The package holiday isn’t dead. It’s just reincarnated

Michael O’Leary says the package holiday is ‘over’ – but don’t write it off just yet

Ryanair, Chief Executive Michael O’Leary speaks about the package holiday market, Brexit, tourism and youth unemployment at a Reuters Newsmaker event in London. Video: Reuters

 

Michael O’Leary knows how to grab a headline. This week the Ryanair boss declared that he thinks the package-holiday market “is screwed, it’s over... The tour-operator model is dead, in much the same way as the travel-agency model is dead”. He hadn’t even sat down or taken off his jacket, but already the journalists listening to him at an event in London were scribbling furiously.

Even allowing for his occasional hyperbolic flourishes, this is quite the damning statement, especially in light of the calamitous collapse, a fortnight ago, of the Thomas Cook travel company, with the loss of up to 22,000 jobs.

But Thomas Cook’s demise, though a blow for the travel industry and the thousands of employees who suddenly find themselves out of work, was a disaster largely of its own making and a long time coming.

Earlier this summer Thomas Cook faced collapse after losing €1.7bn. A frantic effort to arrange a rescue deal came up short, and a fortnight ago the company called it quits

It may have been the world’s oldest tour operator, with an enviable reputation for customer service, but, beginning in 2007, it made a series of missteps at odds with market wisdom, which at the time was more concerned with online sales and the growing threat to the package-holiday business by low-cost airlines. Thomas Cook opted to get bigger.

Two big mergers – in 2007 with MyTravel and four years later with the Co-operative Group – resulted in a new company with more than 1,200 retail outlets, including multiple shops in some towns and even on some of the same streets.

The company’s boss, Manny Fontenla-Novoa, wanted to run the world’s largest tour operator, but instead he got a bloated beast that struggled to streamline shops and jobs.

Despite the best efforts of his successors, the company was saddled with a huge debt that ate away at the ever-narrowing profit margins of an industry fighting rearguard actions against online travel agencies and low-cost carriers such as easyJet, Norwegian and Ryanair.

The company was also hit by high fuel prices and hotels pushing up costs, while fine weather in the UK in 2018 and heatwaves across Europe in 2019 prompted many British customers to stay at home. The deep uncertainty about Brexit didn’t help, either, and earlier this summer Thomas Cook faced collapse after posting a loss of £1.5 billion, or €1.7 billion. A frantic effort to arrange a rescue deal came up short, and the company called it quits.

Burdened by bricks and mortar – the company still had more than 500 retail outlets throughout the UK – and stubbornly resistant to the necessity of an online presence, Thomas Cook’s failure was a tragic case of hubris, as its grandiose ambitions made it incapable of swerving to avoid the iceberg.

Thomas Cook customers wait to fly home from Majorca after the company’s collapse. Photograph: Jaime Reina/AFP/Getty
Thomas Cook customers wait to fly home from Majorca after the company’s collapse. Photograph: Jaime Reina/AFP/Getty

If Thomas Cook, with 178 years of experience, can go to the wall, what hope is there for others selling traditional package holidays? Is Michael O’Leary in fact correct in declaring them dead?

He’s right, but only partially. In 2002 there were 1.2 million charter seats out of Ireland; this year an estimated 170,000-200,000 will be sold. It’s the same for Britain, the traditional stronghold of the package holiday. Independent travel overtook packages for the first time in 2003, with 53 per cent of holiday makers booking their own trips abroad; five years later, it was 63 per cent.

The main reason for this was Ryanair, which began flying into traditional holiday destinations such as the Canary Islands. British carriers followed suit, adding to their route maps European sunbelt destinations previously only served by charter flights.

But those trends have levelled off in recent years, and in some cases reversed. And it’s not because holidaymakers from these islands suddenly rediscovered a love of the traditional package holiday but because many tour operators have shifted from the traditional package to a much more flexible model known as dynamic packaging.

John Cassidy, founder and managing director of Cassidy Travel, has nine shops spread across Dublin but is focused on a strong online presence and the development of dynamic packages.

“We use both low-cost carriers and full-service airlines and offer a much broader selection of beds selected from bed banks,” as hotel-room wholesalers are known. “And, if you’re bigger,” he says, “the volume is better, so you can package up at a very good price and still give the client full security.”

Dynamic packaging is the industry’s response to a market transformed by do-it-yourself internet bookings. It can make all the difference if something goes wrong

Dynamic packaging is the industry’s response to a marketplace transformed by do-it-yourself internet bookings. And as long as the booked dynamic package is a combination of at least two types of travel service (flight, accommodation, car rental or even a tour guide) and is sold for a single price, then it qualifies as a package holiday. Which makes all the difference if something goes wrong.

In Ireland, all travel agents and operators must be licensed and bonded according to the size of their firm, which means maintaining a cash reserve for all eventualities – whether it’s offering customers equivalent alternative accommodation or arranging transport to bring them home.

For the 160,000 or so customers stranded abroad because of the collapse of Thomas Cook, this was no mean feat. To get everyone home, the UK Civil Aviation Authority launched Operation Matterhorn, the biggest peacetime repatriation in British history.

So far the operation has been an unqualified success: more than 100 planes and 900 flights brought 98 per cent of passengers home on the day they were scheduled to return in the first place. (Thomas Cook closed its Dublin office in 2014, so the impact on Irish passengers has been minimal, limited to those who booked their holidays through its shops in Northern Ireland.) Anyone questioning the value of a package holiday should take note.

Graham McKenzie, founder of the UK travel trade website TravelMole, believes the effort is a silver lining on an otherwise very dark cloud. “The surprising thing about the repatriation,” he says, “is that people who weren’t on package holidays” – because they had bought flight-only deals – “got repatriated, even though there was no legal obligation to do so.”

Tanya Airey, managing director of the Irish agency Sunway Holidays, emphasises not just the importance of security when booking through a tour operator but the relationship with the customer. “Our clients want service, and we believe that’s why we get so many bookings. They value service, peace of mind and of course value for money. Those three things we can give people.”

The importance of customer care is echoed by Mary McKenna, founder and managing director of Tour America, whose niche business focuses exclusively on cruise holidays and packages to the United States. Packages make up 99 per cent of her business. “We’re able to hold the customer’s hand,” she says. “We have an office in Orlando, so we’re in touch with customers at the beginning, during and at the end of their holiday.”

The clincher for many customers is that they don’t have to pay for a package all in one go. A deposit of €50 can be enough to guarantee next year’s summer holiday

Customer service is important. Holiday security is vital. But in the end, for most people, it all comes down to cost – and there, too, package holidays offer an advantage to the consumer. Package holidays generally offer good value for money, but the clincher for many customers is that they don’t have to pay for it all in one go. A deposit – as little as €50 in some cases – is enough to guarantee next year’s summer holiday, with plenty of time in between to pay off the balance.

Despite the challenges of low-cost carriers, independent bookings and myriad other factors, Irish travel agents and operators are in relatively good business health.

John Spollen, president of the Irish Travel Agents’ Association, points to an impressive industry turnover of €1.1 billion in 2018, and 2019 promises to be even better. In the first six months of this year, Irish residents made more than five million trips overseas – a 7.3 per cent increase on the same period in 2018, which was itself 2.8 per cent higher than the same period in 2017.

These improved numbers are reflected in some travel agents’ balance sheets. Tour America will have its best ever year in 2019, according to McKenna, while Cassidy says that his business has grown by at least 5 per cent every year for the past five years.

But it’s not all plain sailing, not least for the consumer. One of the immediate consequences of the Thomas Cook collapse, according to industry insiders, is that low-cost airlines will look to fill the huge gap left in the market by the departure of Thomas Cook – and raise prices in response to demand. “My advice to anyone looking to book flights for next year is to wait at least for a few weeks, until things calm down,” says Graham McKenzie of TravelMole.

Michael O’Leary: the Ryanair boss is only partially right to say package holidays are finished. Photograph: Helmut Fohringer/AFP/Getty
Michael O’Leary: even the Ryanair boss has struggled with travel-industry changes. Photograph: Helmut Fohringer/AFP/Getty

For the travel industry, the challenges remain as they’ve been for the past decade. Even O’Leary has struggled: earlier this year Ryanair Holidays, launched in December 2016 with the promise of Aldi-style discount holidays, discontinued its services, despite the confident declaration of the company’s chief marketing officer, Kenny Jacobs, in 2017 that the airline was just two years away from becoming the “Amazon of travel”.

It’s clear not everyone will survive, especially those that fail to adapt to the realities of the digital world. Yet it’s clear too that consumers are not yet ready to say goodbye to the high-street travel agent, where a customer can meet a professional who will take them through the booking process and reassure them that, yes, their money is being spent exactly the way they want.

The main challenges for the retail sector, says Don Shearer, managing director and publisher of the Irish travel-trade news website travelbiz.ie, is “knocking the myth on the head that anything you book online is cheaper than doing it through an agent, which is absolutely not the case”.

But he warns that an obsession with cost is something of a double-edged sword and that, in a race to cut costs and offer the most enticing deals in a hypercompetitive market, the industry has seen the emergence of channels “that are very hard to govern. How many times have you heard of something collapsing that wasn’t bonded or licensed? Where the customer is hoodwinked into thinking that because it’s cheap it’s going offer them more value? Which is not always the case.”

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