – and wafer-thin margins.
Yet Lowcost was too small to compete with the likes of Expedia, Priceline and TripAdvisor, which dominate Google search.
Money matters
You don’t need millions of dollars to compete – you need billions. Priceline, with all its brands including Booking.com, spends more than $2 billion a year on Google.
Government regulators should look hard at the total predominance of these huge American brands in the travel sector.
When Lowcost began in 2004 this market was in its infancy. Attempts to lower overheads by moving to Spain (minimal bonding), by acting as an agent (to avoid Toms VAT) and by basing call centres in Poland, were all logical – and by no means illegal – for any company playing the volume game.
However, what Lowcost spent on Google was a pin-prick compared with the competition’s spend. Chief executive Paul Evans failed to get the ‘big bucks’ injection that all companies seeking global presence have behind them.
It is therefore no surprise that the company failed at the time it did, because the normal principles (of failing at the end of the season) just did not apply.
Principals’ responsibilities
As a result of reduced demand and consumer confidence, and the collapse of sterling’s value following the vote for Brexit, the company’s cashflow dried up.
If the company had been regulated by the CAA it could not have grown as fast without the necessary funding and, of course, would not have disappointed so many people. But for many years, Lowcost provided very cheap holidays to millions and filled, and paid for, millions of hotel beds.
One more key point: why are we allowing hoteliers and villa/apartment owners, who are principals, to get away with insisting on being paid again when those airlines and Atol holders – also principals – that provided the flights for Lowcost are compelled to honour their obligations?
The law of being a ‘principal’ applies to accommodation providers too. Maybe they don’t understand what being a ‘principal’ entails? If so, government regulators have a big responsibility to explain it, pretty damn quickly, to all and sundry.
Conversely, what holidaymakers need to understand is that when an organiser/bed bank acts as an agent – and many, including Lowcost, do – and bookings are not covered by the CAA’s Flight-Plus, they will have to pay again for flights, accommodation and car hire if the organiser/bed bank fails and the bills have not already been paid.