2016 THE GOOD THE BAD AND THE UGLY
The good: Helloworld’s merger with AOT, which was finalised in February, has certainly brought big changes to Australia’s second biggest travel agency group. After the travails of the previous years, members have welcomed the stability brought by Andrew and Cinzia Burnes – along with executive salary cuts and more recently a share giveaway and an offer to purchase stakes of up to 25% of franchisees. Suppliers have also welcomed a stronger Helloworld as a counterpoint to the dominance of Flight Centre. While there’s still a way to go, there’s no doubt the organisation has benefited from strong leadership and initial grudging acceptance of the Burnes’ vision has turned into widespread acclamation both internally and externally. The shareholders are very happy too, with the HLO share price more than doubling since the beginning of the year. The bad: However there’s no doubt it’s been a tough year for the sector, with even Flight Centre not immune to market conditions. A profit sneeze issued by FLT last month saw the whole industry catch cold, with the company warning of a “challenging trading climate globally”. Despite volumes and TTV up, Flight Centre said profit-wise it had experienced a “subdued first half” with a result about $20 million lower than the prior corresponding period. Factors that influenced the drop included slow UK trading after the Brexit currency slump, lower than expected profits in its touring division and of course record low air fares. It should be noted, however, that despite the warning Flight Centre still expects to achieve a record $20 billion in TTV this year and its forecast fullyear underlying result of up to $355 million means the company is still making almost $1 million in profit each and every day. The ugly: Despite the doomsayers, a number of agency collapses earlier in the year hasn’t resulted in the wholesale denigration of travel agents. However there’s no doubt the shonks have seen negative publicity, with the failure of Value World Travel – and its subsequent abortive phoenix-like rise as Yupp Travel – a notable example. As a side note, the same serial offender looks to have emerged from the ashes yet again, this time in the liquor industry, trading as Value Cellars.
The good: On the airline side the big success story this year has been the Qantas transformation. After several difficult years Qantas has emerged into the sunshine of profitability. It hasn’t come without pain, but the result is impressive – an 80% increase in the carrier’s pre-tax profit to $1.42 billion. Every part of the business contributed to the record figure, including Qantas International which is no longer a drag on the other divisions. The result was good news for Qantas staff too, who received a total of $75 million in bonuses, or about $3,000 each. It’s also put the airline in good stead for future investment in products and services such as new aircraft and routes as well as in-flight wifi which is expected to start appearing next year. The bad: The aviation sector overall was impacted by heavy overcapacity as global carriers turned their sights on the relatively strong Australian market. Fares have dived to historic lows, which is great news for consumers and hopefully will drive demand. However it also means everyone in the industry is doing more work for less return. Some carriers have reacted by slashing fares and yields to levels many in the industry have called irrational, which has made the trading environment – particularly to Europe – very difficult indeed. The ugly: Relations between Virgin Australia and Air New Zealand reached a low point earlier this year after what was believed to be a failed boardroom coup saw NZ ceo Christopher Luxon abruptly resign and announce the sale of the airline’s 25% stake in Virgin. While both parties are all smiles when it comes to their trans-tasman alliance, the same definitely can’t be said for long haul operations where Air NZ’S new state-based strategy targeting travel to North and South America sees it competing head to head for Virgin Australia’s US passengers.
The good: The US$13 billion merger between Marriott and Starwood this year has created the world’s biggest hotelier with almost 1.1 million rooms on offer every night, as well as a further 420,000 in the development pipeline. The powerhouse comprises 5,700 properties in 110 countries, leapfrogging Hilton Worldwide which has about 4,700 hotels across the globe. The bad: Traditional travel agents and wholesalers have been collateral damage in an ongoing battle between hoteliers and Online Travel Agents. The Expedia-priceline duopoly has given the OTAS exceptional power to charge high commissions, and hotels have been pushing back aggressively, particularly targeting direct bookings. This has shown itself in value-adds such as free wi-fi for loyalty club members who book direct, with hotels actively cultivating direct relationships with frequent travellers. The ugly: Disruption is a fact of life these days, but the rise of Airbnb has seen predictable squeals from the accommodation industry at every turn. There was a refreshing new perspective from Mantra ceo Bob East last month, who noted at the company’s annual general meeting that he had not seen an impact from Airbnb and suggested any expansion of the visitor economy should be welcomed rather than bemoaned.
Technology and OT As
The good: One of the worst kept secrets in the travel industry this year has been the status of the massive Flight Centre GDS contract. Long the jewel in the crown for Travelport, Flight Centre put the deal up for grabs and it’s understood that in almost all cases FLT divisions have opted for alternative providers. While nobody is able to comment formally, and the official statement from Travelport is simply that “we continue to have a multi-year agreement with Flight Centre,” the big winner appears to be Sabre which is believed to be set to switch over Flight Centre in Australia and New Zealand in 2017. Amadeus is also understood to have won the Flight Centre business in Europe. Travelport’s reluctance to confirm what’s going on seems curious, given that the loss of such a huge
The past 12 months have seen some big changes in the Australian travel industry, with old players and new jockeying for position in all segments. The Chinese curse “may you live in interesting times” has certainly rung true for travel agents, airlines and other suppliers during 2016. Bruce Piper delves into some of the highs and lows of the year that was.
customer – estimated to be more than 24 million segments annually – is surely a material issue that should be disclosed by a public company. The bad: Flight Centre and Helloworld both continue to dabble in the online space but neither seem particularly serious about it. Helloworld terminated its multi-year agreement with Orbitz Worldwide and at this stage does not appear to have re-introduced online booking capability for flights on helloworld.com.au (despite promising a new site would roll out by 31 August). And Flight Centre’s Sean Sutherland admitted in October that the company’s unfortunately named Aunt Betty online venture was very much a “work in progress” at this stage. Both could be missing out on revenue from the growing online segment as a result. The ugly: Webjet’s TV advertising campaign, which took a cheap shot at traditional travel agents by incorrectly implying the OTA had access to a wider and more current range of fares, provoked an extremely strong reaction from the trade. The matter escalated, with AFTA lodging a formal complaint with the ACCC about the advertising, as well as claims in the Webjet Exclusives package offers that invalid price comparisons were being used.
The good: Cruise continued its relentless growth this year, with global cruise lines now well and truly focused on the local market which has shown stunning resilience and potential. The highly anticipated arrival of Royal Caribbean’s Ovation of the Seas is set to boost public awareness of cruising even more, and the ship’s advanced features are likely to continue to change perceptions of what it means to take a cruise holiday. The opening of new local offices for Norwegian Cruise Line, Oceania, Regent Seven Seas and Crystal Cruises is also further recognition of the Australian cruise market – and the key role travel agents continue to play in this sector. The bad: Despite the growth of cruise in Australia, Cruise Lines International Association globally does not seem to have recognised the vital role river cruising has in the local market. Key river operators such as APT, Scenic, Avalon Waterways, Uniworld, Aqua, Croisieurope and more are all members of CLIA and yet the industry scorecard issued by the organisation this year for the first time omitted any river cruising statistics. There was a suggestion these would be compiled in a separate report but it is now December and nothing has been forthcoming – surely a bone of contention given the fees paid by the local river cruise operators to the organisation.
The ugly: There also appears to be significant angst within CLIA about the rise of Cruise Down Under – now known as the Australian Cruise Association – which counts many cruise lines as members along with ports, destinations, ground operators and suppliers. The ACA conference took place just a week before CLIA’S Cruise360 event – and featured Crystal Cruises ceo Edie Rodriguez as a keynote speaker. Both organisations compile almost identical reports about the economic contribution of cruise to the local economy – surely there is a way for to reduce this duplication of effort and combine resources.
The good: This year for the first time saw the launch of fly free offers in conjunction with touring product, which by all accounts has been a major success. The Travel Corporation initiative was rolled out across all of its guided holiday brands, starting with Insight but then followed by Trafalgar and even Contiki. Others, such as the Globus family, were late to the party but responded strongly, with air credit offers very well received by agents. With fly free deals in previous years having been a strong driver of river cruise bookings, the land operators will be hoping the initiative could see a rejuvenation of the coach sector which is still a huge part of the global travel industry - and a key revenue source for travel agents. The bad: Repeated terrorist attacks in Europe slammed demand, making 2016 very challenging for the leisure sector. It’s now just over 12 months since the first assault in Paris, which was followed by the bombing at Brussels Airport in April and then the horrific attack in Nice during July – not to mention the tragic situation in Turkey and with Syrian refugees across Europe. The resilience of the Australian traveller has certainly been tested, with agents and operators having their fingers and toes crossed for a quick recovery in 2017. The ugly: The Globus Family of Brands raised eyebrows earlier this year when the company revealed it had made a “business decision” not to be part of the ATAS accreditation program. That of course had a domino effect meaning it could also no longer be an AFTA member, nor a member of the Council of Australian Travel Agents – and the operator’s staff were also ineligible to enter the National Travel Industry Awards. While no formal announcement has been made, it’s understood that the decision has now been reversed, with Globus back in the AFTA/ATAS/ CATO/NTIA fold.
The good: The ongoing success and professionalism of the AFTA Travel Accreditation Scheme should be applauded, with the industry as a whole embracing the program which continues to gain traction and exposure via AFTA’S various marketing campaigns. AFTA ceo Jayson Westbury has highlighted the growing awareness of the scheme at the various recent travel agency group conferences, telling delegates “who would have ever thought AFTA would be running TV campaigns promoting the value of travel agents”. The bad: The government’s controversial $5 increase to the Passenger Movement Charge has attracted strong opposition from the industry. While some have questioned the reaction to such a small hike – about the price of a cup of coffee – it’s true that the government clearly sees tourism and travel as a cash cow and AFTA and the TTF have been united in saying “enough is enough”. The ugly: This year saw the long-awaited final report from the Travel Compensation Fund, which revealed that about $19 million in TCF moneys – originally contributed by travel agents – had been returned to the states. Tasmania stands alone at this stage in directing these proceeds to marketing travel agents, and it’s understood that other jurisdictions are being lobbied to make similar moves. However some states are believed to be seeing the money as compensation for bailing out travellers after the Ansett collapse in 2002.
The good: Delta Air Lines shifted its local representation from World Aviation Systems to The Walshe Group this year – bucking the trend by online carriers of setting up their own self-handling offices. Clearly Delta sees the economies of outsourcing its office here as a GSA, and the win by Walshe was a very welcome addition to its premium portfolio. The bad: The destination representation sector continues to grow – particularly from North America where now individual cities and even attractions are signing up representation alongside states and regions. While the attention to the Australian market is welcome, it can also be very confusing for agents and suppliers. A case in point is the dichotomy between Brand USA, the official marketing organisation for America – and Visit USA, a committee of suppliers who band together to promote the USA together. This confusion sometimes gets in the way of a more cohesive message. The ugly: Helloworld’s representation division still exists – just – in the form of World Aviation Systems and Global Aviation Services. However the business, which was notably absent from a graphic depicting the Helloworld brands in the company’s annual report, has lost several key contracts this year. 2016 also saw the departures of senior WAS/GAS executives – allegedly amid legal action – a sad footnote to this once flourishing representation organisation.
Webjet’s TV advertising campaign took a cheap shot at traditional travel agents by implying the OTA had access to a wider and more current range fares...’ of