One in four on the edge

Comment by Jeremy Skidmore (www.jeremyskidmore.com)

Much as I would love to wax lyrical about Cadogan, I can’t, so instead I’ll focus on a much bigger issue facing operators.

In my youth, UB40 used to sing about being a ‘one in ten’ when referring to the unemployed, but if they were hired for a travel industry conference now, they would probably change the lyric to a ‘one in four’.

According to research from Plimsoll, which tracks different markets, one in four tour operators are now consistently making losses each year. This compares with about one in five a year ago and one in six two or three years before that.

Often firms will make a one-off strategic decision to lose money, for example because they are on the acquisition trail.

But if you keep making losses, the writing will be on the wall because sooner or later, the banks will pull the plug.

We’ve seen numerous companies fail in recent years, including industry favourites like Tapestry that many thought would always have a niche.

The evidence seems to suggest that we are going to see a lot more, particularly in the short-haul market where matching a package by linking a no-frills flight with accommodation is already second nature to agents and holidaymakers.

The standard margin on mainstream tours used to be four per cent of turnover; for those able to make anything, the average these days is more like two per cent.

The consolidation of the big four tour operators is a bonus to everyone else in the industry because they’ll take away some capacity, but it won’t be nearly enough for every rival to have a slice of the cake.

And, in any case, it’s too late to change things for this summer, which is already shaping up to be another disaster for many companies operating to the Mediterranean.

We’ve spent the last decade educating everyone that they can buy holidays for next to nothing, particularly outside the peak holiday season. And guess what, they’ve learnt well. Mainstream operators who are selling, are only doing so by offering tempting discounts.

Meanwhile, all the accommodation-only specialists have hugely ambitious sales targets for this summer and are incentivising agents to push their products.

And many call centres are making such decent margins from putting together flights and hotels that they’re not bothering to sell extras such as car hire and insurance any more; they just want to get on to the next sale of a ‘dynamic package’.

So who’s still pushing the traditional Mediterranean package? And, more importantly, who’s buying it?