Comment: Companies with cash out in front in scramble for beds

Comment: Companies with cash out in front in scramble for beds

Lee Hayhurst, Head of News, Travel Weekly

In March, Expedia’s Andy Washington formerly of Cosmos Holidays and, asked an audience of online travel specialists and technologists why July 8 was a key date for travel this year.

Had there been any traditional tour operators in the room they would have immediately recognised that date as being two weeks before the school holidays, and therefore the official start of the lates.

It is at this point in the annual travel cycle that operators pass over all their unsold inventory to their lates team. And for savvy customers, it’s a great day to bag a bargain.

But Washington argued that this year things will be very different. Powerful market forces have disrupted the usual model, concentrating short-haul beach demand in the western Med.

The threat of terrorism, the Zika virus in south and central America, the Euro 2016 football and, of course, Brexit, have made 2016 a particularly volatile year.

For the likes of Expedia this points to one clear conclusion: that the traditional tour operator model of fixed, upfront, contracted hotel prices secured through deposits and guarantees is broken.

It’s almost certainly true that many beds in Spain will have been sold early on before the extent of the shift west became apparent at contracted prices well below what the open market has sustained.

Conversely in the east, contracted prices for beds will have been agreed at overoptimistically high levels which, with the benefit of hindsight, should have been discounted much earlier on.
Yield management by hotels
Using live market data to shift pricing according to demand today is a fast-developing part of the hotel distribution environment, as it has been for many years among airlines.

For hoteliers the opportunity to exploit global marketplaces like Expedia and technologies that allow them to micro-manage all their channels promises freedom from restrictive tour operator contracts.

All travel technology suppliers have in recent years had to integrate their technologies with channel managers, such as Siteminder, RateTiger and Spain’s Dingus, to remain relevant today.

This has even prompted one, The Vertical Group, to declare that contractors “are going out of the window”.

However, nothing could be further from the truth, according to some industry sources. They report cash-rich major operators have been busy contracting properties in popular destinations in recent weeks.

For the hotel operator, being offered a €600,000 deposit now in lieu of an expected €1m worth of revenue in the future is a no-brainer.

Less risky and dynamic it maybe, but such is the scramble for capacity in the west that hotels are being offered the additional safety blanket of lucrative long-term deals of up to three years.

“It’s tour operating as usual, just like back in the day when we had the big four,” said one well-placed source.

“Beds are available, it’s a question of wanting specific units that are working well for your competition. It’s a familiar game.”

The savvy hotel operator is playing both sides of the game, securing guarantees with operators on the one hand while playing the markets and yield-managing on the other.
How this plays out if you’re a tour operator comes down to that other time-honoured aspect of tour operating: relationships.

Hotels will overbook those distribution partners who have a poor payment record, while prioritising others with whom they have more mutually beneficial long-term relationships.

Gone are the days when operators used to “own the beach” by tying up all available bed-stock. Today the balance of power is much more in the hands of the hotel operator.

Yield management in the traditional tour operator hotel model effectively equated to the extent to which the operator could force prices down. But when hotels are empowered they can yield-manage up.
The new lates lesson

However, experienced observers don’t believe that this turning of the tables in favour of hotels spells the end for the fixed-price contracting tour operating model.

Industry analyst Andy Cooper, a former director-general of the Federation of Tour Operators, said: “Hotels do not yield-manage like airlines.

“Ten years ago people were saying all suppliers will go direct to the public, but there are very few hotels, particularly in the sun and beach market, that sell direct.

“They may have changed their routes to market, like selling through bed banks rather than traditional tour operators, but it’s the same principal.

“Expedia may be a bit cleverer on pricing, but there’s not a massive difference. Hotels haven’t got the knack of selling direct because few people make their purchase based on the hotel brand.”

For the mainstream UK beach market, 2016 won’t be remembered with much fondness. But neither will it be the year everyone looks back on and says “that was when everything changed”.

The big lesson of this lates period for customers is leaving it to the last minute to book does not guarantee you get the bargain you are hoping for, a problem for the OTAs reliant on this market.

The winners will wield their economic clout, drive volumes and work relationships. The losers, buffeted by the post-Brexit slump in the pound, will find it’s never been truer that cash is king.


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