The failure ofThomas Cook, a huge travel brand, should be a warning to all tourism companies about the dramatic changes in tourism today. The lessons from Thomas Cook’s failure should not be ignored. In this summary, we look at several news sources and analyses. The company cites the instability of some prime destinations as the cause of the financial burn. But the business model has been in decline for some time and many other factors have added to the problem. Not least of these is the Digital Revolution.
From Trains to Planes & Bricks to Clicks
From its early roots of organizing rail travel around the UK in 1841, TC jumped into the world of international travel, buying MyTravel in 2007. To compete with Online Travel Agents (OTAs) and its arch rival TUI, the company needed to invest heavily in building up its IT. That turned out to be far more complex that anticipated. A £100 million project with IBM ran into trouble while undertaking the massive task of integrating the many brands.
The marriage of online and retail was an obstacle that OTAs did not have to worry about but it put TC at a disadvantage in adapting to the competition. It also led to confusion and lack of clarity in its digital media. The project was abandoned in 2011 with £86 million in losses.
Digital Technology – Changing Faster Than Thought
It’s hard to believe that, after all of that, the company leadership still believed that they could compete and beat Expedia. That objective was pie in the sky and the digital marketing ambition failed. In 2018, the company concluded that building an online booking engine was more difficult than expected. It was not just about the booking engine, the entire marketing system had to compete with the growing sophistication of the OTAs. The systems and digital marketing technology were dynamic and always changing and they required insight and know-how to use them effectively. But that was not their forte. In that year, it agreed to use Expedia technology for its bookings. Source Phocuswire. That may have been a step in the right direction but it was not the solution.
According to Capx, “The main reason the company failed was its outdated business model. Thomas Cook offered comprehensive holiday deals which would include flights, accommodation, and transport to and from the airport. It could even organize your wedding. It was a convenient and affordable way to book a holiday. However, given the number of price comparison sites now available, the idea of popping into the local travel agent’s to speak to somebody about booking a holiday seems almost unthinkable”.
How Mindset and Status Quo Kill Innovation
It’s now clear that Thomas Cook misjudged the challenges of the new technology. It simply did not understand the digital landscape and miscalculated along the way. In the face of rapid change in technology, it is often the well-established that lose. Legacy systems do not change easily and the mindset around them is often deeply entrenched. Often stakeholders are blind to the threat and the need to innovate.
According to Joseph Schumpeter, when new disruptive technologies emerge, “the companies which do not adapt will be destroyed, but those that do will thrive.” Technology replacement represents progress. “Although there is destruction in the short term, there are also increases in productivity which brings economic growth and prosperity.” See more onSchumpeter’s Creative Destruction
It’s not that Thomas Cook did not try to reinvent itself. Turnaround Specialist, Harriet Green, came in as CEO in 2012, implementing ruthless cost-cutting. Her style did not go down well with the Old Boys’ Club of traditionalists. This is the perfect example of how legacy systems do not change easily: Mindset and the Status Quo Kill Innovation.
Failure to Adapt to The Digital Age
The UK Telegraph puts it succinctly when is states: Thomas Cook was ripped apart by the Internet! The idea that ordinary travellers can build their own customised packages with a few clicks was just incomprehensible to the Old Guard. But it gets far more complex than vision. It misjudged the level of effort and had a leadership that did not understand the new playing field.
Thomas Cook was never an innovative company. It put things together, created travel packages that were difficult for travellers to create themselves and made it all affordable. But by not trying to understanding the new media, it could not adapt. Maybe it could not have survived the Digital Age, as the new media was now doing a large part of its job.
Books & Training Abound
Perhaps the company should have invested in training its leaders in the mechanics of the new digital technology. Just buying an easy-to-read book that puts digital media into perspective might have been helpful. Hotel and hospitality managers, owners and tourism marketers simply have to know what’s going on with digital media. It is the prime media for marketing travel today and has overtaken TV and all other media.
A search on Google or Amazon for ‘digital media for hotels and tourism’ will show many titles. There is no shortage of excellent literature, training courses and videos.
Sample of Amazon’s latest Books on “Digital Media for Hotel & Tourism” – My Book is the one with the Apple. It the second in the series on Marketing Travel and follows WEBSITE, an Amazon #1 best selling book.
Struggling Under Massive Debt
TC was hoping to secure a £900M rescue package with Chinese tourism business Fosun, as well as with various banks and hedge funds. The investment would pay off £1.7BN of loans and free up cash to apply to operation and paying interest. But the banks demanded that it must find an extra £200m. “That is insurmountable!” they say. Alex Brignall, Travel and Leisure Analyst at City stockbroker Redburn, says that it’s very worrying as “September should be the best point of the year for the cash balance. The demand suggests the company has taken a big hit from all the negative publicity, and is facing additional working capital stress.” Investors were running away from the deal!
The reason why it got to the point of debt goes back to 2011, when it went to administration for support. The money it borrowed resulted in £1.2BN in interest. That’s more than a quarter of the revenue from the 11 million holidays it sells annually. It’s just not sustainable. A valuable brand and its assets were on the block.
The Role of Package Holidays
Some analysts point to the fact that the package holiday may have had its day and it’s a tired model that TC was struggling with. This is not entirely true. In fact, Thomas Cook says it’s a vital and growing sector. “The number of Brits opting for all-inclusive package holidays has increased steadily over the last four years and accounted for 65% of our bookings this summer.” Chris mentions some factors behind the trend including uncertainty over exchange rates and costs. In an ironic twist, he adds: “All-inclusive bookings for this winter are already up 11% compared to this time last year.” – Chris Mottershead, Thomas Cook Chief of UK.
Tour Operator, On the Beach, agrees. “Package holidays accounted for 91% of all bookings so far in 2019. Up from 87% for the same period in 2018.” Source: TravelDailyNews
It is true that there are many alternatives today! We have many discount airlines and online booking sites that make it easy for travellers to package a vacation on their own. It’s also true that many travellers today are looking for more unique experiences and travel brands big and small are working to personalise the vacation experience.
The point is that the the market is diversified. It accommodates many options and that trend will continue. The options are not mutually exclusive. Personalised packages are also a growing sector. The problems that Thomas Cook had stewing were far more systemic.
A Valuable Brand That Survived 2 Wars
Thomas Cook is one of the very few Victorian brands that still resonate today. It had survived world wars, recessions, takeovers, re-organizations and even Robert Maxwell as a major shareholder. It was just the wrong business model for today and was so entrenched in its legacy system and mindset that change was daunting. But, as The Telegraph explains, there were options. Service businesses can be successful by combining different services and products in unique ways. Apple bundled a phone with a camera and a music store. Amazon bundled a vast array of services with Prime.
The brand is valuable and the company owns a mass of assets. While it is wrapping up, it will be talking to buyers and investors and maybe someone will come up with the ideas that can see it reemerge. As noted in The Guardian, there may be “new lenders, as yet unnamed. Asset sales are also on the table, such as the sale of its Nordic business to private equity group Triton, which made a bid earlier this year. A taxpayer-funded bailout appears to have little chance of happening. Otherwise, Thomas Cook is fated to join the likes of BHS and Woolworths – household names that disappeared into oblivion.”
Immediate impact on travellers and jobs. 600,000 travellers scattered throughout various destinations wonder how they will get home. The British Government has deployed 50 aircraft and is airlifting about 150,000 travelers back to the UK. 22,000 people worldwide are no longer employed with the company. Replacements now need to be found for the many aircraft that will no longer fly for Thomas Cook. The Caribbean, for example, will have to replace over 400,000 travellers from the UK and Europe for the coming winter holiday season. Over 100 aircraft leased or owned (34 owned) by Thomas Cook are up for grabs.
On the upside, other airlines are expecting to pick up the business and already their stocks have jumped. TUI, Cook’s main rival, rose by 8% in anticipation of increased sales and EasyJet’s jumped by 4%, Similarly, other airlines have danced about and may do more dancing as the dust settles. Source Fortune.com.
For German travellers, Condor Airlines, the German division of TC, is expecting to continue operation with government funding for 6 more months. That will restore 200,000 airline seats to the Caribbean but there is no guarantee how much of that inventory will be sold.
Thomas cook will be missed by the thousands of hotel that have filled their beds over the many tears of operation. Hotels in Spain, Turkey and Tunisia which relied heavily on Thoma Cook are now scrambling to find alternative distribution and many may close.
Tourism Destinations Scramble
Photo by Pittsburgh Post Gazette
Destinations all over the world are busy trying to fill the gap left by the Thomas Fleet and its stream of traffic, especially coming into the winter travel season for Caribbean islands. Barbados was one of the first to meet with Thomas Cook’s stakeholders in the UK. Plans are in motion to find alternatives for the 24,000 seats now lost for winter holiday travel. The race is on to find other flight partners to pick up the slack. As always, that is a juggling act that will take some time to work out. The main carriers to the Caribbean – BA, Virgin, Condor and TUI – have a limited inventory of available aircraft.
The Caribbean Island of Barbados is planning to offer a $100US bonus to all travellers that became stranded anywhere to come to Barbados for “any future vacation”. Minister of Tourism, Kerrie Symmonds, says “the dates will be announced later.” He adds that Barbados is happy “to host any displaced customer who is still seeking an excellent vacation experience.” See more about Barbados Vacations at Barbados.org
Europe & Africa – The Guardian has complied statics of travellers stranded in several holiday destinations in Europe and Africa – See TheGardian.com.
Actionable Lessons From Thomas Cook’s Failure
For hoteliers, hospitality and tourism professionals, there are several lessons to be learned from the failure of Thomas Cook. Some of the reasons for failure are out of our control but many are not.
Management owes it to its shareholder and employees to understand the Internet. Digital Media is dynamic and old principles do not apply.
Learn more by reading the latest books on Digital Media for Tourism. Take online courses, listen to podcasts and subscribe to newsletters that follow trends.
Don’t underestimate the task of going digital. The technology is not trivial and it continues to evolve.
Beware of legacy systems. Sometimes it’s best to buy rather that integrate. It’s easy to underestimate the cost of integration.
Don’t let mindset stop innovation.
TC was massively in debt. Spend wisely and understand the complexity of what you are building or investing in.
Always Innovate. The successful companies find a better way.
Diversify your distribution and never put all your eggs in one basket. Be strategic with your channel choice and make sure you build your direct business.
Prepare for Disruption
This is just the tip of the iceberg. Disruption is coming to a portal near you! Tourism is at a pivotal point and is suffering from too much success and over-tourism. Site are closing and tourist are not always welcome everywhere. Add to that technology is in for massive change.
OTAs have become complacent, there is little innovation in the establishment. Travellers search for solutions with outdated options. In the meantime Apple, Amazon, Google and Facebook all top innovators and eye their entries. Airlines, hotels, destination and OTAs need be wary of change and ready to do better. There will need to be collaboration across the channels to deliver more for less. New travel search and booking models must be explored. Matching travels with amenities is passe in an age where experiences matter most.
Watch NDC – this could transform and disrupt a few players
Keep watching – we will soon add more!
Happening now: Airlines will add new distributed bookings. Hotels, Tourism Operators and Agents may soon have integrated tools that allow travellers to add air transport to their bookings. This is the implementation of IATA’s New Distribution Capability (NDC). Depending on how it rolls out, it could transform the user experience and has the potential to disrupt the status quo.
UPDATE OCTOBER 2020 TC to Reboot
Thomas Cook plans to reboot as a digital-media travel company, allowing users to” build-your-own packages”. It goes live for bookings this week and will be using HotelBeds, Webbeds and Yalago for Europe and the rest of the world.
Learn About Digital Media
The book series is for hotel and tourism professionals who are not technology experts. You will find them an easy read. They simplify complex jargon in conversational-style illustrations.
In this article on “How BlockChain Can Radically Change Travel” we look at two articles one by Skift that goes well below the surface of how to get more direct bookings. In-face we look at a chain of action and technologies that are soon going disrupt the entire travel bookings landscape. It will make it possible for hotel to completely bypass the OTAs and be readily available for travelers.
This can breed new life into direct bookings for hotel. It will help news startups like Travify and PersonaHolidays to establish new, easily accessible ways for travelers to search, find and book hotels directly by-passing entrenched distribution with innovative alternatives hooked into blockchain for distribution and payment.
Travel startups have a huge hurdle in competing with established distribution like the Online Travel Agents (Booking.com, Expedia etc). Blockchain and its application, including Bitcoin and Ethereum are seen as a massive disrupter of the status quo in travel distribution. This status quo is not innovating and growing out of touch with current travel needs for personal and authentic spot on recommendations that reflect their mood, style and personality. See travelers frustrated with traditional systems
Beyond Rate Parity
Blockchain is the core to Bitcoin and more to come. What that may mean is that hotels may in the future be able to throw out their Rate Parity and restrictive clauses that tie them up and inhibit direct sales. They may just compete as a supplier using the new system of connection, distribution and payment inherent in Blockchain.
Similarly Tnooz writes about the emperors new chains. A play on blockchains as the emperors new cloths. but actually he really had none. In some way BlockChain is stripping away the fabric of distribution. The Tnooz article is liked here as it gives a foundation to understanding the concept of transaction and what might be the new fabric of distribution in the future.
But lets start by curating from Skiff what we think is the key idea that will disrupt tourism marketing and travel.
Consider the example of a fledgling travel booking startup trying to break into the industry which can’t because it needs to negotiate for access to a global distribution system to access content and pricing information.
Cost of Entry is a Killer
The cost of accessing the system can kill a startup that isn’t well-capitalized. There’s also the matter of industry politics,
important for getting access to global distribution system content; too disruptive a concept, and your company may be denied access.
How Blockchain Helps Hotels and Tourism Operators
A blockchain-based platform can eliminate this challenge, allowing travel companies to list their products and sell them on a platform offering a lower distribution cost than a traditional GDS, and anyone
can buy the tokens needed to participate in the marketplace.
Fritz Joussen, CEO of TUI, belives that Blockchain technology will dominate travel marketing and B2B within five to ten years. It could potentially “change the internet”.
His previous comments about Blockchain heralding the end of the road for Booking.com and Expedia grabbed the headlines early in 2017. Blockchain, he says offers non-discriminatory access to everything”.
Its more that technology it’s a fundamental shift in the business model
“What we’re replacing here is not just the technology,” said Izmaylov. “It’s not just to decentralize the marketplace. What we’re proposing is a change in the governance model. Today, for example, we have a bunch of different players. We have IATA. We have, of course, Sabre and Amadeus, which were created by a group of airlines. The fundamental problem with
those organizations is they can innovate once a year or in the case of IATA, for example, once in five years. It just doesn’t make any sense. That’s why the industry is 10 years behind, and that’s why I’m saying that the whole system has grind to a halt.
Traditional Systems Lack Innovation
“We need to radically change and rethink how we innovate. We need to decrease the feedback time between what customers, travelers, or businesses around the world actually need, and what anyone who can
produce good software can deliver. That’s what we’re changing here, sowith Winding Tree the idea is that one part of that platform is the actual marketplace, where suppliers of travel can create their
inventory, can sell their inventory to travel agents, which could be a mom and pop shop, or a website, or an iPhone app. Doesn’t matter. It’s just a set of APIs.”
For more on the mechanics of bitcoin and blockchains see:
Now that is a heavy article that digs into the how and explain transactions in technical terms. The point I get from it is reposted here. Namely that its not trivial, it takes a lot of resources and its a hog on energy. All that must change for it to fly.
“The Bitcoin network currently has an annual power consumption comparable to that of Ireland, which is being paid for by ‘miners’ because it is backed by a cryptocurrency and it is currently profitable for them to do so.
All of this should give you pause for thought when weighing up proposals for distributed marketplaces or supply chains based on Blockchain that could operate at the scale and speed required in the travel industry.”
As two prominent Blockchain tech researchers, Michael Mainelli and Alistair Milne, state in a research paper “The impact and potential of blockchain on securities transaction lifecycle“:
“Current interest in mutual distributed ledgers has established significant momentum, but there is a danger of building unrealistic expectations….Understanding of the technology lags well behind the hype….Blockchain technology seems to promise major change for capital markets and other financial services, but few can say exactly how or why.”
So while we see the potential it is goo to keep an eye on the cons before we jump to con-clusions.
Here is a good description on what it is. By Bettina Warburg · Blockchain entrepreneur and researcher
Bettina Warburg is a blockchain researcher, entrepreneur and educator. A political scientist by training, she has a deep passion for the intersection of politics and technology.
Understanding Millennials, Generation X to Z & How they are Changing Travel
There has been a lot of talk recently on how millenials are changing travels. They are the latest wave of the new generations that are now having a significant impact on tourism. Like impact-generations before them they bring a new set of ideals and behavior to the table. They are the generation Y. But to understand their place in history we need to go back to the Babby boomers.
This series of article is pieced together from several trends starting with a review of the impact of the new generations. The article is influenced by the blog on talenedtheads, and a lot more. Talendheads take us back to the Baby boomers and step through the generations that to understand how generation XYZ are changing travel.
Thais article also looks at what is playing out now because of these and related influences, namely government action to curtail OTAs and put hotels in a better position to compete.
Generation X: Boomers
The Baby Boomers are people like Steve Jobs, born just after World War 2 from during 1946 to 1964. After the war as western nations recovered from the economic turmoil of the war years, their was spike on birth and these new babies experienced formative years of economic growth and prosperity. They have influenced markets as affluent buyers and are now retiring with more wealth and spending power that all generations before them.
Generation Y: Millennials
Born between 1980’s and the early years of 2000, are referred to as Gen Y, or the Millennials. They have been shaped by the technological revolution and the financial crisis. They are people like Adele and Kate Middleton, connected more that any generation before them. Many grew up seeing their Baby Boomer parents working long hours at corporate jobs and this has influenced their own views on life and work-life balance. >> millennials-strike-another-blow-to-otas
By 2015 Millennials will outgrow Baby Boomers in absolute numbers (U.S Census Bureau). That is there will be 75.3 million Millennials, VS. 74.9 million Boomers, and that will be the largest generation in the USA.
Generation Z: Next
Born after the Year 2000, these are the children of Generation X and Generation Y and include Stars like Brooklyn Beckham. They are too new to have left their mark, and we can only speculate as to what will drive them and what impact on society they will have. But we know they will be living in a new age of advanced technology, a time of dramatic changes in applications and enhanced function and reality. This is the generation that Wake up connected.
Impact on Tourism Marketing.
In our previous blog on the millennials we saw a dramatic shift to more frugal and independent shopping, with less reliance on online agents and a tendency to want different experiences, no more cooky cutter holidays and a preference to do it themselves and book direct with hotels as apposed to OTAs. This will set the stage for the travel industry of the future.
OTAs on the Chopping Block
We expect the rapid and universal access to information and application will make it easier to book direct and we fully expect that OTAs will loose their current mass appeal. The shift is even happening at political and national levels where governments are curtailing powers of the OTAs to create a more even playing field for hotels and tourism operations to compete direct.
Governments Take Action to Level the Playing Field
The recent moves by Hotel associations worldwide have put pressure on Governments to legislate against OTAs demanding rate parity. The new legislation being put in place now will make it illegal for OTAs to insist that hotel cannot offer better prices than they have negotiated. As a result Expedia and others are forced to axe the programs and renegotiate with hotels.
It goes further saying that hotels must have control over the rates that OTAs offer. Often OTAs have used their special net costs and deep discounts to their advertized rates, sometimes below their costs, to create loss leaders. All this has put them into top spot on the best price radar. But that too is ending. It is a fine time for hotel to jump into the drivers seat.
travelers shifting to hotel websites for direct bookings
A new study by Criteo and PhoCusWright shows that 41% booked using an airline website or app, vs. 26% who used an OTA. The same was true for hotel bookings. Over 33% choose to book via the hotels website or app whereas only 25% booked through an OTA. The trends are clear as more and more travel bookers shift to brand sites leaving on line travel agents sites.
“Other responses indicated that leisure travelers were more engaged with travel brands than OTAs. When asked if they subscribed to emails or e-newsletters from travel companies, 34% said they subscribed to those from hotels, and 32% were signed up to receive such communications from airlines. Meanwhile, 26% subscribed to OTA emails or e-newsletters.”
UBS research reveals that that travel agencies are losing share of total online travel bookings in the US and by 2019 OTAs will likely account for less than 30% of total online bookings.
“eMarketer estimates that there will be 110.7 million US digital travel bookers this year, representing 52.5% of internet users. Such activity will push digital travel sales up to $167.99 billion.” – See full emarketing article and research findings at http://www.emarketer.com/Article.aspx?R=1012550
Power marketing free strategy reports
Our previous article on this shift to direct booking, showed that “OTAs have minimal loyalty and low brand awareness when come to large chains and brand name hotels.” Clearly hotels are in a good position to start taking back market share and getting more direct bookings.
For more TIPS on upgrading your website conversion and direct marketing see http://powerconsultants.axses.net/. The website outlines many strategies for power marketing in tourism.
I posted a link to an article about Booking’com to Facebook. To be exact I posted it to buffer an automated service that schedules links out to several of my profiles including Facebook.
The post looked like this (see on right) – A snipet of the article and a HUGE Ad featuring Booking’com. Now I did not POST that Ad, it was not even in the article I posted, so clearly it was Put in my post by Facebook…. Interesting!
Are our communication, post and shares now the new media for ads?
Maybe we should expect that because FB is a free service and they need to advertise client to support our community. But really, isn’t that a bit much?
Should we not have a say in who sponsors our posts? I think we should, what do you think?
I imagine this is done automatically within the ad system. It is fully automated so I don’t have a person to contact and discuss how I might control this in the future. That got me thinking just how social is social anyway. We are sharing and engaging with people many of which are using automatic tools even to answer comments on post, let alone post on many sites. I have not problem with automation to help get the job done – but are we paying too high a price for automation, is it making us all Anonymous to some extent.
In this case, I am unknown by Booking’com who have advertised on what I think is my Content. Lets not get into that argument, it’s not the point, it does not matter if it is my content or not. They are advertising under my name, I am pretty sure I own that…. I think!
Does this get muddy or what? But lets not get sidetracked. The advertiser here is in a post I wrote, bold and Big with Images and Text far in excess of my Post which is overwhelmed by their promotion. They probably do not even know it! They certainly don’t know who I am – and that is my point.
Anonymous in the ANTI Social Age!
Automation has allowed us to be everywhere, a million of us all at the same time, everywhere, all at the same time in the same place. Yet we are invisible in the noise and clatter of systems pushing text and images, ads and communications at us. Social Media we thought was about point to point, person to person and persons to groups and the end of Broadcast Media and mass communications. But it is not. It is becoming another form of mass media where our content is infused with propaganda not of our choosing and delivered to many we do not know and, to our embarrassment, to some we do.
We are in the age of mass media where content is often created by both consumers, suppliers and media, merged and mingled by autonomous systems and delivered by systems, to where we are not sure. Systems deliver our communication based on rules, assumption and directive we agree to. They go to sites, pages and people who in turn share, comment and create the next cycle and the next cycle of content and comments is merged, mixed and propagated by the channels and systems we subscribe to.
We don’t control it, and the worst is still to come.
What a lesson for hotel brands who find that their ranking on search results has dropped off of page 1 as OTAs and other vendors bide top dollar for the placement.
The new Disney policy, effective on Jan. 1, 2015 will also add a clause to resellers agreements that restricts travel professionals from using Disney trademarks, trade names and service marks in domains as either the destination URL or as the display URL, or as a subdomain.
Turns out it not the first. Back in 2010, Carnival Corp. prohibited travel agencies from bidding on their trademarks as keywords in online searches. The move was not popular with OTAs and travel sellers who use search engine optimization and buy keywords to improve their search engine results.
– See more at: hhttp://www.travelweekly.com/Travel-News/Hotel-News/Disney-to-restrict-travel-sellers-from-buying-search-terms//disney_to_restrict_travel_sellers_from_buying_search_terms#sthash.Ccx0WwIl.dpuf