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Funding the travel industry

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Nebulous2
Nebulous2 Posts: 5,673 Forumite
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edited 19 May at 4:53PM in Coronavirus Board
I've said before this crisis has shown the unsuitability of the current funding model. 

We pay huge sums of money often a year in advance and the industry uses much of it as working capital. When diaster strikes and we need it back - it has gone. 

Contrast that with what for many people is an even bigger purchase, a car. We pay a modest deposit on ordering and the rest on delivery.

Seems like the industry agrees the funding model needs fixed.
https://www.travelweekly.co.uk/articles/386393/tour-operators-consider-insisting-travel-agent-customers-pay-them-direct

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  • Westin
    Westin Posts: 6,326 Forumite
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    edited 18 September 2020 at 9:49PM
    Valid point and worthy of discussion in the New World. Equally I think the margins in travel are wafer thin as customers seek "Cheap" holidays.

    Few probably look to buy a cheap new Volvo or BMW from the dealership, instead will look for a car that suits their needs or from a car manufacture they trust or aspire to buy from. For holidays there seems to still be a sizeable proportion of people who consider their holiday needs as secondary with cheap price being the main search criteria. They then buy on price with little or no research on who they are giving money to, only afterwards complaining that the holiday purchased doesn't meet expectations. To feed these cheap seekers lots of online companies entered the market, often trading from overseas and many having very limited staffing and resources to reduce operating costs.  When things fall out of the ordinary operation, chaos often follows with customers left trying to sort out a mess.

    Like you I would like to think that the way the industry operates will change - but also hope so will customer behaviours.   Possibly licencing will be different, bonding, rules on working capital. Who knows.  I suspect however despite the current examples reported on these boards that the main issue will be consumers behaviour.  People have short memories and price often sways - even £1 cheaper.  Wishful thinking? 
  • We had better ignore who it was who made the comment.....
    This crisis has really made everyone think of the best way forward. No one should be in the business of losing money, either as a consumer or supplier, but many of the problems have been caused by airlines unwilling or unable to refund to either direct customers or to agents and operators who made the reservation in the first place. There is a very interesting proposal to prevent that happening again, payment for the ticket would be made, as usual, so the airline is guaranteed to be paid but not made available to the airline until the date of travel, so that the funds could be returned if the flight fails to take off, for whatever reason. There is only one fly in the ointment, the airlines won't agree as they have been living on 'unflown revenue' for years.
    There is however a big difference between buying a car and a holiday. In fact, I bought a new car about 6 weeks ago, the dealer probably made a profit of £2000 and the manufacturer considerably more. But if my bank transfer (they refused to accept payment by debit or credit card) had failed, the car could have been sold to someone else at a later date. A holiday is perishable when check-in closes and the seat isn't sold, the holiday is lost and the tour operator may still have to pay for the seat and the accommodation. Two weeks ago a small operator sent an email out on Friday desperate to sell holidays departing on Monday to a Greek island at half the usual price because clearly he had committed himself to pay the airline for the seats and the owner of the apartments for the accommodation. If he didn't sell them, he still had to pay. 
    On average holidays sold in the UK are cheaper than the same holidays sold in Holland, Germany or France. We are used to getting a bargain and as Westin says, even though you will find hundreds of complaints about the failure of some online agents to communicate or even refund, next year people will still search for 'cheap holidays to Spain' and book with the same or similar company because they are a pound cheaper than the next company. If we want things to change the cost of holidays has got to change too...



  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    edited 18 September 2020 at 2:54PM
    Nebulous2 said:
    We pay huge sums of money often a year in advance and the industry uses much of it as working capital. When diaster strikes and we need it back - it has gone. 


    How is the industry supposed to operate then?  When you book an airline ticket. The airline is committed to the cost of leasing the plane, having a crew available, paying for landing slots, forward hedging the cost of aviation fuel, having customer service staff available, having an engineering/maintenance department,  running a website, marketing their flights, running a head office , the list goes on. 
    The sheer scale of the redundancies in the travel sector illustrates how fragile and low profit margins are. There's little fat in product pricing. RyanAir made a pre tax profit of around £5.70p per passenger in 2019. 
  • Agree with all.  I think the day’s of budget holidays are numbered along with budget airlines and all the numerous “agents”.  People will book direct with the airline and I can see a reversal to when only the rich could afford a holiday abroad.  Hope not but...  
    as any flight prices are reliant on supply and demand,  maybe there will still be bargain flights to be had?   


     
  • bagand96
    bagand96 Posts: 6,562 Forumite
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    edited 18 September 2020 at 6:46PM
    Flying now is cheaper than it's ever been.

    Much of the reason for that is the dynamic pricing system.  You could be sat on a plane having paid £25.99 and the person next to you could have paid £125.99.  You don't see those % swings in new car prices.  It would be very hard to implement dynamic pricing without upfront payment.

    I'm not saying the current system is perfect, but be careful what you wish for.  Regulated flying with fixed airfares was what made it so expensive in the past when foreign travel was exclusively for the rich.

    Nobody has to pay for a holiday a year in advance of course.  You choose to.  You could leave it until a few weeks before you travel, obviously running the risk of less choice etc
  • epm-84
    epm-84 Posts: 2,757 Forumite
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    bagand96 said:
    Flying now is cheaper than it's ever been.
    How budget airlines operate is one of the main reasons for the problems.  Customers who booked directly with Ryanair had problems getting refunds of amounts like £50 but what if you're a travel company that booked 500 customers on flights with Ryanair and consequently are owed £25,000?  That's one of the main reasons why even the more professional holiday companies have tried to get people to rebook for a later date where possible.  Years ago holiday companies wouldn't have bothered with budget airlines but now that most flights between Britain and Europe are operated by budget airlines they don't exactly have much choice as who is going to want to fly via Heathrow to use a traditional airline, when a low cost airline flies direct from their local airport?

    Then if you consider how budget airlines operate it's on the basis that their planes are in the skies as much as possible as airports charge them for the time their planes are out-of-use and they make money from when their planes are in use.
  • epm-84
    epm-84 Posts: 2,757 Forumite
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    Nebulous2 said:
    We pay huge sums of money often a year in advance and the industry uses much of it as working capital. When diaster strikes and we need it back - it has gone. 
    Most holiday companies don't have any problem refunding customers when the FCO advice against travel to a specific region or country e.g. we didn't see all these problems when holidays to Egypt or Tunisia were cancelled due to FCO advice.  However, what they hadn't/couldn't plan for was in March this year the FCO advised against all international travel indefinitely and since then have only lifted the restriction for a relatively small number of countries.
  • bagand96
    bagand96 Posts: 6,562 Forumite
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    epm-84 said:
    bagand96 said:
    Flying now is cheaper than it's ever been.
    How budget airlines operate is one of the main reasons for the problems.  Customers who booked directly with Ryanair had problems getting refunds of amounts like £50 but what if you're a travel company that booked 500 customers on flights with Ryanair and consequently are owed £25,000?  
    Indeed.  You could argue it's a commercial risk of the business model for Online Travel Agents who are pairing low-cost airlines flights with hotels to sell a package.  Since 2018 the law has viewed this arrangement as the same as a package holiday and given the consumer the similar protections.

    You're absolutely right abut the unforeseen and completely unprecedented nature of the 2020 Covid-19 problem.  Nobody could have foreseen the virtual complete stop of international aviation for a prolonged period.  Be they an airline, a tour operator, a travel agent, or a consumer. The entire industry just was not prepared for it and ground to a halt on many levels.

    There has been some talk in Germany of airline's not receiving funds until a flight is flown, with some groups calling for it.  Whether it could work or not with the way the industry currently works I don't know.
  • epm-84
    epm-84 Posts: 2,757 Forumite
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    bagand96 said:
    epm-84 said:
    bagand96 said:
    Flying now is cheaper than it's ever been.
    How budget airlines operate is one of the main reasons for the problems.  Customers who booked directly with Ryanair had problems getting refunds of amounts like £50 but what if you're a travel company that booked 500 customers on flights with Ryanair and consequently are owed £25,000?  
    Indeed.  You could argue it's a commercial risk of the business model for Online Travel Agents who are pairing low-cost airlines flights with hotels to sell a package.  Since 2018 the law has viewed this arrangement as the same as a package holiday and given the consumer the similar protections.

    You're absolutely right abut the unforeseen and completely unprecedented nature of the 2020 Covid-19 problem.  Nobody could have foreseen the virtual complete stop of international aviation for a prolonged period.  Be they an airline, a tour operator, a travel agent, or a consumer. The entire industry just was not prepared for it and ground to a halt on many levels.

    There has been some talk in Germany of airline's not receiving funds until a flight is flown, with some groups calling for it.  Whether it could work or not with the way the industry currently works I don't know.
    It's not just the online travel agents.  If you look at packages sold by the likes of Newmarket they are priced on Heathrow/Gatwick flights with BA or equivalent but if you want to instead fly from a regional airport they'll put you on whoever operates from the regional airport on the day you want to travel.  That might mean you still get a traditional airline if one operates on the route e.g. Manchester to Lisbon where TAP operate but if it's a Croatia holiday then it'll be Easyjet or Jet2.
  • Butts
    Butts Posts: 1,293 Forumite
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    epm-84 said:
    bagand96 said:
    epm-84 said:
    bagand96 said:
    Flying now is cheaper than it's ever been.
    How budget airlines operate is one of the main reasons for the problems.  Customers who booked directly with Ryanair had problems getting refunds of amounts like £50 but what if you're a travel company that booked 500 customers on flights with Ryanair and consequently are owed £25,000?  
    Indeed.  You could argue it's a commercial risk of the business model for Online Travel Agents who are pairing low-cost airlines flights with hotels to sell a package.  Since 2018 the law has viewed this arrangement as the same as a package holiday and given the consumer the similar protections.

    You're absolutely right abut the unforeseen and completely unprecedented nature of the 2020 Covid-19 problem.  Nobody could have foreseen the virtual complete stop of international aviation for a prolonged period.  Be they an airline, a tour operator, a travel agent, or a consumer. The entire industry just was not prepared for it and ground to a halt on many levels.

    There has been some talk in Germany of airline's not receiving funds until a flight is flown, with some groups calling for it.  Whether it could work or not with the way the industry currently works I don't know.
    It's not just the online travel agents.  If you look at packages sold by the likes of Newmarket they are priced on Heathrow/Gatwick flights with BA or equivalent but if you want to instead fly from a regional airport they'll put you on whoever operates from the regional airport on the day you want to travel.  That might mean you still get a traditional airline if one operates on the route e.g. Manchester to Lisbon where TAP operate but if it's a Croatia holiday then it'll be Easyjet or Jet2.
    In the current climate and with their current policies it makes sense to book a package direct with BA.
    Not only do you have the customer promise but also a small deposit and the balance due three weeks before you travel.
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