June bugs the travel market

This month the likes of Thomas Cook are piling on holiday discounts – but is this the result of a phoney price war or merely poor planning?

Selfless as ever, this correspondent spent last week conducting some free in-depth research into the state of the southern Spanish holiday market on behalf of our beleaguered British tour operators.

Whitsun Bank Holiday is a time to play Spot-the-Parent in the UK – it seems that most of us seize the half-term opportunity to become Europhiles of one sort or another. And, if last week’s experience is anything to go by, a large proportion of us head for the Costa Blanca, either in the disfigured shape of Benidorm (the C2D2s with CDs too) or of the villa-clad foothills of the Javea peninsula (the chattering classes).

At least, it seemed well-subscribed with Brits to me. A Spanish friend tut-tutted in a way that is the equivalent of our builders drawing air through their teeth and said that I should see it in July and August. According to Cristina, total annual British visitors to Spain out-number the entire Spanish population.

Maybe that is a little sun-fevered exaggeration on the part of Spanish authorities who are given to manipulating figures of one kind or another, but the story of a forthcoming invasion of British tourists was repeated elsewhere, in the hotels and beach restaurants of this bastion of the Spanish economy.

But if the Spanish tourist trade – with its litmus-test destinations for British operators – is expecting the usual Iberian holiday bonanza, then what is all the whinging about at this end? The Spanish expect more Brits than ever this year, yet British operators are claiming that bookings are hardly registering on the money-meter. They can’t both be right.

Lunn Poly started what was dubbed “panic” in the British travel industry by declaring last week that it was cutting 100 off “many” of its June holidays. This sales initiative was followed by Thomas Cook announcing discounts of as much as 40 per cent on “selected” summer holidays, while Going Places, owned by the UK’s second-largest tour operator, Airtours, piled in with a one-day 100-discount on June holidays.

Meanwhile, British Airways joined in with 59 return fares to Paris and Brussels and a free two-night sojourn in Paris for customers booking 14-day holidays in Mauritius and the Bahamas.

The effect of all this on the British holiday consumer is meant to be laxative – in the strictest sense of the word, it is meant to get British holidaymakers moving after something of a constipation of unsold holidays.

Of course, Spaniards who are booked out and British tour operators with unsold holidays are not mutually exclusive. The operators buy the bookings – a sort of holidays futures market – and then fail to sell them on. It is an unlucky Spanish hotel or condominium owner who has sold his accommodation on a sale-or-return basis.

But I wonder whether British operators protest too much. Supermarket chains are not above creating the impression of a price war, as a cynical sales campaign, while actually protecting their margins on the core constituents of the shopping basket. Is it being too cynical to suppose that tour operators may indulge in the same practice? Note my quotation marks around the “many” and “selected” holidays on which they are offering discounts.

And, if they were to generate a phoney price war, this would be the time of year to do it. Rather as the grocery retailers perk up the seasonal sales troughs with “price wars”, it would not be beyond the wily tour operator to suggest at the end of May that it is practically giving away June holidays, without doing any damage to margins in the July/August market. As it happens, the June come-on might even provide a boost for the high season if the operator is perceived as being a bargain basement.

Perhaps that is a trifle unfair. So let us consider another reason for the largesse pouring into the UK holiday market. Could it be that operators are this year finding themselves hoist by their price- cutting petard of last year?

Again, it is plausible. Industry pundits have it that the travel industry made “unrepeatable” offers for early booking last year, only to repeat them this year.

No wonder the British holidaymaker starts to take a more jaundiced view of booking. Whereas the industry once created a commercial climate in which early booking – perhaps as early as six months in advance – was encouraged and rewarded, it has now reversed the incentive. Anyone, from Benidorm to Mauritius, can see that it pays to hang on for the best deals.

In the end, it has to come down to standards of management. It appears that if you run a travel company well, cash

balances remain healthy enough to expand. It really is as simple as that.

Take Hogg Robinson, for example. I see that it proposes to pay some 58m for Swedish agency Bennett Travel. True, Hogg Robinson is not paying that out of cashflow – it proposes to part-fund it through a 25.3m rights issue. And, true, this is all about the business travel market, rather than the holiday market.

But the businesses are not essentially different. At base, they are about putting bottoms onto airline seats and ensuring that the choice of accommodation at destination is offering profitable revenue to the operator at point-of-departure.

Easy. Yet the holiday operators appear to make a meal of it. Either they are special-pleading as a means of boosting non-peak business or their pricing strategies are incompetent compared with the business travel market.

My guess is that, if any UK operator goes bust this summer, it will not be the direct result of a price war. It may be because a forthcoming European Court ruling will result in higher value-added tax for tour operators – but it will not apply to those with in-house fleets, such as Airtours. Smaller companies, without fleets, could face a competitive threat as they either slash margins or raise prices to take account of the VAT.

As for price wars and unbelievable prices – well, on that account they speak more truth than they know. I simply don’t believe them.

George Pitcher is joint managing director of media consultancy Luther Pendragon.

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