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Generalising will lead to failure – TravelMole Comment by Jeremy Skidmore
First Choice chief executive Peter Long painted a glomy picture at a recent breakfast for journalists and industry leaders. Not about his own company which, compared with some other vertically integrated companies, is doing rather well. No-one can deny Long has been hugely successful during his seven years at the helm of First Choice. But his overview of the industry made grim listening for anyone who thinks there’s a fast buck to be earned from travel. In 2003, First Choice achieved a paltry margin of 3.9% on the sale of holidays. Unbelievably, particularly for anyone working outside the industry and unaware of its tiny profit margins, these figures are good for a mass market operator. Rivals couldn’t match them and MyTravel lost a considerable sum on each holiday as it plunged towards losses of £1 billion. Long feels the industry can aim for 5% margins at best in the long run – this compares with Rentokil, another company whose board he sits on, which achieves 18% margins. And Long believes comapnies can achieve 5% margins by adding new experiences for holidaymakers. First Choice is good at that – it now offers a wide range of packages from lounging on the beach to sailing and adventure trips – and there’s a lesson there for everyone in the trade. Decent or even manageable margins are best achieved by concentrating on and improving your core products. During his briefing, Long said he was giving customers what they want. He also said he was cutting back on seat-only sales and city breaks becasue it was difficult to make decent profits in these areas and would not be following Thomson is setting up a low-cost flights unit. But the public does want seat-onlys, city breaks and low cost flights. What Long really meant was that he was giving customers what they want, provided he was confident he could make decent profits out of it. That has to be a key plank os all tour operators and travel agents over the next few years. Long said he expected the market to remain pretty tough in the forseeable future. Producing or selling all things to all men will not be the path to profitability. But stick to a market you understand, improve the product and service and, with a bit of luck, consumers will pay for it. You never know, the industry might then be heading towards 5% margins quicker than we think.
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