The elephants in the room

AS THE COVID-19 pandemic grinds on, there are signs of a light at the end of the tunnel for the Australian travel and cruise sector. Governments increasingly appear to be open to “living with the virus” and lifting some of the restrictions that have decimated the industry since March 2020. Having said that, it’s clear that the world will never be the same again, and that means some businesses will need to take a long hard look at what they do going forward if they want to keep the doors open. BRUCE PIPER investigates five of the key issues that we’re all going to have to deal with.

IT’S tempting to think, as we reflect on the halcyon days of 2019, that we had it all figured out back then. The travel sector was a well-oiled machine, where each part of the distribution system added value and was appropriately remunerated for doing so. However the reality is somewhat different, and perhaps taking a longer term view of the evolution of the industry over the last 50 years or so, the only thing that has been constant in travel and tourism has been change.

Although there have been plenty of external shocks – think of various wars, 9/11, SARS, MERs, the global financial crisis and scores of natural disasters – the industry has also changed significantly from within, as entrepreneurs develop new ways of doing things, creating new products and services and making the most of the opportunities in front of them. And that’s not to even touch on the impact of technology, which has been effectively harnessed to improve processes, make things so much more efficient and inevitably improve productivity.

As we enter the third year of the pandemic, there are many issues facing the world of travel as we rebuild it from the ground up. Here’s my analysis of some of the key topics in front of us.

Commission

IT’S now crystal clear that some suppliers – particularly airlines – are taking the breathing space afforded by the pandemic to make massive changes to their business models. The holy grail of “base commission” – a percentage of sales under agreements negotiated between the International Air Transport Association (IATA) and travel agents around the globe – is clearly under threat as airlines continue to pursue a direct relationship with their customers.

There’s absolutely no doubt that with the evolution of technology this trend will continue. We can all give our own reasons as to why we believe it’s a flawed strategy, but there are certainly similarly strong arguments as to why carriers want to do this particularly in a world where loyalty and connection to brands are so increasingly important.

A few observations on the commission issue. Firstly what’s being eliminated is “base” commission – the somewhat paltry amount which is paid to any and all accredited agents through the IATA BSP platform. Prior to the major Qantas announcement about its commission cuts, all of the big groups including Flight Centre, Helloworld Travel, Express Travel Group, Corporate Travel Management and more put out statements about how they had successfully renegotiated their agreements with the Australian carrier, and all were universally happy about the outcome at least for the next three years.

The strategy adopted by Qantas, and surely being emulated by its rivals who are going down the same road such as Emirates, Cathay Pacific and Hawaiian Airlines (so far) is likely to see that “base” commission figure shifted into back-end overrides. Rather than dealing with hundreds or thousands of individual agency outlets, airlines can manage a smaller number of large relationships, effectively leveraging these to achieve business goals such as promoting particular routes, targeting certain market segments or optimising individual cabin yields. And those larger agency groups can either “put up or shut up” – if they believe in their power to deliver volume to the airlines, they can negotiate to be appropriately remunerated for their efforts.

The bottom line is that airlines – particularly in their home markets or those where they have a significant market share – want to own the customer. They want to be able to market directly to them and modern technology allows them to do this. This is not something that’s going to go away.

My take? Accept this and move on. If you were a business that relied on base commission from airline ticket sales, you have to change your business. And on the bright side, in some other major markets such as the USA, which moved to a zero base commission environment a long time ago, travel businesses which can make money from a different business model continue to thrive.

Product

AS THE leisure travel market has been forced to pivot to a new domestic focus, many travel businesses have done the work to capture all that pent-up travel demand among their customer base and redirect it to holidaying locally. With the encouragement of millions of dollars in funding directed to Tourism Australia to facilitate this change, it has been fantastic to see that the travel trade has started to become more key as part of the distribution strategy for some local suppliers who previously had an almost exclusively direct approach to domestic visitors.

However as restrictions have gradually lifted, it’s become increasingly clear that there simply is not enough travel and tourism product to satisfy demand from the local market, particularly at the high end. It has become almost impossible to book a stay at a hotel without a long lead-time, with many venues full on weekends with “staycationers,” not to mention huge demand for events like weddings and other celebrations postponed due to pandemic lockdowns. Even in the rental car market, in some destinations it’s become incredibly difficult to secure a vehicle as the major players have sold down their fleets due to a lack of demand.

With International travel off limits for the better part of the past 2 years, the travel trade become a key part of the distribution strategy of some local suppliers and domestic destinations, including tours and experiences. Uptuyu Aboriginal Adventures ©James Fisher/Tourism Australia

Going forward it’s going to be vital for anyone selling travel to have close relationships with their key suppliers – an opportunity both for wholesalers and travel agents to truly add value for their clients who can no longer rely on being able to simply book directly and access the accommodation or other travel services they want.

Cruising

FOR the last 18 months or so we’ve all been telling everyone around us how safe cruising is. We’re all exhausted from explaining the incontrovertible evidence about the new protocols, the millions of people who have cruised safely since the pandemic, the vaccination and sanitisation requirements and more, not to mention the thousands of Aussies who rely on cruising for our livelihoods.

Prior to March 2020 we basked in the glow of the global cruise boom, particularly in Australia which reached the world’s highest market penetration. We truly were living in unprecedented times, and those parts of the industry which worked to capitalise on the demand did very well out of it. But then the unfortunate incidents early in the pandemic – remember when we didn’t even realise that COVID-19 was airborne! – flipped all that goodwill on its head.

Despite the sensational reporting of incidents such as the Ruby Princess in Australia, all of the subsequent official inquiries vindicated the approach taken by the industry. With hundreds of cruise ships put into layup, and thousands upon thousands of crew ultimately repatriated to their home countries, the herculean efforts of the sector have sadly been in many cases unrecognised, not to mention all of the work that has gone into enabling at least some progress in cruise restarts.

Pre-pandemic Australia experienced a cruise boom like never before. We remember the days of Sydney Harbour being filled with cruise ships in wave season.

However locally it appears to me that authorities, having taken the blame for missteps early in the pandemic, are absolutely determined to take a measured approach going forward. We can argue the logic of allowing a restart until we are blue in the face, but the bottom line is that cruising is very easily put into the “too hard basket” particularly with the rise of a variant like Omicron and all of the other issues facing our governments who are focused on getting schools open, maintaining supermarket supply chains – oh and the myriad of other issues like foreign policy, defence and that little looming event called a Federal Election.

It’s easy to criticise our peak bodies for a perceived failure to facilitate a cruise restart, but it certainly hasn’t been for want of trying.

There are still politicians in our Federal and State Parliaments who ignorantly describe cruise ships as “floating petri dishes” so we just have to keep chipping away, aware that even the most logical arguments may fall on deaf ears.

As the Doobie Brothers once sang (quoting the Biblical book of Proverbs), “what a fool believes, no wise man has the power to take away”.

Insurance

WE ARE incredibly fortunate in Australia to have universal healthcare, which has meant that most domestic travellers don’t worry about travel insurance unless they want to cover cancellations for big ticket items. That’s not the case for international travel, of course, and as borders gradually begin to open up travel insurance for outbound trips is increasingly rearing its ugly head as a key issue.

Insurers understandably withdrew all of their products in the early days of the pandemic, as the ever-changing impact of the coronavirus meant it was impossible to quantify risk. Fortunately as the country moved to the later stages of the national transition plan in the last few months of 2021, a number of insurance providers returned to the market and are once again offering travel insurance for international trips. It should be noted that it was never impossible to get travel insurance even in the darkest, pre-vaccination days of the pandemic – but the coverage did not include COVID-19 related impacts which of course were what most travellers were concerned about.

Travel insurance is likely to return to being more available once travel patterns return to higher levels.

As increasing numbers of people return to international travel it’s likely that the situation will normalise. But the industry must also bear in mind that any insurance product relies on a large market to spread the risk, so a return to pre-pandemic days where insurance was freely and relatively cheaply available may be some way off until travel patterns return to higher levels.

The other key issue for the parts of the industry which rely on cruise is that most currently available travel insurance products explicitly exclude any coverage for COVID-19 related impacts on cruising. A small number of cruise companies have begun sourcing their own insurance add-ons as a result, and this is a trend that is likely to continue. It’s certainly another argument for travel advisors to urge their clients to read the fine print, because it’s no longer just activities like hang-gliding, scuba-diving or snowsports that aren’t covered in standard policies.

Technology

THE final elephant in the travel industry room at the moment is technology – and specifically those three little letters NDC, standing for New Distribution Capability. Airlines haven’t been resting on their digital laurels for the last two years, instead making the most of the breathing space afforded by COVID-19 to pursue an ever-more NDC-centric future.

Travel trade technology has evolved over the past few years, with the industry heading towards an ever more NDC-centric future.

While this is another area where we can bemoan the strategy and hark back to the glorious green-screen GDS days where fare construction and multi-segment trips were a travel advisor’s specialty, the reality is that NDC in all of its various forms is here to stay. Travel distributors who want to access product to sell must have an NDC solution or risk being sidelined.

The positive side of this is that there are an increasing number of aggregators who are offering agents the best of both worlds, accessing content from both traditional sources and direct connections to various airlines. Ignoring this trend is like an ostrich burying your head in the sand hoping the danger will pass.

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