Saturday, March 18, 2017

Arguing Over Price: Hotels v. Tour Operators

The hoteliers and the tour operators have been at it. Rather, they were at it a week ago in Berlin. The hoteliers haven't let things lie, though. They've been keeping things on the boil.

This is an unseemly spat between the two primary institutions of the tourism industry. Or are they? It is a row which does at least owe something to the diminished roles of both. The hoteliers are assaulted by Airbnb. The tour operators carve out nothing like the percentage of the market they once did. It was a Mallorcan hotelier who called Tui a dinosaur this week. He could have said the same about his industry.

It is a row which on the surface is easy to figure out. Mallorca's hoteliers up their prices. The tour operators say their customers (Germans) can't afford these prices. It is less easy to figure out when one goes beneath the surface of the headlines. These are the same tour operators which were grabbing all the places that were available for this year because demand was going (is going) to be so high. The hoteliers said as much, and they were only too happy to tag along. Get exclusive deals, and the job's done.

The beef with the hoteliers' prices didn't just suddenly arise in Berlin last week. If it had previously, then it was when contractual arrangements were being made for this year. They weren't made in Berlin; they were months ago. The tour operators knew the prices, especially their UK divisions. What was it that the hoteliers intimated? If the UK tour operators don't like our prices, we'll sell to tour operators from elsewhere. The German wings seemed only too happy to oblige.

The statements by the tour operators can be explained in different ways. One is that they genuinely are aghast at the higher prices, though this takes some accepting, given that the prices have been known about and factored in. The second is that the tour operators are telling consumers that they shouldn't blame them for higher prices; it's the hoteliers' fault. The third is if the tour operators haven't passed on the prices. If not, then their margins are seriously eroded.

The likes of Tui and Thomas Cook took big hits last year, mainly because of Turkey. It was noticeable that Turkey wasn't being bigged up in Berlin; it was Egypt. That destination may be recovering, but it is still only a modest recovery, and the tour operators have admitted as much. Turkey remains flat, and they know it, because again their own figures suggest this.

Mallorca helped to salvage tour operators' 2016 summers. With the hoteliers seeking payback for the profit flatlining which occurred for several years of crisis, they decided to over-indulge themselves this year, content in the knowledge that the tour operators had been saying all the right things; which they had been. There wasn't going to be a sudden massive revival in the eastern Med trouble spots this summer.

The tour operators, meanwhile, were needing to recoup 2016 losses. With hotel prices going up, the potential for doing this was reduced, if these prices were not wholly passed on. Their spokespeople will have had shareholders whispering in their ears. Senior management will have been taking some fright. One might recall the bashing that Thomas Cook took from shareholders over salaries, especially given the losses it reported.

Both parties have therefore been engaged in the politics of tourism - their own. Ultimately, they both need each other, but different dynamics have changed this historical relationship. There are more holidays for sale than there were twenty years ago, but the tour operators' share of the market has dropped significantly in relative terms. The hoteliers, if not tied by exclusive deals that the tour operators have signed, have the direct channels to sell through or the online agencies.

The relationship may have been weakened, but in another way it has been strengthened, and that is through the investment which tour operators have themselves poured in to hotels. They are not about to see that go west. And the hoteliers, meanwhile, protest that investment (from whatever source) has been made so that quality is raised. The price-quality ratio has therefore been raised: both the price and the quality. Unfortunately for the hoteliers, surveys don't necessarily bear this out. Mallorca's quality hasn't, when tourists are surveyed, leapt up. And this can partially be explained by all the tourists who have been "borrowed" from Egypt and Turkey. They have experienced quality-plus. Mallorca is playing catch-up with quality.

The hoteliers and the tour operators will stick to their sides of the argument, aware that they still have a reliance on each other.

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