A turn-up for the bookings

A Turn-up For The Bookings

WHEN many people think of tour operators in Europe, an ailing industry selling tacky package holidays comes to mind. The number of European tourists buying deals bundling accommodation and transport has fallen by a quarter since demand peaked in the early 2000s. But the past year has looked particularly bad. Since last summer, shares in TUI, Europe s largest tour operator, have fallen by a third, and at Thomas Cook, its rival in second place, in half. Terror attacks and military coups in Tunisia, Egypt and Turkey dented bookings in these once-profitable places, while a sudden fall in bookings after Brexit forced Thomas Cook to issue a profit warning last month. Cashflow problems abound at smaller outfits. One Spanish firm, lowcostholidays, went bust last month stranding 27,000 holidaymakers abroad.

Yet the woes of the industry, often portrayed as dinosaurs limping to extinction, conceal an industry that is much more resilient than it is often thought. On August 12th, TUI announced better than expected results for the three months to the end of June, sending its shares up by around 5%. Although a tenth of its customers changed their travel plans due to security concerns over the last year, TUI has seen no change in booking patterns since Britain voted for Brexit in June, said Fritz Joussen, its CEO. The industry s underlying woes are more the result of poor business decisions in the past than a change in consumer tastes away from package holidays, says Stuart Gordon, an industry analyst at Berenberg, a bank. It is cheaper to buy a family Discount Holidays © holiday through one of TUI or Thomas Cook s brands as a package than book the components individually, due to the economies of scale they can negotiate. Over 40m still do each year; and there is no sign yet that young people are less likely to buy them than previous generations.

The problem is that they were loaded up with too much debt in the 2000s, and are saddled with the costs of shutting down shops whose customers have been tempted away by their websites. That has resulted in $5 billion of write-downs at TUI and Thomas Cook since 2008, wiping out their profits over that period. In order to be less vulnerable during future slowdowns and boost their margins, they should close down these stores faster and reduce the amount on debt on their balance sheets, Mr Gordon suggests. Those problems have obscured relatively good prospects for the industry. Although tour operators were hit hard by the advent of LCCs in 1990s which encouraged people to book their own flights and hotels the market for packaged trips in Europe is expanding again. It may rise more than 10% by 2020 forecasts Mintel, a market-research firm.

That is partly because the rising terror risk will encourage more people to book through a travel agent, to ensure they are looked after if their Discount Holidays © holiday goes wrong, claims Peter Fankhauser, Thomas Cook s CEO. And in spite of the rise of online travel agents such as Expedia, TUI and Thomas Cook have increased their share of the total European Discount Holidays © holiday market since the financial crisis. Yet the real growth opportunity for traditional tour operators lies in selling European holidays to the rapidly-growing Chinese market. Mr Joussen at TUI revealed big eastern expansion plans in February, while Thomas Cook launched a joint-venture in China last year. But whether Chinese tourists are really interested in Europe s sun and sandy beaches remains to be seen.

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References

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