After a disastrous year of spiralling discounts, UK tour operators are not optimistic about consumer demand. But as they invest heavily in branding campaigns, the increased cost will have to be passed on to consumers.

Bland and naive.” That’s one verdict on the messages that tour operators are sending to sun, sea and sand seekers. But what’s most striking about such summary judgement isn’t the condemnatory tone, but the fact that it’s a piece of self-criticism.

Richard Carrick, marketing director at Airtours Tour Operations, naturally offers this verdict and promises that his company will change all that. It is a business where operators offer packages with “the same aircraft, same product and same resorts” and customers “end up in a complex shared by other operators”. For 1996, Airtours is offering a new “extra special” package that it claims is “the most innovative and extensive series of customer benefits the travel industry has ever seen”.

The travel tour operator business of peddling overseas packages to the mass market is dominated by the big three: Thomson, the market leader with a 34 per cent share; Airtours which accounts for 18 per cent; and First Choice, with 13.5 per cent (Stats MR). New brochures are now on the shelves for summer 1996. This year has been disastrous. Operators over-estimated demand and year-round discounting policies ate into profits, so the season for plugging their latest products has come with a clutch of confessions.

Airtours is not the only operator to be hanging out the industry’s dirty linen. At First Choice, which made a heavy investment in what is widely seen to have been a successful rebranding exercise last year (it was previously Owner’s Abroad), marketing director Kevin Ivie says that industry-wide brand loyalty is “not high”.

Even at Thomson Tour Operations, market leader for 20 years, Claire Wilson, director of communications, concedes it’s “generally true that there’s little product differentiation in the mass market… The focus in the past few years has been on price cutting.”

Price cutting reached an all-time low this year with a baffling confusion of year-round discounting. Having over-estimated demand for summer 1995, late holidays have had to be discounted by as much as 50 per cent, says Thomson managing director Charles Newbold. In an industry where margins are already tight, at about two per cent, spiralling discounts are particulary harmful to the bottom line. In the short term, this has resulted in profit warnings from Airtours and the Thomson Group – which announced a first half operating loss of $1m (645,000). There’s even less optimism about the consumer’s holiday hunger next year and capacity is down by about ten per cent.

But the industry only has itself to blame. “It has an appall-ing attitude to consumers,” says one insider. “It treats them like sheep and is very disdainful.” Whether or not selling package holidays is more like selling toilet rolls or selling dreams, tour operators are coming under the same sort of pressures as supermarkets to pay more attention to increasingly picky consumers, looking for customer service along with low prices.

Over the past ten years, the structure of the market has changed. The rise of the multiples means tour operators are paying higher levels of commission (between ten and 17 per cent) to the shops stocking their brochures.

Having a vertically integrated company with a retail chain (Thomson owns travel agent Lunn Poly and Airtours owns Going Places) is not the answer. Even without the threat of the current OFT investigation into uncompetitive practices, Airtours, for example, claims that more than 70 per cent of its product is sold outside its Going Places shops.

Booking patterns seem to have shifted steadily in the past three or four years towards

later and later booking. The traditional high points – broch-ure launches in September and at Christmas – have been diluted, with more holidays being booked across the year as consumers second guess the travel companies. “The trick is to sell enough holidays early enough,” explains Ivie. The more holidays sold at brochure prices, the better. Late bookings off brochure is where problems arise.

Analyst Wayne Sanderson of Smith New Court says that although the tour operators are “right to be re-evaluating, it’s very tough. If they’re hoping to break the late-booking mentality, they’re not going to do it easily. The trend has set in”.

So the real fight for market share is still, for the time being, focused on the more discriminating consumer, the one who wants to know what he or she will get for their money and wants to feel comfortable with the company they pick to put it together for them.

Airtours declares that it is adapting a more consumer-led strategy for summer 1996. Though some are cynical about whether its price-cutting mentality can change overnight, the company now has Thomson’s highly regarded former marketing director Peter Rothwell on board as managing director.

Airtours’ Carrick says that the industry is guilty of seeing the holiday experience as a

commodity. “With consumer expectation changed beyond recognition, we need to emulate the success of the grocery trade,” he adds. Summer 1996 will see the introduction of two new sub-brands – Suncenters and Sunclubs – as well as pre-bookable duty-free and airline seats,

and lowest price guarantees.

Airtours is also trying to copy other retail sectors with replacement guarantees: If your holiday doesn’t live up to reasonable expectations, rather than waiting to claim and complain when you get back, where possible, Airtours is empowering its reps to swap disgruntled customers into alternative accommodation.

This is just the beginning, says Carrick. And, while Airtours has changed, others are “dabbling around the edges”, he claims.

It could be argued, however, that the relaunch of First Choice was the true catalyst that sparked the other big tour operators into taking issues such as branding more seriously. The recognition that such a wholesale strategic move was necessary, together with the injection of 7m into advertising through Ogilvy & Mather, has had an impact. “We established the brand last year,” says Ivie. “Now we’re differentiating on added value with kids clubs and all-inclusives.”

First Choice ran a pilot programme in Spain this year offering all-inclusive holidays where food, drink, entertainment and activities are all bundled into the price. This could potentially be a big growth area in the Mediterranean, says the company. These holidays sold six times more quickly than any others in 1995. But a specially commissioned NOP survey indicates that 40 per cent of respondents thought the idea of all-inclusives was “too good to be true”.

First Choice is promoting its first dedicated all-inclusives brochure in one of three new ads this month. Another features its children’s clubs – Nippers, Surf Seekers and Beach Hounds – which have been tailored to three different age groups.

Thomson, as well as backing the continued growth of long haul, is re-entering the cruise market, following Airtours success with its own cruise packages. It sees the cruise market as an area where demand is set to outstrip supply.

Wilson takes an authoritative stance on branding – as one would expect of the market leader. “In the wake of price wars and so on, Thomson has come to stand out as the natural first choice in the market.” The company’s ad campaign this year centred on “Mr Thomson, the man in the white suit, who is the epitome of our attitude to service”. New ads are expected to be revealed shortly.

Cathy Reid, a planner at agency BMP DDB Needham, which handles Thomson’s business, believes the pressure to brand strongly is increasing. “These days the fact that an operator has a TV presence and is racked in a reliable high street travel agent is sufficient to get it past the consumer’s reliability requirements. The big established tour operator brands have to be seen as more than just big and reliable.”

Thomson spent 10.8m on advertising last year, First Choice 6.9m and Airtours 5.2m (Register-MEAL). Though the First Choice spend was pumped up to support its relaunch, there is now an ongoing commitment by all three to substantial ad spends.

But brochures are still the main face of the company and they are not without their problems. There’s a profusion, some might say a confusion, of tour operator’s sub-brands on travel agents’ racks, many with the word “sun” somewhere in the name. And the brochures still look dated featuring beaming white smiles and blue skies. Wilson says that, to an extent, retaining the traditional look is positive. “It’s difficult to come away from the white-tooth syndrome; people want to get a feel of the holiday experience.”

Tradition, however, is arguably less important than the need to keep up with the customer service standards now expected by the average buyer.

One criticism of the travel industry is that it rarely recruits from outside and is therefore locked into the same marketing merry-go-round. “The same old faces just move from job to job within the industry. They are all locked into the lifestyle and the discounted travel. They never have any new ideas,” says one insider. “It is incestuous,” admits Carrick. But he defends his own company by pointing to members of his team with agency experience. And Wilson agrees: “There’s no denying it’s a good idea to bring in fresh thinking.” She cites Thomson’s marketing director Richard Bowden-Doyle as an example. He has fmcg experience at Cadbury Schweppes, though his last job was at group company Lunn Poly.

People, like branding exercises, all cost money and, as a result, next year holiday prices are up, in many cases by about ten per cent. Although 1995 has been a lesson in how not to underestimate the consumer, the tour operators can only afford to go so far. The industry has led the consumer to expect good price deals. Now they want more but, on two per cent margins, it’s hard to see how they won’t be disappointed.

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