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The Path Toward One TUI Brand
The announcement last week that TUI, Europe’s largest travel company, was embarking on a program of action that would ultimately do away with two of the most venerable travel brands in the UK—Thomson and First Choice—and merge all of its travel operations into a single brand focused attention so much on the British face of the news take that it seemed to de-emphasize other developments covered during a session with journalists during which Peter Long, TUI’s chief executive, gave a capital markets update—an event that is regularly covered by the financial and travel trade news media. Our re-cap of issues that were discussed during the update includes the following items:
- The immediate focus for the TUI Group, he said, would be growing the business by taking more customers on holiday with its core brands and maximizing earners from its specialist brands. TUI is in a ‘huge position of strength’ with access to 20 million customers; it is number one or number two in each of its source markets.
- Long confirmed that TUI plans to sell its discounted accommodation brand, Laterooms.
- TUI’s migration to a single brand across Europe affects Thomson, First Choice and more than 70 other brands in the UK alone.”It will be a very staged approach.”
- The rebrand will start in the Netherlands in September, followed by France, the Belgium and finally the Nordics and the UK.
- A tui.com/uk website has already been launched to help achieve Google rankings ahead of the rebrand. (INBOUND tried to connect to the site, but was unsuccessful.) There are no plans to sell off its Hotelbeds operation. Long said Hotelbeds is “a clear global market leader in a segment that we find very attractive and we’re going to continue to build and invest to ensure that business continues to grow at the levels that we’ve seen over the last few years.”
- Long said that some B2B divisions, such as bedsonline, remained part of Tui’s plans and that the company was in “no hurry to do anything.”
The Origins of Rate Parity: Does it Mean Price Fixing or Brand Integrity?
Given the credentials and background of the two panelists who carried on a colloquy over the issue of price parity—industry veterans Uri Argov, founder and CEO of Tourico Holidays, and Bob Gilbert, vice president, sales and marketing at Exotics Racing, whose experience also includes tenures as vice president, worldwide marketing and sales at Best Western International and vice president, worldwide sales and intermediary marketing, Choice Hotels—delegates at the Inbound Symposium during NAJ’s RTO Summit last week in New York City got the feeling that they were watching two top tennis professionals playing for match point at deuce, with neither able to gain the advantage.
Neither Gilbert nor Argov disagreed over a basic definition of price parity: the practice of hotel chains or brands establishing a room rate at which no third party—whether online travel agency (OTA) tour operator or aggregator—can sell the room at less than the company-established rate. The way in which they framed their description of the practice, however, helped those who listened to their dialogue understand why they held so fast to their perspective.
The Background: Argov traced the practice to the period immediately following the Sept. 11, 2011 terrorist attacks in the United States and the devastating impact they had on the hotel industry, which experience all-time low occupancy rates. He explained that some hotels gladly released their distressed inventory to the then emerging online travel agencies (OTAs), who then began offloading the rooms by underselling the rate at which the hotels sold them. “Hotels imposed a rule then,” recalled Argov. “Anyone’s who going to sell below our price will be charged.”
Gilbert, meanwhile, placed the start of the practice to a decade earlier. “It existed before—not in the leisure market, but in the corporate market not the leisure market, in the form of Best Available Rate,” he explained. For purposes of marketing and promotion, this enabled hotel chains to guarantee potential clients and customers that they could match any rate offered by any other party.
And now? Argov said that “parity is being imposed by the chains as never before.” Hotel chains are doing so by claiming that they “are protecting our integrity … protecting our name, when, really, they’re protecting their business.” But Gilbert countered, “At end of day, it is really about hotels and the guests and the relationship between the hotel and its guest. Who owns the guest? Over the years, we’ve seen an erosion of the relationship. Even those words are cold. That is not what hospitality it is about. It’s about the relationship between the hotel and the customer.”
Who Owns the Hotels? Woven throughout the points Argov made was his contention that the hotel chains do not actually “own” the properties or assets under its corporate brands. It used to be that the actual owner was the owner of the asset, not just the brand name. So, under those circumstances, he reasoned, “Whenever you own the asset, you have the freedom to control conditions … You can say ‘ These are my rules, these are my conditions ..If I don’t like it, I’m not going to do business with you.’
When it comes to hotels most the chains do not own the asset, he asserted, “they are distribution companies. … they are not the owner, they sold the assets to another party.” Franchisees, own the assets. Under such circumstances, Argov seemed to argue, the practice of imposing rate parity represents an illegal agreement between owners. It represents price-fixing, he said, which is a violation of U.S. anti-trust laws.
Gilbert strongly disagreed. While conceding that “there is a vast difference between a franchise chain and an independent hotel,” he contended that, using the Wyndham New Yorker, host hotel for the RTO Summit, as an example, “There is an ownership. There is an asset owner to any property … they have financial targets … they have to deliver … they are highly motivated to be successful. The choice as to who a hotel chooses to do business with has changed … most understand the channel mix …they understand the choice … there isn’t one price according to market … or according to season. At the end of the day, what hotels want is for a loyal customer to book direct.”
The Impact and Role of OTAs: The one issue on which the positions of Gilbert and Argov intersected, in part, was over the presence and impact of OTAs. Argov, who forcefully made the case that price parity thwarts competition on the marketplace, wondered skeptically about how much competition there really is among OTAs on the marketplace, as he pointed out that just two groups, Expedia and Priceline, control the brands that transact the overwhelming majority of OTA sales volume. He readily pointed out that Expedia owns Travelocity, Hotwire, Hotels.com, Trivago and now Orbitz, while the Priceline Group owns Priceline, Booking.com, agoda.com, KAYAK as well as rentalcars.com and OpenTable.
Asked by panel moderator Jeff Hentz, who is NAJ’s chief advisor, if this helps the consumer, Argov answered emphatically, “Absolutely not!”
Sounding a little like Argov, Gilbert pointed to the case of Europe, where third part sales or business in hotel bookings is roughly 65 to 70 percent of the total (vs. 40 percent in the U.S.) and were that to grow, “it would be catastrophic … there is no competition. We become sedentary.”
What the Future Holds: Argov was consistent in declaring that an open, free and unfettered marketplace was necessary for competition, while Gilbert maintained that there are ways to compete—even with price parity as part of the bargaining framework (“Rate parity is a floor. How can you overcome rate parity? There are creative ways of having rate integrity … you bundle … you have free Wi-Fi… free breakfast… health club .. non refundable bookings.”).
Seven Trends to Watch for at ipw in Orlando
As we lead up to the industry’s largest and most important trade event, INBOUND REPORT offers its take on this year’s trends.
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The weak Euro will depress bookings in the key country markets (Germany, France, Italy and Spain) of the Eurozone: Our estimate is that bookings from the Eurozone nations will be off by two to four percent in 2016. Here’s why: Most of what the INBOUND REPORT has gleaned from its community of U.S. based tour operators/international distributors, subscribers and major trade shows we attended of others, as well as its own events, suggests that the free fall of the value of the euro vs. the U.S. dollar since the last ipw will finally have an impact on 2016 bookings.
At mid-May 2014, the euro was pegged at US $1.37. It then fell 23 percent (to US $1.06) as ITB took place in Berlin a little more than two months ago. By mid-May this year, it had floated upwards to $1.12—still down from its level of a year ago.
Click on this link for an up-to-date presentation of the euro’s trend line vs. the U.S. dollar over the past year: https://www.ecb.europa.eu/stats/exchange/eurofxref/html/eurofxref-graph-usd.en.html.
What, exactly, will the impact of a 10-to-20 percent year-over-year decline in the value of the euro vs. the dollar mean? Carol Rheem, vice president, research and analytics at Brand USA, told a March 12 meeting of the organization’s board of directors that, for every 10 percent decline in the value of a currency vs. the dollar, there is roughly a two percent decline in visitors, which suggests a two-to-four percent decline in visitor arrivals from markets in the Eurozone. “We do expect to see some impact on arrivals for the next year,” said Rheem, adding, “We are expecting lower arrivals.”
And during a panel discussion regarding the euro-dollar exchange rate and its impact on business at the recent NAJ RTO Summit in Manhattan, Uschi Brunner, director of groups and incentives for New World Travel and Janice Becker, managing director, Reis Tour & Travel-RTT Services–indicated that there was sense among receptive last year that Euro was and would soft against the dollar, and both companies began taking hedging actions.
For New World, which is a part of DerTour, the second largest travel company in Germany, it has meant diversifying into Scandinavia, Brazil, Australia … and “a little in the Middle East.” It has also meant, Brunner and Becker said, servicing smaller groups and relying more on CVBs to find new product. They are now asking hotel partners to maintain group rates at groups as low as five passengers.
DerTour, TUI and Kuoni-owned brands will not be impacted in summer 2015 for escorted or FIT as their ability to hedge may result in having the lower prices than those of OTA’s or smaller operators who did not hedge.
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The impact of ceaseless in-country promotions by Brand USA, a massive investment in a trio of new tourism attractions in Orlando by UK-based Merlin Entertainments, an explosion in the number of British tour operators attending ipw, along with the elimination of its costly Air Passenger Duty for British children who travel overseas, will result in increased business from the UK next year.
Orlando is already the number one destination for British travelers to the USA many of whom traditionally stay two weeks or longer . The number of tour operators coming to ipw is at an all time high (170 vs. 123 five years ago). Also, a group of travel agents is taking part in the second Mega Fam trip that covers destinations in 22 states.
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A huge increase in the number of tour operators from China may be enough to help push the double-digit annual percentage increases in passenger arrivals from the country to another year of record growth in arrivals. Malcolm Smith, the U.S. Travel Association’s senior vice president of business development and general manager of ipw told delegates to NAJ’s RTO Summit in Manhattan earlier this month that there was “an explosion” in the number of tour operators from China coming to ipw in Orlando—from 17 five years ago, when ipw was lat held in the destination, to 109 this year.
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A concerted push by Brand USA, U.S. suppliers and second- and third-tier destinations will succeed in convincing overseas visitors to go “beyond the gateways” and include smaller and lesser known cities and regions of the USA. One indication of this outreach is the 2015 Mega Fam 2 for the UK trade this month which is providing more exposure for destinations beyond the gateways. The fam trip for travel agents, which is being conducted in partnership with British Airways and American Airlines, will be visiting many second- and third-tier destinations. The Mega Fam has stops in 22 states, 12 of which have not previously been included in the Mega Fam itineraries. The challenge for these destinations will be convincing (and educating) hoteliers and attractions to offer tiered rates necessary to attract international wholesale interest.
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Watch for More niche markets as operators look for what’s new and hot. LGBT, MICE, “farm stayers” and adventure travelers, to name a few—and make their numbers a more significant component will be more apparent this year. For example, although a significant and important segment in the inbound leisure travel mix, LGBT travel first had a visible presence at the show with space in the concourse at the Las Vegas Convention Center during the 2013 ipw in Las Vegas. And now, gay-themed tour operators are an integral, and growing, part of the mix. As for the MICE segment, ipw general manager Malcolm Smith has pointed to an increase in the number of MICE operators. From France, for instance, where the number of buyers in the leisure market has remained stagnant, the number of MICE buyers is up to 14 (vs. none five years ago).
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The Ability to Register for the Global Entry Program at ipw is a welcome Service for Industry Road Warriors. Perhaps most interesting example will take place at the booth of U.S. Customs and Borders Protection (CBP) officers will be on hand Monday through Wednesday to conduct in-person enrollment interviews for CBP’s Global Entry Program. Global Entry allows expedited clearance for preapproved, low-risk travelers upon arrival in the United States. Participants may enter the U.S. using automated kiosks located at 42 U.S. airports, and 12 preclearance sites in Canada, Ireland, Abu Dhabi and Aruba. Those interested can get the process started by first going to http://www.cbp.gov/global-entry/about and enroll.
Crashing the San Francisco Travel party. If you haven’t received your invitation to the “partito di tutte le parti,” the late Tuesday night soiree at the Hilton Orlando hosted by the San Francisco Travel Association, it means that you did not make the cut for the most sought-after social function ticket at ipw. We’re not sure how they’re authenticating invitees this year, but there were unsubstantiated rumors that SF Travel team members would be standing by with cotten swabs for DNA testing this year. Read the INBOUND REPORT for our take on the event, along with (for the first time, due to our new format) any photos that are suitable for viewing.
EDITOR’S NOTE: Inbound readers are welcome to visit NAJ staff at www.THETOUROPERATOR.Com booth at IPW (booth 855, next to Disney). Also, watch for THE TOUR OPERATOR, our annual state-of-the industry magazine, which will be distributed with Monday’s ipw Daily.
TUI to Dissolve Thomson, First Choice and other Brands in Favor of Single TUI Über Brand
Using the occasion of its announcement that it has cut its losses, Europe’s largest travel company, the TUI Group, announced that that it plans to drop the UK’s First Choice and Thomsonbrands, as well as other brands in its portfolio. CEO Peter Long said an overarching Tui brand would gradually be phased in over the next couple of years. “We will build on our global brand and we will do this by migrating our brand in a phased and measured way to one brand—the Tui brand,” Long said, adding, “We will start with some of the smaller markets, initially in Holland and France and then on to Belgium the Nordics and the UK.”
Overall, Long said, it would take two to three years to migrate all the brands, with the UK coming last. He explained that the company will finance the move to one brand “through operational efficiencies and further additional revenues.” Thomson is one of the UK’s largest brands, having been created 50 years ago this year. First Choice was originally launched as Owners Abroad in the 1970s, re-branding in the 1990s.
In addition to First Choice and Thomson, TUI owns more than 70 other smaller brands in the UK, including Crystal, Hayes & Jarvis andSovereign. The announcement also comes in the wake of the merger late last year of TUI with parent company TUI AG, resulting in an integrated tourism company that owns hotels, a cruise line and various other products globally.
INBOUND INSIGHT: At least in the UK, industry members believe that this is a move to consolidate purchasing and marketing from an unwieldy 70 brands smaller brands to give them greater efficiency and negotiating leverage to play hardball on product development pricing. The downside is that one brand may not fit all.
The announcement did not generate unanimous praise. One skeptic commented on the TTG article reporting the move:
“Theodore Levitt in his book ‘The Marketing Imagination’ warned against the tidy mind marketeer . This change clearly from the tidy mind marketing department , will do no harm but waste a lot of money and effort for no real gain. Also it will then result in a centralised marketing view and thus result in less effective marketing in the source markets . Thomas Cook wasted a load of money rebranding as well!”
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