2020: The big issues are achingly familiar

The new year is a time to look to the forwards. At least it should be. Sadly, as we return to our desks after the Christmas break, the three largest issues that will shape the immediate future look achingly familiar.

Brexit will be back at the top of the agenda in January. Yes, we’ve all had our fill,  but while the UK voted overwhelmingly to “Get Brexit Done” there’s still plenty of this particular turkey left for sandwiches. Assuming the latest Withdrawal Agreement Bill is passed and we leave the EU on 31 January, we then begin the long process of haggling with Brussels over trading terms. Much like their namesake’s sprouts passing through the alimentary canal. It will be slow, it will be painful and it’s sure to be explosive.

Secondly, Thomas Cook (TC) continues to ruffle feathers.  Many in the industry are still struggling to cope with the impact. In the immediate aftermath, cash flow is the biggest problem throughout the supply chain as lost commission income and the cost of replacing or refunding holidays bite. So far, it looks like we’ve made it through this phase better than expected with no further material failures.

Further challenges lie ahead, though when the true financial impact is disclosed in agents and operators’ annual financial accounts. Those accounts will be scrutinised by the CAA, ABTA, IATA, Insurers, lenders and credit card companies.  Demands for additional security will butt up against severely diminished insurance and lending capacity resulting in some very tough conversations at the March and September licence renewals.

Meanwhile, the UK’s remaining Goliaths will attempt to carve up the 2.5m former TC passengers. January has always been a pivotal booking month, accounting for up to 20% of all summer holiday bookings. Early signs are that all of the lost TC capacity will be immediately replaced as Tui, Jet 2 and EasyJet pile on new programmes.

Thankfully, these groups are financially healthier than TC has been, so we should see more rational pricing behaviour in 2020. Nevertheless, the summer holiday market is likely to remain oversupplied, putting pressure on everyone’s margins.

Finally, environmental concerns jumped up the agenda in 2019 and the scrutiny of our industry will only intensify. While it represents the biggest risk to the travel industry over the next decade, it also represents a huge opportunity for the Davids to triumph against those Goliaths.

Increasingly, consumers are motivated by identity, values and emotion, and are seeking brands with purpose. Movements like the B Corporation are growing in influence, with well-known consumer brands like Ben & Jerrys, Danone, Ella’s Kitchen, and Innocent Smoothies all certified. Waitrose has even trialled “B Corp Only” aisles in their online store.

Whereas traditional capitalism was all about profit, and maximising shareholder return, B Corps must demonstrate a positive impact in all areas of their business, from governance, workers, environment and community. Currently only 2 UK travel businesses are certified B Corps, though I expect many more may apply as a way of it to differentiate from the competition.

Besides being good for the planet, operating with a clear, articulated sense of purpose has many commercial benefits. It builds trust and loyalty with customers, it can help you attract and retain talent. It may even help you attract investment: a number of private equity houses now run dedicated “Impact Funds”, investing exclusively in businesses with an environmental or social conscience.

Worth thinking about when setting your new year’s resolutions!

Written by Martin Alcock for the  Travel Trade Gazette on 6 January 2020

Counting the cost of travel distribution

For many years, Google’s relationship with the travel industry has been uneasy. It acts as both a supplier and a competitor, and its forays into metasearch including the launch of its recent hotel booking tool have certainly caused concern

Right now though, the UK travel industry is dealing with a different sort of Google headache, this time related to the increasing cost of Google Ads.

Google Ad Nauseous

So what exactly is the problem? Well, it’s largely to do with the fact that Google’s holiday search volumes in the UK are suffering in the current climate of low consumer confidence.

Take a look at the following summary of travel search terms from 2 specific weeks during the 2019 peak booking period, compared with the same weeks in 2018.

 

You’ll notice that apart from the one bright spot of Turkey, the other destinations in our research were all substantially down on search volumes. There are many possible explanations for such big drops. The latest booking data from GfK suggests a nervous consumer is certainly a big factor. 

Whatever the reasons for the drop in search activity, many travel companies remain focussed on delivering a set number of enquiries into the top of their funnels, knowing they can rely on a certain percentage of them to convert into bookings. A scarcity of searchers drives up the cost per click and can dramatically increase the Customer Acquisition Cost. 

A strictly non-scientific straw poll amongst our clients revealed their spend on Google Ads for Q1 2019 has risen anywhere between 6% – 20% compared to their spend on the same keywords in the equivalent period of 2018. 

In any sector, that would be tough to take, but when you consider that some Online Travel Agents spend more than 50% of their net revenue on digital marketing, it’s clear that such cost increases are unsustainable. 

Spreading the load

No doubt Google will continue to be the dominant digital market channel for the foreseeable future, but just like petrol prices during an oil price spike, when Google Ad costs go up, they don’t usually come back down again. 

The step-change we’ve seen in early 2019 seems to be having a profound impact on business strategies in the sector. 

More and more travel companies are looking to innovate away from Google and we are seeing our clients much more willing to diversify their marketing budget and experiment with alternative approaches.

Whether it be social media, voucher sites, flash sales, or metasearch. Each can seemingly deliver customers at a more attractive price point than Google right now. 

A Non-Classic approach

Of all the innovations, the most eye-catching has been On The Beach’s (OTB)  switch to offline sales following their purchase of Classic Collection in late 2018.

As a luxury tour operator with a large distribution network of high-street travel agents, Classic Collection is pretty much the antithesis of the Online Travel Agent.

However, OTB has been acting more and more like a traditional tour operator in recent years. They switched their legal status from agent to package organiser; they moved away from bed-banks and began contracting directly with hotels. 

Now as a result of the acquisition of Classic Collection, they can distribute package holidays through offline, bricks and mortar travel agencies using the Classic Packages portal.

Selling package holidays on the high street is hardly a new idea, but shifting from online to offline flies in the face of conventional wisdom and could provide OTB with a natural hedge against the spiralling cost of digital marketing. That acquisition is looking smarter every day.