Arnie WeissmannNo other segment of the travel industry offers as many options for risk as tour operators enjoy (if enjoy is the right word).

On one end of the scale, you can be a very successful tour operator and own virtually no tangible goods. Travel agents promote and distribute your products. Your guests fly to a destination on another company's airline and stay in yet another company's hotel.

Escorted tour operators can use leased motorcoaches and contract with independent tour leaders to take care of guests once they've arrived at their destination.

As a result, a skilled negotiator and marketer can make a handsome living as a tour operator while owning virtually no asset other than reservations technology and goodwill.

On the other end of the scale are (mostly European-based) tour operators who run vertically integrated operations. They own the travel agency that sells their tours, run their own airlines to shuttle customers back and forth between major cities and popular resort destinations, own and manage the hotels in which their guests stay and employ virtually everyone involved in the operation.

Among U.S.-based tour operators, a few companies have found a comfortable perch on various points of the scale between owning nothing tangible and running a fully integrated operation.

Arguably, no U.S. tour operator has taken on more risk than Apple Vacations. Although it has shied away from retailing, it owns a small airline (USA3000) and hotels (AMResorts, which includes the brands Secrets, Dreams, Zoetry and Now).

And, importantly, it is among a small handful of tour operators that can put a major resort destination on the map: It was among the very first to see the potential of both Cancun and Punta Cana.

I recently had the opportunity to sit down with the company's founder and CEO, John Mullen, and his son Tim, who, along with his brother Jeff, is co-president: Tim focuses on marketing, Jeff on operations.

John's mild manner seems at odds with his appetite for risk. Even his approach to hotels is aggressive: Few hotel brands -- not Marriott, not Starwood -- own the hotels they manage. They prefer to focus on management and distribution, leaving ownership to outside investors. John, in contrast, has an ownership stake -- usually between 30% and 50% -- in each of the 22 branded properties in the Apple portfolio.

I asked him if the rewards have been commensurate with all the risks he has taken.

"I don't think so," was his surprising answer, "at least not for the last decade. There are times you say yes, but this past decade, with 9/11, strikes, war, recession, viruses, it's been very, very challenging, and you wonder sometimes whether taking all that risk is really worth it. But we manage risk very well. We have some very good people. And it's ultimately rewarding because we would never have been able to do a lot of the things we've done if we never took risks."

John sees taking on risk as the natural response to maximizing prospects.

"I had gone down to Cancun in 1976 and thought, 'This is an opportunity,' so I tried to put a program together but couldn't get direct air seats. We had to go through New Orleans and down to Cozumel first. But I just knew that this was a destination that was going to take off, so I ran charters from Philadelphia. That was the beginning of the charter programs into Cancun."

A similar thing happened with Punta Cana in 1996, when there were only about a dozen hotels in the area. This time, however, it was Tim and Jeff who saw the potential.

"They said, 'You've got to see this place,'" John recalled. "I wasn't interested; I'd had problems in the Dominican Republic. But they fought me. They took a group of travel agents there on a charter. I didn't even go. After they got back, I asked how it went, and they said they'd taken four orders for groups on the flight back. That had never happened before."

Today, AMResorts has six properties in the Dominican Republic, with an additional five scheduled to open in 2012. I asked John where he thought the Next Big Thing -- the next Cancun, the next Punta Cana -- would be, and again his answer surprised me.

"Colombia," he said. "We've been pushing deeper and deeper south. We've been expanding in Costa Rica and Panama. Colombia has beautiful beaches that are undiscovered. We're finding the cost to operate hotels there to be an advantage. The only thing against it is the perception people have about it because of problems in the past. That still sticks in the minds of some people. The younger generation, I don't think they remember that. But still, we're treading very softly, discovering what it's like."

If he decides to go full bore into the destination, it's then that he can leverage his diverse assets to their maximum.

"You look at what we did in Cancun and Punta Cana. We can bring travel agents down there because we have our own airline, and they can see the beauty and the beaches, and that gives us a head start," he said. "And we can grow with the destination. What will follow is that other airlines will file for the right to fly there, and our real estate division will look for places to acquire, and AMResorts will look for hotels to manage."

Don't expect Apple to go further into South America, John said. "I'm not sure we can get much beyond Colombia because of the time involved. That's about the end of the range. Four hours [from the East Coast of the U.S.] is as far as people can sit quietly and enjoy the flight."

But John believes plenty of opportunity still lies in a four-hour radius within the Caribbean and Central America.

"And then there's Cuba," he added, "which will be a great opportunity for us when it opens -- not only for Apple Vacations but for the hotels and airline."

John said that travel agents have been instrumental in helping him weigh risks. He said the "four-hour flight" rule came from intelligence picked up by sales reps speaking with agents.

"Lots of our research comes from talking to agents," John said. "That's really what happened with the all-inclusives."

Tim added: "Early on, the support for all-inclusives was great, but then we saw diminishing returns. We asked agents about this and were told the product they were seeing wasn't really what the mass market wanted. They wanted something nicer than what was being offered. So we responded. We went from plastic cups to glasses, dispenser service to waiter service."

To underscore the point, the company now uses the term "unlimited luxury" instead of "all-inclusives" in its marketing material.

John: "We saw the trend clearly, went with it and grew it. I remember someone said, 'You may see 50% [of Apple's guests] going to all-inclusive rather than [European plan] in Mexico,' and I thought, No way."

Tim: "Now, it's 95%."

John: "And because the service has been upgraded, we see a lot of incentive groups that would never have gone before."

Tim: "And meeting planners. All-inclusives keep them on budget, which helps them keep their jobs."

Reflecting on this conversation, I think I might have isolated some of the elements that enable someone to take greater-than-normal risks for 40 years and end up as strong as Apple is. Although John said his rewards had not always been commensurate with the risk he'd undertaken, especially over this past decade, any tour operator that's heavily dependent on Mexico has had a rough 10 years.

When I look at the growth in the hotel side of his business -- his current 22 hotels will expand to "30, maybe 32" by the winter of 2013 -- I can't help but believe his diversified portfolio has left him well positioned for the next 10 years.

I think one reason John has been successful in managing risk so well over 40 years is that he's open-minded. Some entrepreneurs, having first achieved success by following their gut, become convinced that they have superior intuitive powers, and they place a higher premium on their instincts than on external input.

In the course of our conversation, John told me three success stories. In the first, Cancun, he related how he personally saw its tremendous potential and took great risks to maximize the opportunity, all of which paid off very nicely.

In the second, Punta Cana, he admitted his instincts had been dead wrong. But he was willing to listen to his younger, less-experienced sons and send a plane-load of travel agents down there to prove himself wrong. (Actually, he might have done it to prove himself right, but he kept his mind open.)

And in the third, the growth of all-inclusives, he said he saw the potential for expansion, but admits he was off by almost 100% in estimating its potential.

John peppers his conversation with "we" rather than "I." The world is filled with self-proclaimed self-made men and women who are more than willing to tell you how they built something great from nothing by taking risks and relying on their gut.

But I suspect that those who engage in risky business are much more likely to succeed when they, like the Mullens, enjoy listening to a chorus of voices rather than simply the sound of their own.

Email Arnie Weissmann at [email protected] and follow him on Twitter.


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