From the man­ag­ing editor

Travel Bulletin - - CONTENTS - Bruce Piper

While seem­ingly in a com­pletely un­re­lated sec­tor, the col­lapse of the Dick Smith Elec­tron­ics chain ear­lier this year could have some in­trigu­ing ram­i­fi­ca­tions for the travel in­dus­try. The high pro­file re­tailer, which ran out­lets in shop­ping cen­tres across the coun­try, had a turnover (read TTV) of about $1.3 bil­lion when it went into vol­un­tary ad­min­is­tra­tion, ow­ing cred­i­tors a whop­ping $260 mil­lion. Read­ing the cred­i­tors’ re­port is in­struc­tive, be­cause it shows how much Dick Smith re­lied on “re­bates” from sup­pli­ers – bonus pay­ments based on pur­chase vol­umes. The re­bates gave man­age­ment an in­cen­tive to al­legedly buy ex­cess stock, be­cause the rev­enue was recorded when items were re­ceived, rather than when they were ac­tu­ally on-sold to cus­tomers. In the end the ex­tra stock had to be sold at a dis­count – but it was hoped the orig­i­nal re­bate would cover the short­fall. That turned out not to be the case, and the busi­ness col­lapsed be­cause it was ac­tu­ally sell­ing items at be­low cost. Sound fa­mil­iar? The con­trac­tual ar­range­ments be­tween air­lines and travel agents could lead to a sim­i­lar sit­u­a­tion. While agents re­ceive base com­mis­sion on many air­fares, re­tail groups also ne­go­ti­ate “over­rides” and “su­per-over­rides” giv­ing ad­di­tional pay­ments based on vol­ume tar­gets. As dead­lines for achiev­ing th­ese tar­gets ap­proach it is be­com­ing in­creas­ingly com­mon for groups to dis­count prices be­low cost, in the hope they get to the sales fig­ure re­quired and make an over­all profit. The prob­lem, of course, will oc­cur if this strat­egy fails and the agent ends up los­ing money on a large num­ber of tick­ets – just not quite a large enough num­ber to reach the tar­get and wipe out the losses. The pro­lif­er­a­tion of sites such as Skyscan­ner and Cheapflights, which al­low easy com­par­isons of fares, seems to be a fac­tor in driv­ing them ever lower as OTAS search for market share by be­ing just a lit­tle bit cheaper than their com­peti­tors. The agen­cies hope their over­all re­sult will be a profit be­cause they will hit the tar­gets, but it is po­ten­tially a slip­pery slope and con­tra­dicts the fun­da­men­tal of busi­ness that you should al­ways sell some­thing for a higher price than you paid for it. MEAN­WHILE in this is­sue we look back at 2016 which has seen some ma­jor de­vel­op­ments in the in­dus­try. Next year I ex­pect more big changes – par­tic­u­larly in the light of the in­creas­ing age of some key play­ers. It will be fas­ci­nat­ing to see this play out, with Hel­loworld’s cun­ning ac­qui­si­tion of MTA hav­ing surely prompted thoughts among oth­ers about their exit – and per­haps in the process mak­ing way for the rise of the next gen­er­a­tion of Aus­tralian travel en­trepreneurs.

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