Ten-and-a-half months, and counting. We're almost there. Yes, the vast majority of us will be glad to see 2009 behind us. But is 2010 going to be any better?
I spoke with exhibitors and attendees at the World Travel Market in London last week, and the vast majority were girding to continue life in the doldrums for the next 12 or so months.
"It's straightforward," said Tom Jenkins, executive director of the European Tour Operators Association, whose members work to get Americans to vacation in Europe. "The challenge for 2010 will be to find the price at which consumers will buy. And we will, because a hotel room is a highly perishable product, more perishable than raspberries. There's no market for yesterday's hotel room."
Put another way, discounting and deals will continue to dominate the landscape in the short term.
"I'd like to talk about the medium and long term," World Travel and Tourism Council President Jean-Claude Baumgarten said as he prepared to present predictive economic research. "When things are not so good in the short term, you always speak about the medium and long term."
While painting a rosy long-term picture -- Baumgarten predicted the industry would grow at 4% annually once it's back on track -- he also acknowledged that the "travel and tourism economy, our GDP, will have declined in 2009 by 5.5%."
That is a far bigger drop than the global gross domestic product, which contracted just 1.3%. Travel and tourism was, in fact, responsible for .3%, or just over a fourth, of the 1.3% decline in global GDP in 2009.
Baumgarten summed up 2010 in a word: "flat." He predicted rebound in 2011 and a return to normalcy in 2012.
It's instructive to remember, however, that some in the industry were spared economic pain in 2009.
Some, in fact, had a great year. The large online travel agencies and other deal sellers have plenty of reason to greet 2010 warmly.
Ian McCaig, CEO of Lastminute.com, a Europe-facing consumer-deals site that's owned by Sabre, spoke at a WTM luncheon supporting the charity Just a Drop. "We're ahead on revenue, and we're ahead on EBITDA" (earnings before interest, taxes, depreciation and amortization) for 2009, he said.
While his deal-fueled business model differs from that of most readers of Travel Weekly, if you boil down his observations, tactics and strategies, he made several points that might, at the very least, mitigate some of the difficulties ahead.
"If you're banking on [global economic] recovery in 2010 as part of your business plan, I think you're in trouble," McCaig began.
He then went on to describe which of his OTA competitors were headed for trouble regardless of what their business plans might assume.
For an OTA to survive during the weak year ahead, McCaig said, it must be very large or, conversely, serve a niche. The middle will be under constant pressure from above and below.
"If you have insufficient scale and lack differentiation, where are you going to win?" he asked. The big guys can cut better deals, he added, and "there will be little guys who can do what you do better than you. They'll chip away at your business."
McCaig estimated that any mass-market OTA with less than $100 million in revenue would be "not sustainable."
If applying these comments to retail travel agencies, the scale of the numbers would certainly be different, but the point he articulated -- that being midsize is not a viable position -- is equally true for agents and tour operators. And if you can't be big, then differentiation is key.
For McCaig, "the sweet spot is hotels. It's the most underpenetrated and fastest-growing area, and the yields are pretty darn good."
There is some parallel for retailers in this observation: Hotels are clearly not being sold as aggressively as they could be, but the real takeaway comes in the overarching strategy that drove him to focus on hotels: "You look at what's most profitable for you, and you push it hard."
McCaig said he believes this is not a time to outright purchase inventory for resale. If, perhaps, he has an opportunity to buy up tickets for a surefire popular event, he'll take on some risk as a reseller, but he sees no need to take ownership of the basic elements of a leisure trip.
"The availability of inventory is not an issue," he said. "Take risk on airline seats? I don't think so. And the availability of room nights is good because the corporate market is so depressed."
He said that although the margins on nontravel items are lower than direct travel components, about one-third of his business came from selling theater tickets, spa treatments and other add-ons.
"You have to manage the mix carefully," he said, "but you have to remember, a trip is not only about [transportation and hotels]. People want to feel good about traveling. So if you can add a show to a hotel for 10 pounds more, you want to do that."
These suggestions -- differentiate, focus hard on what's profitable, stay away from inventory risk and dress up a trip with client-pleasing extras -- won't necessarily lead you to growth in an otherwise down year. But they may well help you reach the most crucial task of 2010: Staying in business long enough to celebrate the recovery of 2011.
Contact Arnie Weissmann at [email protected], and follow him on Twitter.