Tour operators say tide turning in their favour

The travel sector is under pressure but it is confident it can beat low-cost airlines and benefit from the high costs of holidaying at home, writes Barry O'Halloran.

War, pestilence and low-cost carriers almost spelled Apocalypse for some in the travel business last year. The invasion of Iraq and the SARS outbreak encouraged many Europeans, including the Irish, to stay at home. At the same time, the growing number of low-cost carriers continued to eat into the tour operators' customer base.

Mytravel, the UK-based plc which owns Panorama and Airtours in the State, reported a £911 million (€1.3 billion) loss for the year to the end of September. Another British player, First Choice Holidays, which owns Falcon JWT, fared better, but acknowledged that it had a difficult start to the year. It had pre-tax profits of £87.1 million for the 12 months to October 31st.

According to Mr Niall McDonnell, managing director of Panorama and Airtours and president of the Irish Tour Operators' Association, Mytravel's Irish operations did perform well. He estimated they turned over €110 million in 2003 between them. Both are profitable, but he will not reveal this figure.

However, back-of-envelope calculations based on results for previous years estimate pre-tax margins across the tour operating business at between 6 per cent and 8 per cent. This suggests that the businesses could have generated between €6 million and €8 million in pre-tax profits last year.

Falcon JWT boss, Mr Damian Mooney, is even more coy about the company's financial performance. He will not discuss it at all, but points out that the overall Irish market is worth €500 million, and says his company has 30 per cent of this. On this basis, it had sales of €150 million in 2003. Companies Registration Office (CRO) filings for previous years show First Choice's Irish operations' pre-tax margins running at the 7 per cent mark. This would give the company an estimated €10 million pre-tax profit for 2003.

While business was profitable last year, Mr McDonnell points out that it failed to match 2002, a year against which he says all others will be measured for some time to come. The World Trade Centre attack failed to deter Irish people from travelling that year, and business was boosted by the fact that the euro allowed them to see clearly that they were getting better value for money abroad.

Tour operators were up against another difficulty last year, the Irish weather. It did something truly unpredictable and turned out to be very good. This prompted many of what Mr McDonnell describes as late bookers (that is people who book weeks, rather than months, before they travel) to stay at home.

But he believes that the high cost of holidaying here is driving them back to the travel agents and tour operators. "If you've got a family, keeping children fed and watered in this country is very expensive, no matter what the weather," he says.

This month, traditionally the busiest for package holiday booking, will give a good indication of what is coming down the line this year. Both Mr McDonnell and Mr Damian Mooney of Falcon JWT are optimistic that this year will see the sector's fortunes changing for the better.

But even without an outbreak of war or SARS, companies like Panorama and Falcon are still facing competitive pressure from low-cost carriers. Mr McDonnell accepts that they are here to stay, but argues that tour operators still deliver better value. Naturally, he is hugely suspicious of people booking flights and accommodation online.

He is sceptical of the actual savings available, arguing that no-one has sat down, and compared, on a strict, like-for-like basis, the cost of a conventional package to a popular destination, with what consumers can get by flying with a low-cost operator and booking their own accommodation.

"What do you do if there's a problem when you get there?" he asks. "What happens if you arrive at the hotel and they've never heard of you? You can't talk to the worldwide Web. We have representatives at all our destinations who are there to deal with problems if they arise."

He also points out that tour operators are bonded, so people are compensated if one folds. Airlines are not, so if one goes under (or never takes off in the first place as happened last year), their customers risk being left high and dry. Mr McDonnell believes airlines should have the same bonding requirements as tour operators. They and travel agents are required to pay a bond to the Commission for Aviation Regulation (CAR), which is used to compensate customers if an agent or operator folds.

The federation has raised this with the Minister for Transport, Mr Brennan. "There is a consumer protection issue there, and we would like to see a level playing pitch," he says.

The federation is only a year old. It was founded as a response to the changing economic and regulatory conditions in which the industry found itself. Since last year, it has been lobbying on a number of fronts. One of the first organisations in its sights was Aer Rianta, which it felt was neglecting tour operators.

He points out that one in five of the 15 million passengers who pass through Dublin Airport every year are tour operator customers. However, he claims that the recent revamp of the airport's terminal treated the operators as something of an afterthought. One thing they were seeking was a dedicated information desk for their customers. Once the issue was raised, the airport's authority agreed to provide this.

It was a good beginning for the organisation, but it looks like it wasn't even close to half the work it faces in fighting its industry's cause.