The failure of Thomas 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According to Capx, “The main reason the company failed was its outdated business model.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 on Schumpeter’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.
Google Hotels, which used to be Google Hotel Finder and sort of went quite a few years ago, is back. It now is a fully functional set of tools and system that you will find on Kayak, Expedia and Booking.com. But it has some advantages which are integration with Google Maps and Google search results. Even if the say that they don’t want to become an OTA or compete with them, this article by Search Engine asks, “will Google Hotels create a giant black hole that sucks all the direct traffic away from online hotel booking sites?”
Source: What will Google Hotels mean for online booking sites? – Search Engine Land
Digital ad spending by the travel industry is projected to exceed $9 billion this year, according to several industry estimates. It’s a massive market.
Maybe it is part of a strategy to grab more advertising. The competition is already fierce with Digital ad spend by the travel industry estimated at $9 billion or more in 2019. Already hospitality brands have to buy Hotel Ads to be on top of search results even for thir own brand names.
It’s all in a state of flux and certainly the travel marketing is going to change.
It is natural for competitors to jockey and position themselves for the future. The industry is ripe for disruption and hotels are looking for alternatives to the very steep discounts they give OTAs in order to market in that channel. Airbnb is seen as a viable alternative with their possible buy of HotelTonight. But like Google Hotels there are PROS and CONS. Airbnb has created new competition for hotel with every homeowner now being a potential hospitality competitor. That does not sit well with the hospitality industry. Google Hotels being in able to now offer the full functionality as the online booking sites is a big worry to OTAs. Google for its part says they focus on proving the best result for the consumer. Certainly Google has that advantage as it holds big data and can deliver a personalized recommendation for travelers. But is that its business?
As TravelDailyNews says the Google initiative is long overdue as “Google has been dabbling in hotel bookings for a while. Moreover, since Google already has a flight booking site, what’s stopping them from launching the same service for hotels?” Kristine Mariano goes on to say “The newly launched full-fledged hotel booking site will let you determine whether you’re getting a deal for your chosen hotel and how that rate compares to nearby options with similar amenities.” You just click “Book a room” and it links to either hotel directly, or a third-party booking site, or there is an option to book right on Google. The “Deals” filter “uses machine learning to highlight hotels where one or more of our partners offer rates that are significantly lower than the usual price for that hotel or similar hotels nearby.”
Its’ really annoying Expedia, Hotels.com and Booking.com and they pay a pile of cash to Google for advertising. But does Google really care?
We will have to wait and see how it all unfolds.
Uphill windy road to become an OTA
Source: Reality check: Airbnb still has a long way to go after HotelTonight deal | PhocusWire
This is a follow up on the previous News Release on the HotelTonight Airbnb deal . In this followup Max Starkov of HEBS Digital Marketing examines why Airbnb wants to be an OTA, why they may not be a great idea and what they have to do to get there. He suggest that the reasons are a matter of growth opportunity and declining expectation for rental growth and user fees.
Currently Airbnb charges 4 to 8 % for the host and 6 to 10% for guests. But the trend is moving away from guest fees as the OTAs get into Airbnb Vacation rental with no guest fees.
The writing is on the wall so Airbnb want to hedge its bets and get into the mainstream business head to head with OTAs.
That the reason they want HotelTonight. Its not that they need the technology as HT is way behind on instant bookings and many of its properties are still connected via a manual extranet. Airbnb has ample capability in mobile also so that not a reason to want HT.
It’s not going to be a happy marriage for many hotels who think that Airbnb is steeling their business.
The trip to becoming an OTA is a long and windy road with many pitfalls along the way. It is a fiercely competitive market, not like being a first mover as in the past.
Read the article to learn what it entail and what there options are. https://www.phocuswire.com/Winner-from-HotelTonight-Airbnb-acquisition
Source: Airbnb-HotelTonight – a deal at the right time for both | PhocusWire
The possible acquisition of HotelTonight by Aribnb has the potential to disrupt the entire OTA marketplace. Airbnb has had a phenomenal success with its core business and OTAs are playing catch up. But they do not have the retention or the cost structure to compete. But will Arbnb Disrupt The OTA Marketplace? That remains to be seen. This article combines view points from Phocuswright and other sources like Revinate to consider the options.
As Revinate shows in its 2019 Hotel Loyalty Guide, “Airbnb has managed, without any points-based loyalty program, to corner the market on repeat bookings”.
Airbnb outperforms OTAs on retention
OTAS are way behind and if they have to compete with the 3% discount rate offered by Airbnb it will drastically change their business model which relies on 15 to 30 % discounts.
Airbnb has proposed to but HotelTonight for an undisclosed fee which is speculated to be over $400 million. It is seen as an major move to diversify its business and aim directly at the OTA marketplace. As the Phocuswright reports “The deal should be viewed primarily as part of Airbnb’s idea that it can now go up against the likes of Booking.com and Expedia – a direction that is both brave, complicated, perhaps expensive from a marketing perspective and will include more than buying the likes of HotelTonight (such as opening up the core platform for hotel distribution).
Still we Must Put it into Context
HotelTonight, is a mobile-first, last-minute trendsetter that will never catch up with Expedia and Booking, and always be considered a secondary OTA. So say Lorraine Sileo – senior vice president of research and business operations at Phocuswright.
Many hoteliers will be pleased to see a lower cost distributor with the smarts of Airbnb enter the market.
Related Links: OTAs and Direct Bookings | Hotel Marketing in the Digital Age
A new online travel agency (OTA) Hotel Bonanza Offers Hotel Booking at 8 Percent Commission and other perks!
Source: Startup pitch: Hotel Bonanza wants to redress the shaky hotel-OTA relationship
This Blog, by Linda Fox of Tnooz, covers the Startup Hotel Bonanza, a new OTA working with hotels at only 8% commission. That’s good news for hotels for sure. It is also good news for travellers as they offers a membership that gives 5% off every booking.
As they say “Our mission is to deliver a better deal for both properties and consumers by offering a fair rate of commission and a customer loyalty scheme, all run from a single, easy to use digital platform.”
Linda wondered if its too good to be true and why would they offer so much right at the start as that it like a red flag to the existing OTAs. I suggest that’s lots more like this will happen. I know they will because i am involved with one startup right now that looking at fair and reasonable commissions and will make distribution a vital partner of tourism suppliers. Check this blog for updates coming soon!
I did add a comment to this blog saying:
“Yes I agree ‘Good news sometimes does seem to be to good to be true’. But I think it is realistic. For some time now their has been speculation that OTAs will have to reduce fees.
For smaller hotels the startup rate is now 15% and Google hotel Ads start at 10% TripConnect for some hotels is 8%. Booking.com charges just 5% on direct booking to hotels that have their booking widget installed. So 8% is in line with where things are going.”
Brands Target OTAs Offering Lower Rates For Booking Direct
Source: More hotels offer discounts for booking directly
An example of how Hotel BookDirect War Heats up as OTAs Fire Back, take a look at this dialogue:
Melissa Maher, senior vice president of the Global Partner Group for Expedia, says “having hotel chains offer a variety of loyalty rates has made the booking process more cumbersome for consumers.”
OTAs : It’s More Confusing for Travelers to get Better Deals on Hotel Websites!
The argument is that Hotels BookDirect strategies are making if more difficult for travel shoppers who now have to look around more – in other words its no longer the case that the best rates are on OTAs! And here is what they are doing about it “Hotels that do not offer the same book direct to Expedia, with commission applied of course, “will no longer be as visible.”
Expedia Melissa Maher says, “Expedia lets consumers shop for travel vendors in one place. ” It has over 450 million monthly visits in more than 75 countries with over 269,000 hotels. But the Book Direct strategies are making an impact and the OTAs are on the offensive. Expedia is talking to some hotels about offering the same beast rates and offer BookDirect pricing at lower commissions.
Hotel Making Inroads With BookDirect Benefits
Hotel giants like Hilton and Mariott have invested heavily in BookDirect programs to convince travel Shoppers to book Direct and get a better. Hiltons “Stop Clicking Around” marketing campaign was “the largest launched in the company’s 97-year history.” Hilton is “offering up to 10% discounts to Hilton HHonors members who book directly” – In addition it offer loyalty points, free Wi-Fi, fast online to check-in, room selection and “digitals key via the HHonors mobile app.”
However it is an uphill battle as 57 billion HHonors Points went unearned as guests booked through a third party, according to Hiltons Mark Weinstein who added:
“There is a huge misconception that third parties always offer lower prices for our hotel rooms, which is simply not true.”
Its a marketing game that hotels just have not bothered to play and they have lost a lot of ground. The road to recovery will take determined effort to fix the misconception and get travellers booking direct with Book Direct Benefits.
Winning Strategies for Hotel to Get more BookDirect Visitors
In our last post we outlined a 3 pronged strategy that will get eyeballs rolling
– see it at #winingstrategy for more bookdirect travellers
Related Post – How hotel Violate Rate Parity without even noticing >>