A marriage of equals

The purchase of Lastminute.com by the European agency, Bravofly Rumbo was described by one over-excited journalist as a marriage between two major agencies to create a “European super-giant”. Well, I agree it was a marriage of equals.

Lastminute.com has had a very positive press over the years but I wonder if anyone, other than the founders and a few initial investors, have ever made money from it. Shares in the company were floated at the height of the dot.com boom at 380p and went rapidly downhill from there. Despite all the hype, the company was never able to create a business that could attract sufficient customers and make money. There were persistent – though strenuously denied – rumours about the company’s liquidity until, finally, the American travel technology company, Sabre, stepped in and bought the company for less than half the price it had been floated at. Then Sabre proceeded to do almost nothing with the company for several years. They seemed just as confused as everyone else about how to make money from it. The company has continued to lose money and was put up for sale earlier this year. Sabre must have been delighted when Bravofly Rumbo offered $120 million for it – even though that is just 10% of the price they paid.

Bravofly Rumbo gained black marks from us about the way they display flight prices. The company was floated this Spring at a price of 45 Swiss Francs. The company issued a warning some weeks later complaining about a “sudden increase” in competition which would affect them. We watch the travel market very carefully and did not notice any sudden outbreak of heavy competition during this period. The shares are now trading at around 16 Swiss Francs.

Hardly a case of two major companies coming together to create a giant. More Arthur Daly making a knock-out bid for Del Boy of Peckham.

Goodbye Intourist

What do you do when you have a long-established, instantly recognisable name which, maybe, does not sound quite as modern as you would like?

Well, Intourist’s UK company has decided that the best thing to do is to ditch the name and now they want to be known as IntoRussia.

Personally, I have very mixed feelings about this. I made my first trip to the old Soviet Union when I was 18 with Intourist. That was many years ago and, of course, the image of grim hotels and unmoveable bureaucracy has stayed in my mind but if I can accept that the Aeroflot of today is a very different company from the old Soviet version, surely people could accept that today’s Intourist is very different to the old one?

The company has major advantages over its competitors and these are all linked to its long history. They have the most connections, the most experienced staff and – crucially – are able to handle the tortuous Visa application process for their clients. We would not normally suggest using a travel agency for a three-day city break, either on business or holiday, but the advantage of using Intourist, and its extensive back-up, makes it almost a no-brainer. Whether the company likes it or not, the Intourist name is synonymous with travel to Russia. Indeed, the rest of the group’s extensive worldwide operation (including the Russian offices) look as if they will continue to use the old name.

I can see why the change of name might be appealing to the managers of the UK operation but the prime reason for using Intourist ahead of all its competitors, is the history of the company. Ditching the name looks rather a backward step.

 

Another one disappears

It would not have been a surprise for readers of Inside Traveller to read the news last week that the charter airline, Strategic Airlines had gone into administration.

The carrier, which was officially based in Luxembourg, started in Europe a few years ago and had a bad first season in France where it received many complaints. They withdrew from France and entered the UK market. Initially, we warned against against using them because of their poor reputation for timekeeping and service. Then, early this year, the so-called parent company in Australia (originally called Strategic but re-branded as Australian) went into receivership. The European company was very keen to stress that everything was fine since it was quite separate from the Australian organisation – except that it appeared it was actually owned jointly by the Australian company (in receivership) and its founder which did not look very “separate” to us. This, together with their poor reputation, seemed to suggest the future for Strategic in Europe was fairly bleak. Strategic was high up on our list of “airlines to avoid”.

Strategic joins a rather long list of failed charter airlines, including XL, Viking and Viking Hellas that have been used by tour operators specialising in Greece. The charter market in the UK is very limited because many tour operators just will not pay enough. They are turning more and more to small foreign airlines, often from the old Eastern Europe. Not all of these are bad airlines but the tour operators really need to display a lot more care in choosing airlines. Bad service and delays cause problems for the tour operators and customer complaints – and sudden bankruptcies can be very costly for the tour companies as they have to scramble to replace capacity. 

It is time some of the tour operators woke up to the risks they are running by depending on questionable airlines.

Beware of special post-Olympic travel deals

The travel trade has been getting very excited about today.

They seem convinced that, the moment the Olympics end, people’s minds will suddenly turn to holidays. Every company has its post-Olympics specials lined up or, as one company stupidly calls them “post-London event super-savers”, as if the Olympics was a religious name which might offend minorities. This seems to be based on the Gerald Ford principle that people can only do one thing at a time. I just wonder if this is true – surely it is just about conceivable that even the most sports-minded person could tear themselves away from watching the television to think of a holiday.

The travel trade often run promotions over public holidays (August Bank Holiday is a regular period for airlines to launch Sales, for example) but I think parts of the travel trade are being rather optimistic about what they imagine will be a sudden rush of bookings over the next few days. It is quite likely that some of the supposedly special deals will not be as special as you imagine.

It might be worth looking at any deals offered next week especially carefully. I would not be surprised if many companies have to come up with rather better offers towards the end of August.

Hotel Agents and the Unsubtle Art of Extortion

I am delighted to see that the OFT have at long last woken up to the serious problems being caused by hotel agents and the anti-competitive agreements they force hotels to sign. The small UK agent, Skoosh, has had a complaint against Expedia, Booking.com and IHG Hotels (the Intercontinental/Holiday Inn group) upheld and the matter will now be investigated more thoroughly. This is only the first stage but it is an important hurdle and, hopefully, now the issue is out in the open, a solution can be found.

Skoosh and its slightly eccentric (a compliment) boss, Dorian Harris have been one of the very few voices in the industry to raise concerns about this abuse. I have been writing about it for years and I suspect readers of Inside Traveller are a little tired of hearing my complaints. Hopefully, others will now join in.

When you go to an on-line agency to book a flight ticket the agent will take around 1% commission from the airline assuming it is a normal published fare. They actually earn rather more than this with various bonuses and loadings but the amount is small – but then so is the effort required.

Book a hotel with the same agent and they might get 25-30% commission. The same, minimal effort but much, much more money.

What is worse, the big agents (Expedia, Booking.com and others) force hotels to sign agreements that they will not sell rooms at a lower price themselves or through any other agent. Smaller agents, such as Skoosh, would love to discount their commission to get a competitive edge in the market but, if they try this, it is likely the big chains will cut off their supply of rooms.

I cannot understand why this issue has not been addressed before. It originated in the US where anti-trust legislation is sacrosanct. They fine airlines tens of millions of dollars for alleged collusion on fares but hotels and agents are allowed to maintain a cosy relationship which is ripping off the consumer by tens of millions a year.

Skoosh argue that the solution to this is to allow agents to discount their commission but I think the problem should be tackled in a different way.

It is fundamentally wrong that the middle-man in the process of booking a hotel is earning so much. If agents can book flights for 1% (plus a bit), then 10% is surely more than enough for a hotel booking. 25-30% is a lunacy.

Expedia announced its quarterly results last week and commented that its flight sales were stable but that hotel sales were very healthy. Hardly surprising, is it?

Hotels are keeping on-line agents in business.

The reasons for the huge difference in commissions is simply that the agents can get away with it.  The hotel business is fragmented whilst the airline business is really controlled by just a handful of companies. The airlines moved more or less together to reduce commission levels and there was not much the agents could do but, even if Hilton, IHG, Sheraton and Marriott worked together, they would struggle because there are so many independents and smaller chains around. Divide and rule (plus water-tight contracts) are making the agents very fat indeed.

But the hotel agents aren’t the only parasites in this.

The agents are so keen to get this profitable business that they fight tooth-and-nail on the internet to get customers’ attention. This pushes Google’s pay-per-click bidding system to astronomical levels and means that the comparison sites can dictate terms to the agents they list. It is possible that half or more the commission earned by the agents is going to Google and the comparison sites.

Wasn’t the internet supposed to increase transparency, reduce distribution costs and lower prices? In the hotel business, the reverse has happened.

If commission rates were reduced to a maximum of 10% (I would prefer 5%), there would be less money for the agents to throw at Google and the comparison sites. This is simply wasted money.

If an agent can negotiate a special deal with a hotel for pre-paid or limited-time bookings and actively promotes the hotel in markets that it could not reach, then the consumer is winning and so is the hotel. In this instance, the agent should be able to set their own margins. However, charging up to 30% to book standard rates, and insisting the hotels cannot even do any last-minute deals direct with guests, is completely unjustifiable.

If you stay in a hotel, whether you like it or not, the rate you are paying is keeping Google in clover and maintaining the outmoded business model of a group of parasitical agents.

Extortion – pure and simple.

Beware of so-called experts

There is an old Fleet Street joke that you can always spot the financial editor of a paper because he will be the one with the oldest car and scruffiest clothes. Unfair perhaps, but one must wonder, if these people really know so much about the subject they are covering, why they are not putting their expertise into practice and making money in business rather than surviving on a journalist’s more modest salary.

Newspapers and the internet are awash with people giving “expert advice” but do we ever look at whether they are qualified to give this?

Last week, the flight agent, DialAFlight, put up a post on their blog saying that travellers to Greece should go through their Euro notes and ensure that they take any Greek-issued Euro notes to a bank outside the country to be changed for other Euro notes since these “Greek Euros” would lose their value in the event of Greece’s withdrawal from the Euro.

This is completely wrong. A Euro is a Euro and that is that. The post was scaremongering at its worst. DialAFlight did at least have the sense to withdraw the post and put up a rather disingenuous comment saying they had taken it down because they did not want to put people off travelling to Greece. It might have been too much to expect them to admit they did not know what they were talking about.

But why would anyone want to go to a flight agency for advice on international currency?

Apparently, Simon Calder of The Independent newspaper thinks DialAFlight are international currency experts because he reprinted their story – and it is still up on The Independent’s website!

The Independent has perfectly sensible Business journalists who could have told Mr Calder this was poppycock. Indeed, the editor of the paper, is himself an ex-Business journalist who surely knows this is wrong. One would have hoped that the newspaper’s sub-editors might have spotted the error. Why this nonsense is still displayed on the newspaper’s website is anyone’s guess.

Instead, a story that is almost wilfully misleading, is repeated in a supposedly serious national newspaper. If you want advice on international currency, you should look at what the banks or currency specialists such as Caxton, are saying. You would not expect your postman to give advice on brain surgery so why should we listen to travel journalists on subjects way outside their level of supposed knowledge?

 

Thomas Cook – Rewards for Failure

Readers of Inside Traveller will know that for some years we have been warning about the lowering of standards at Thomas Cook. A name that once symbolised quality had become tarnished long before its financial problems became clear. Virtually every indicator suggested the company was being badly-managed and in a downward spiral – the sinking share price, the poor time-keeping of the charter airline compared with competitors, the level of complaints about holidays and even the productivity of the charter fleet (their aircraft fly fewer hours per day than competitors). Life is not easy for package holiday companies because much of their market is disappearing but, in the same period, TUI has done well financially and enhanced its reputation for quality.

It has also been clear that much of this was the fault of the boss, Manny Fontenla-Novoa. His answer to the company’s problems seemed to be constant management changes and a buying spree of other companies which led to huge borrowings. Crucially, little was done to integrate the many new companies purchased so the group did not gain as it should have done. Other travel groups have made great strides in buying up names, integrating the back-office whilst maintaining a separate brand and customer identity.

So, what was the Board’s reaction when Mr Fontenla-Novoa’s did not seem to be working?

They simply paid him more! In the last four years, he received an extraordinary £15m in pay and bonuses. Three years ago, institutional investors protested against a £5m bonus paid but this did not stop the Thomas Cook Board and its Remuneration Committee who continued to award further generous bonuses.

The acting Chief Executive has now admitted that the company was badly managed, That is an understatement. There are vague threats to make some form of claw-back of money paid but that seems unlikely to succeed.

A more appropriate route for claw-back would be to pursue the members of the Remuneration Committee and the Non-Executive Board members. What on earth were they doing? It is one thing giving a man you trust more time to follow a strategy – even if many outsiders can see all too clearly that it is going wrong – but continuing to shovel money at the people responsible before there is even a glimmer of light at the end of the tunnel is highly irresponsible.

Now, Thomas Cook is effectively at the mercy of the banks. Rather than let the company go bankrupt, it is better for them to organise an orderly sale of most of the parts. Whether anything will remain at the end for shareholders is anyone’s guess.

It is easy to vilify Mr Fontenla-Novoa but the real guilty party in the destruction of Thomas Cook is the Non-Executive Directors who so obviously failed to protect the company and its shareholders. 

Does someone at Thomas Cook read our blog?

Last week we said it was time for Thomas Cook to stop its constant management and strategy reviews (and associated profit warnings) and tackle its real problem by changing the man at the top.

The company has now announced that Manny Fontenla-Novoa has resigned with immediate effect.

As we said, Mr Fontenla-Novoa originally did quite a good job bringing together the battered MyTravel and other parts of the group. Unfortunately, he totally failed at changing the culture and allowed the dodgy market-trader style of MyTravel to take over the whole group. TUI has faced the same challenges as Thomas Cook but has thrived by concentrating on offering a better quality product.

It is simple – be good to your customers and you will thrive. Mr Fontenla-Novoa has learned the hard way that the reverse also applies.

It is possible to have a perfectly good holiday by booking through one of the many Thomas Cook brands. However, we are sure that your chances are higher by using TUI instead.

The new management need to make substantial changes to the culture of the company. In time, there is no reason why this cannot be a good company again but, for the moment, we suggest you look elsewhere.

Thomas Cook – Time for a new broom

Thomas Cook hit the financial headlines last week because of yet another profit warning. The City has been promised an improvement in the company’s performance for some time but it seems that it is still some way away. Meanwhile, the company will yet go through a strategic review and change its middle management.

That sounds like the wrong answer.

Manny Fontenla-Novoa initially did a good job in combining a number of companies around Europe, the ruins of the MyTravel organisation and various other UK brands including Thomas Cook but the group has long since run out of steam. The City can study the figures as much as it likes but there is an easy way to judge Thomas Cook. It might be simplistic but so often it is true that good companies please their customers and make profits. Bad companies do not.

Thomas Cook has traded on the good name of the venerable Thomas Cook but has often appeared a little underhand and downmarket – rather like the old MyTravel.

- Sadly, we were not surprised that it was Thomas Cook who were named as the company increasing its profit margins on its exclusive hotel deals for the Olympics.

- Nor is it a surprised to see that the Thomas Cook airline is consistently less punctual than its two rivals, Thomson and Monarch,

- Thomas Cook is blaming the Arab Spring for the current profit warning. Yet they were much more aggressive with customers who had booked holidays and wanted to change them than TUI. And TUI have not issued a profit warning.

- Thomas Cook’s fuel surcharges are substantially higher than TUI’s – TUI hedged their fuel and Thomas Cook did not.

We could go on – and on.

There is simply too much evidence that Thomas Cook is badly-managed – and that means a change is needed at the top, not a shake-up of middle management.

Until that happens, and a new broom gets to work, if you want to use one of the major tour operators, use TUI.

Intelligent Marketing from Travel Republic

We encouraged readers to support Travel Republic in their quest to gain 100,000 followers on Facebook by last Friday. The company had promised to give £25,000 to Children in Need if they succeeded.

As we pointed out, the company should be able to get back its money quite easily if even only a few of their new followers are encouraged to book with them. So many companies try to get people to sign up for mailing lists, or Twitter and Facebook accounts without giving anything in return  which is absurd considering the normal commercial price for acquiring active clients.

In the end, Travel Republic did not quite meet their target but they played fair and donated the full £25,000 – and gained some more rather helpful publicity in doing so.

For once, this was an intelligent approach to list-building and one where everyone won so well done Travel Republic!