Do wholesalers have a future?
LAST month’s collapse of Tempo Holidays and Bentours was the latest in a series of wholesaler failures and closures in recent years. Does the rise of the internet — and the resulting ability for the whole world to more easily connect — mean that there is less and less need for traditional middlemen? Or will there always be a place for experience and expertise? Steve Jones investigates.
The collapse in September of Tempo Holidays and Bentours was both a calamity for the industry and a tragedy for the staff.
The moment Cox & Kings (C&K) abruptly placed its Australian subsidiary into voluntary administration, its near-100 strong workforce were shown the door. For some, it was a rapid and heartbreaking end after years spent building the brands through dedication, expertise and sheer hard graft. Alas, such admirable qualities count for little amid the realities of corporate financial ruin.
Furthermore, the failure thrust agents once more into the firing line, bombarded with questions for which there were few satisfactory answers.
In the weeks following the closure it became clear where responsibility lay. According to administrators, C&K had been bleeding its profitable local entities dry as it sought to prop up ailing parts of its global operation. When Tempo Holidays needed the funds to pay its own suppliers, C&K had nothing to give.
But while the local operation has been exonerated — at least for now — the closure of two respected and established brands was another bleak advert for Australia’s wholesale sector. Memories are short. Retailers are likely to only recall the painful fallout of another wholesale collapse, not the reasons behind it.
Picking up the pieces of failure is nothing new for weary retailers. A little over 18 months ago Si Holidays fell over, leaving many agents in the lurch. Six months later, in October 2018, Venture Far staggered along before conceding it was all too difficult. And while the circumstances may have been different, The Travel Corporation saw the writing on the wall for Creative Holidays some time ago, its generalist positioning unsustainable without the safety net of guaranteed retail distribution.
Additionally, as the sun was setting on Tempo Holidays, the UK industry suffered a savage blow when that most iconic of travel brands, Thomas Cook, crumbled under a mountain of debt, the result of catastrophically poor decision-making by previous management.
While the Thomas Cook debacle was not felt locally, the Tempo Holidays and Bentours collapse left the industry shell shocked.
Halina Kubica, Managing Director of Greece and Mediterranean Travel Centre, summed up a feeling felt by many.
“The collapse of Tempo Holidays did not send out positive vibes about wholesalers,” she told travelBulletin.
“It created a feeling of ‘why should I book through them?'”
So do traditional wholesalers have a long term future in the supply chain? In a transparent and digital world where the relevancy of the middlemen is under constant scrutiny, it would be easy to reach a gloomy conclusion. Easy, but also incorrect, according to undaunted wholesalers.
Despite the negativity, Kubica was adamant that smart operators who understand market dynamics will continue to provide a meaningful link between agent and consumer. What wholesalers must accept, however, is the need to evolve and keep pace with customer expectations.
“Clients are better informed, they have access to product online, and what they expect from wholesalers is greater than it has ever been,” she said. “In the past, it was ‘here’s the hotel in Santorini with a view’. Now the consumer wants to know how many beds are in the hotel, what size the room is. Is it 22m2 or 26m2? They want detailed information they didn’t ask for, even five years ago. They are expecting much more for what they are paying.”
She added that wholesalers need to be innovative, active in the market, and source product that meets the specific needs of Australian clients, and agents.
To achieve that, Kubica said wholesalers must strike deals with several DMCs which have their own areas of expertise and specialisation.
“It’s not like it used to be when you booked everything through a single destination management company, however good it may be. You can no longer win the game that way,” she warned. “Some businesses will not survive, and some may feel it is not worth continuing because the margins are not what they were. But those who adapt can have a long future.”
Entire Travel Group chief executive Brad McDonnell echoed the need to demonstrate encyclopaedic product knowledge.
“You need to make the agent look good by adding value,” he said. “We do that by being efficient, through an exceptional reservations system, through product that consumers can’t access and book online, through unique experiences. Exclusive product is an important part of the mix.”
It has long been felt that specialists, by definition, are best placed to provide that expertise. Only those who can drill down into a destination and who can satisfy consumers’ craving for experiential travel will remain relevant.
Events over the past few years appear to support such a view. Si Holidays, Venture Far and Creative were all generalists, with observers suggesting they failed to offer anything sufficiently different from product available through the in-house generalist wholesalers of Flight Centre and Helloworld.
Steve Reynolds, the former chief executive of APT, and a former CEO of Tempo Holidays, said the volume required by generalists such as Infinity, Qantas Holidays and Viva, is best generated through a vertically integrated model where the retailer owns the wholesaler. Without it, as demonstrated by Creative, is to sit in the no man’s land of wholesaling.
“When you have high volume and committed inventory that must be sold, widespread distribution is absolutely critical,” Reynolds said. “It also gives you things like high level marketing campaigns and preferred locations in expo halls.”
For niche wholesalers, however, the need for preferred deals and guaranteed distribution is not so acute, Reynolds said. Franchise agents in particular would continue to sell an operator they know and trust regardless of preferred status.
“No agent in the land I know of would turn away a sale if someone comes in with a brochure for Africa and says I want that package,” he said. “They might have a crack at switch selling, but they wouldn’t risk losing the business.”
Predictably, the Council of Australian Tour Operators rejected fears the traditional model was under threat. But it too conceded that non-aligned generalists has been squeezed.
“Do wholesalers have a future? The answer is a resounding yes,” CATO chairman Dennis Bunnik said. “The common factor linking the ones that have closed or are struggling, is their generalist nature.
“The niche operators, the destination specialists, have been thriving. As the Australian traveller has become more sophisticated and seeking more in-depth experiences, agents and consumers value their expertise and specialist knowledge more than ever. Much of the time, the generalists don’t cut it. As soon as you start competing on volume and price it’s a zero sum game and a race to the bottom. Unless you have your own retail distribution you are going to struggle.”
Yet focusing on limited markets presents its own challenges. According to McDonnell, an overly narrow focus can leave a business dangerously exposed.
“I bought French Travel Connection about 10 years ago and in 2015, had I only been selling France I would have been in trouble,” he explained. “The business was hammered after the terrorist attacks. You need diversification.”
While Entire Travel Group has now expanded to 10 destinations, McDonnell insisted it has not sacrificed its specialist credentials that are so crucial in today’s industry.
“Every wholesaler needs a product and marketing team, a finance team, a contract team. In terms of being a successful and viable business, having multiple destinations all tapping into the one set of shared resources is really efficient,” he said. “But we stick to dedicated, individual destination teams. All have separate brochures and call centre staff. In effect Entire Travel Group is a collection of specialist wholesalers. Specialisation is the way forward and that is where we position ourselves and the way we operate our business.”
Despite the predictably bullish outlook, it is clear that wholesalers no longer have it their own way. Agents acting as quasi wholesalers and booking direct with overseas suppliers, consumers stitching together trips online, pure play online agents offering attractive pricing, and suppliers attempting to reach consumers directly have all complicated the previously straightforward distribution structure for traditional players. In such a competitive landscape, margins are under constant pressure.
But according to Cinzia Burnes, Helloworld executive director and group general manager of wholesale, the threat of retailers bypassing wholesalers has not materialised.
“It does happen but I don’t think any more than it used to,” she told travelBulletin. “There are some experienced travel agents who may have relationships with DMCs and countries that might be doing things directly, but it’s a phenomenon that has always been there and is no bigger than it was two or three years ago.”
Burnes added that while “recent events have not been great for the industry”, agents are still more cautious about dealing with overseas suppliers than locally-based wholesalers.
Reynolds also downplayed the trend, suggesting that handling foreign currency, legal liabilities and solving in-destination problems are complications that agents can do without.
“Companies like Virtuoso introduce DMCs directly to travel agents and cut out the wholesaler, but those who have the necessary experience and knowledge are still in the minority,” he said. “Being presented with a net rate and dealing with foreign exchange is alien territory for most agents. It’s not just about sourcing or having knowledge of the product, it’s the financial discipline about how you buy, and mark up and manage a sensible margin.”
Kubica, from Greece and Mediterranean Travel Centre, went further, suggesting retailers were just not equipped to play the role of a wholesaler.
“There is talk in our market about the safety of booking with a wholesaler but how safe is it for agents to book through a supplier in Spain for example?” she said. “There is no metric to check how reliable they are. At least in Australia we have ATAS.”
Bunnik, who runs Bunnik Tours in addition to his CATO role, added: “Travel agents going direct to suppliers and putting wholesalers out of business is similar to the prediction that the Internet would kill off travel agents. A good travel agent is still worth their weight in gold and the same principle applies to wholesalers.”
More of an issue, he said, is the damage caused by “outside forces”, be they climate related, geopolitical or terrorism.
“What’s happening now with Brexit in the UK or in Turkey and Syria, those are sorts of things that keep tour operators and wholesalers awake, more so than some of the issues around distribution,” Bunnik said.
The rise of online players — some with deep pockets and extensive marketing campaigns — is another thorn in the side of traditional companies. CATO has recently taken issue with the pricing practice of some OTAs which claim to offer tours “valued at” $12,000 for half that amount.
Despite CATO’s irritation — it argues that “valued at” is misleading and disingenuous — wholesalers who spoke to travelBulletin claimed, perhaps unconvincingly, that OTAs are growing the travel pie rather than taking business from the traditional sector.
Burnes suggested they have “created a new market” by enticing people to visit Bali when they might have gone to Cairns.
“Our numbers show we are not losing market share which makes me think this is a new demographic they are attracting,” she said.
Nevertheless, Helloworld responded earlier this year with its own range of commissionable “special packages” to compete with cheap OTA offerings. She said customers were taking OTA adverts into agencies on Monday mornings.
“It’s reacting to a reality that cannot be ignored,” Burnes said.
If there is one constant in the arguments of wholesalers it is the need to prove their worth to agents and consumers. Those which fail to step up and demonstrate exemplary service and provide exclusive product, face a bleak future.
For Tempo Holidays and Bentours, their future was wrecked by its parent company, which Bunnik was quick to stress.
“Specialist wholesalers have been doing well, and if it wasn’t for Cox & Kings, we would still have two iconic and thriving brands,” he said.
“Sure, there will always be an element that books direct online, and that’s fine. That will always be there. But it won’t spell the end for good old fashioned customer service.”