13 July 2011

Agents Tell Cooks & TUI To Hold Nerve - Are They Mad?

Agents in the UK on the back of a profits warning from one of the big two UK Travel players - Thomas Cook are encouraging the company and its bigger rival TUI to hold the line on pricing and not to discount so reports TTG.

As usual in a situation like this - the knives and the pundits come out. Blame is being splashed around. But the fundamental reason for the problem is too much capacity and too high prices.

Well welcome to the world of the open market. Cooks and the market got it wrong. The expectation is that magically that by Cooks holding the line on pricing the market will respond positively and then the problems will go away. Well that is a load of horse manure.

The clear problem is that there is excess capacity in the UK market and that is not going to get better for a while. The decline in traffic across all sectors as well as a flight away from the traditional bucket and spade brigade - is hurting the traditional VTOs. This is not a new phenomenon. It has been ongoing for some time. The decline away from the traditional package holiday is begining to plateau but with so few people taking this type of holiday - its no longer as relevant. The peak was 18 million pax in the early 1990s - now that comparative number is down to about 3 million. While the unbundled model points to a larger use of the resources inside one of the big two - the total pax is now much smaller. In my view the big two didn't move fast enough to migrate to the more consumer appropriate model a la carte services. Low Cost Carriers managed to eat away at everyone's market share. The days of infinite growth are over. Ryanair has actually been judicious and has pulled back capacity form STN. For whatever reason - this has benefited their bottom line. The big two could have thought that this would mean they could recapture customers.


So now there should be significant discounting or the inventory will just go to waste. There is a big need to stimulate the UK market and the only logical way to do that is by price. That means in my view slashing prices.