Don’t Just Book It … (24 November)

Mr. Thomas Cook does not quite fit with the image of the current-day tourism industry. A follower of the Victorian temperance movement, Mr. Cook organised trips for fellow abstainers (or those who did in strict moderation). His first excursion was from Leicester to Loughborough, which must have been exciting.

Mr. Cook will probably have long been turning in his grave. Though by no means all the tourist descendants of the Loughborough excursionists are on the extreme binge-drinking wing of the tourism market, some are and are therefore very much not adherents to the concept of temperance, even if they knew the term or understood it; for example, Club 18-30 is part of Thomas Cook.

More than just the devils of drink, Mr. Cook would doubtless be alarmed to learn that his name is associated with a company that finds itself in dire financial straits. Moderation in everything, money matters included, would have been the Cook mantra.

The love of money is a root of all kinds of evil, as a prominent Victorian didn’t say in that he didn’t first come up with the expression but most likely did declare it, repeatedly, from a pulpit of the times. And money has been the root of Thomas Cook’s contemporary problems. It owes a mere one billion quid to lenders. Remarkably, only four years ago, the company could brag that it had nearly four hundred million sitting in the bank.

The tour operator has had a number of issues to confront, so its problems are not solely down to financial imprudence, but a lot of them are. A share buy-back and a series of acquisitions have helped to push the company to the brink. It is hanging on through the largesse of banks, which it hopes will continue to stump up around a hundred million a month, if current financing requirements persist.

One of Thomas Cook’s more recent ventures into expansion was the protracted merger with Co-Operative Travel. Finally agreed to earlier this year by UK competition commissioners, the combined operation now finds itself having to plan the likely closure of some 200 travel agency shops.

The name which regularly crops up in discussions of Thomas Cook’s troubles is that of its former chief executive who left in August: “Super Nova”, Manny Fontenla-Novoa, often described as “colourful”, which is shorthand for all sorts of things. Super Nova had raked in only 14.5 million quids worth of salary and shares in the four years prior to his somewhat sudden disappearance.

There is no small amount of schadenfreude among some elements of the Mallorcan tourism industry at both Thomas Cook’s woes and the downfall of Super Nova. This stems, in part, from a dislike of the power that one of the Big Two tour operators wields, which can manifest itself in different ways, such as the way in which Thomas Cook decided that it would apply a so-called discount to hotels’ invoices in late summer 2010; the discount was in fact a reduction by 5% on what was due.

The schadenfreude is misplaced, however. The power of the Big Two may not be liked by all, but the local tourism industry would be in a fine mess without them. So if the Big Two became the Big One, and Thomas Cook went under, where would the industry be then?

It’s unlikely that this would happen. Thomas Cook does operate profitably. Special financing arrangements are normal in the winter period for tour operators, so there is nothing unusual in Thomas Cook seeking loans. The problem is the accumulated debt.

It is the uncertainty that its financial woes arouse that is troubling. Despite its operating profit and reassurances from the company, holidaymakers are likely to think twice about committing themselves to booking with a tour operator whose troubles are being given such a public airing. This may just slow down bookings to Mallorca for next season, while it might also be noted that a loss of consumer confidence caused by the Euro crisis has been one of the very recent and uncontrollable factors that have affected Thomas Cook.

In the circumstances, therefore, it wouldn’t be surprising were holidaymakers disinclined to “book it ” with Thomas Cook. Not just yet anyway. This might be good news for other tour operators, but, and schadenfreude notwithstanding, it isn’t particularly good news for Mallorca.

Any comments to andrew@thealcudiaguide.com please.

New For Old: The all-inclusive mixed message

“Mallorca has worked as an example of tourism development except in the case of all-inclusive.”

So says Michael Tenzer, a senior director of Thomas Cook. A different company director had suggested that the “battle for the all-inclusive” had ended. It would appear not to have; next year will witness a 10% increase in the number of places Thomas Cook offers which are all-inclusive. In the name of tourism development, one takes it, comes more all-inclusive.

When Herr Tenzer suggests all-inclusive underperformance, he is not talking solely about the volume of AI. There is also the issue of its quality. Never fear. There is always Joana Barceló and her tourism ministry quality inspectorate which has stepped up its scrutiny of the low-grade lager.

Whether the all-inclusive “battle” is over or still being waged, at the same time as Thomas Cook is announcing an increase in its AI offer, the research organisation, the Gadeso Foundation, is reporting that the so-called complementary offer (bars, restaurants etc.) appears “mortally wounded”. Every battle has its victims.

It befits a victor to be magnanimous. Thomas Cook is due to roll out a project in Santa Ponsa in 2011 which is designed to take all-inclusive out of the confines of the hotel and onto the terraces of neighbouring bars and restaurants. It sounds a good idea, but how on earth is it supposed to work?

The notion of a sort of mixed all-inclusive whereby guests could go to nearby establishments and still benefit from brandishing their wristbands was flagged up back in March this year. A “nuevo concepto” of all-inclusive was how it was being branded. I understand that such a system already operates in a limited way in Playa de Palma, but there it involves hotels and outside restaurants within the same group of ownership. In March, the reaction to the new concept from the hotel federations, the association of small- to medium-sized businesses and restaurant associations was underwhelming. They couldn’t see how it could be viable, given the complexity of administration.

Why is such a system being contemplated? The altruistic interpretation is that tour operators wish to help the mortally wounded bars and restaurants. I can break thee, but I can re-make thee. For all the lambasting of hotels that subscribe to the AI doctrine, it might be considered who have been driving it – the tour operators. One can also interpret the mixed AI as an admission of responsibility for problems that have arisen within the bar and restaurant sector.

A second interpretation is that the tour operators are acting as economic engineers, assuming leadership for establishing arrangements which benefit more than simply themselves and the hotels. Sound social responsibility perhaps, but one based on countering the endless moans of a complementary sector that has done precious little for itself in trying to combat the onward march of AI. If they, the bars and restaurants, can’t do it for themselves, i.e. forge relationships with hotels and/or new products, then someone has to do it for them.

Then, however, there is the issue of quality. Anecdotes in resorts such as the AI-abundant Alcúdia or Can Picafort are legion when it comes to holidaymakers seeking out better food and drink than that served up in many an all-inclusive hotel. Notwithstanding Sra. Barceló’s army of inspectors, perhaps there is a recognition that some hotels are simply incapable of providing good service. And this isn’t totally their fault. They have to work within the constraints of their own economics.

And then there are the guests themselves. True, there are those who are totally disinclined to shift themselves from the poolside. It’s the mentality that “Benidorm” captured so perfectly. “Why go outside, when it’s all free?” It might remain “free” under the mixed AI arrangement, but it creates an impulse to step outside the hotel walls, even if it would be to just go across the street. There are though many AI guests who don’t want to remain confined, and it is the recognition of this fact that speaks volumes for why Mallorca has not developed in terms of AI as Thomas Cook might have liked it to.

All-inclusive in Mallorca both works and doesn’t work. And it doesn’t work for the very simple reason that there is so much outside the hotel. Neither the island’s resorts nor many of its hotels are designed with AI in mind. The symbiosis between the hotels and the outside bars and restaurants and their shared living space are fundamental to the ongoing success of Mallorca. Disrupt this relationship, wound it so badly, and you cease to have resorts. The new concept of AI is something of the old concept of mutual benefit that worked well for so many years dressed up in newspeak.

How this new concept could work, whether it could work is yet to be answered. The practicalities are not insignificant, and quite what benefits the bars and restaurants would derive, and which bars and restaurants would derive them, are open to question. But the concept deserves to be given a go. The experiences in Santa Ponsa in 2011 could be very important.

Any comments to andrew@thealcudiaguide.com please.

The Power Game: Thomas Cook and its “discount”

The Balearic Government intends to “adjust” its agreements with Thomas Cook. It plans to do so in an act of solidarity with hoteliers facing the 5% “discount” on payments from the tour operator which was announced last month. The government’s stance is hardly a surprise, given a need to support the all-powerful hotel lobby, but Joana Barceló, the tourism minister, has not been specific as to the exact nature of the “review of financial contributions to co-operative agreements” that the government has in place.

The action by Thomas Cook is not solely directed at Mallorca; it applies worldwide. Hotelier groups in the Caribbean have been joined by their counterparts in Spain in considering the taking of legal action against the tour operator, claiming breach of contract and abuse of market position. Travel industry lawyers believe that the cost of fighting legal cases could end up costing Thomas Cook more than it stands to gain from holding back the five per cent.

When the discount was announced, and it is meant to apply only to hotel bills for the August and September period, Thomas Cook said that opposition to the move “had been sorted out”. Hardly.

Discount. Let’s call a discount spade a deduction spade, shall we. It is one, according to the company, that is intended to make up for losses incurred as a result of the Icelandic ash cloud. The 5% applies to destinations served from the UK and not from Germany. German airspace was unaffected by the cloud?

There might be some sympathy for Thomas Cook, confronted as it was by the wholly unexpected, as it did incur significant losses because of the volcano. But losses were also incurred by others. They were all in it together. Weren’t they? The answer to this question goes to the heart of the matter. It is the extent to which hotels – and governments – are partners in tourism. Or not.

The dynamics of the tourism supply chain have changed markedly. It was once the case that the hotels exerted the power over the tour operators. Not so now. It’s a similar situation to that of the UK retail supply chain. Manufacturers and suppliers used to hold the upper hand over the retailers themselves. Not now they don’t if they deal with the giant multiples such as Tesco. Partnership is an easy word to use, but it hides an unequal balance of power. The Co-operative Travel is likely to come to appreciate this through its merger with Thomas Cook. The reporting of this has to do with a further strengthening of Thomas Cook’s position in a flat market and an improvement to what was an undervalued share price. Reporting about Thomas Cook, not the Co-op. There is always a dominant party in any merger.

Mallorca’s hotels have had their prices squeezed. Realism in their price negotiations has been forced upon them by the economic climate and competition. No bad thing, you might think, but a further 5% cut understandably doesn’t go down well. They have every right to contemplate legal redress, but they do so from a position of weakness. The big two tour operators hold the aces. And everyone knows they do.

TUI, for its part, has said that its UK division will not follow Thomas Cook’s lead. It argues that the imposition of the cut does not “establish a good partnership” in the long-term. It’s right to say so, but this doesn’t obscure the fact that it, along with Thomas Cook, is what the game is all about. The big two just keep getting bigger and stronger. The Co-op merger is a case in point. For the tourist consumer, alarmed by the failures of smaller operators, the big two offer confidence, notwithstanding Thomas Cook’s own recent financing issues.

One can but hope that the likes of Globus (Monarch and Cosmos) forge an increasingly strong third presence. A fourth, fifth or sixth significant player wouldn’t go amiss either. But it’s unlikely. Business theory was many years ago now speaking of the rule of four. Four dominant market players, created through the pursuit of economies of scale and the dreaded s-word of synergy brought about via acquisition. The theory wasn’t completely accurate, as can be seen in the tourism industry.

There is a fear that hotels might suffer reprisals as a consequence of any action taken against Thomas Cook. This is overstating the situation and wouldn’t be in the company’s own interests. But the mere fact of the deduction affects not only any possible legal contract, it also affects the psychological contract between parties. The deduction is an expression of dominance and its reverse state of submissiveness, one from which the government also suffers. It can seek to pull the plug on co-operative marketing agreements, but would it? Cut. Nose. Spite. Face.

Any comments to andrew@thealcudiaguide.com please.

Oh Well (Or Not): Bienestar Activo and Ironman

Three months are a long time in tourism promotion. 20 June – “All Being Well”. Now – all’s not so well. Strategies are meant to be long-term, but not if they don’t even get off the ground.

“Bienestar Activo” is – was – the brand name for a four-year strategic plan unveiled back in June. The plan was for the municipalities of Alcúdia, Muro and Santa Margalida, together with the local hotel associations and the tourism ministries at both central and local government levels, to promote various sporting activities in the resorts as a means of bolstering off-season tourism. The plan envisaged the spending of a tad under 4.5 million euros over the next four years. Annually, the central ministry would have provided 371,000 euros, a sum matched by the local ministry and also by the three town halls between them. The scheme has collapsed.

Soon after the plan was announced, I contacted the Alcúdia-Can Picafort hotel association, looking for an interview. There was an email exchange, Alcúdia’s tourism councillor was also contacted, a date provisionally established, and then nothing. At the time I found this slightly strange. As it turns out, maybe it wasn’t.

What I wanted to know was the exact nature of the plan, given that the activities – cycling, Nordic walking, hiking, canoeing – were already established. What was the 4.5 million meant to be spent on? I guess that I – we – will never find out. There are no funds to be forthcoming from the ministries.

There was some inkling as to how the money would have been doled out – in general. There were four, vague elements – organisation, specialisation of the destination (whatever that meant), improvement of competitiveness and marketing. But at the presentation which “launched” the project, amongst those attending – mayors, councillors and those as ever hoping for some benefit without actually putting their hands in their pockets, i.e. hoteliers and restaurant owners – there were no representatives of the ministries. The absence of government may tell a story. Had the ministries actually signed up to the whole thing? Or maybe they were going to, and then thought, as I had done, well, what is this all about? Those four aims seemed ill-defined; they may well also have been ill-conceived.

Of course, another explanation is more straightforward, namely government cuts, both nationally and local. Three months in tourism promotion isn’t a long time when it is already known that money is tight, so much so that the tourism ministries at regional and central levels have been merged with others as a way of saving money. Was this plan ever a goer or was it just some sort of PR stunt, and a poor one at that, given that it was unclear what it actually entailed?

The mayors, explaining the plan’s abandonment, say that they will look at it differently in the hope of bringing it back, which is probably a euphemism for saying that it will be quietly forgotten about. Maybe it should be. And maybe it would have been better had they never gone public, because this is a further embarrassment, certainly where Alcúdia is concerned, in terms of grandish tourism promotional schemes. The estación náutica concept has been quietly forgotten about, despite the fanfare that was blown when it surfaced a year and a half ago.

Fortunately for Alcúdia, something rather more concrete has emerged. Some good news with which to hopefully bury the less good news of the bienestar debacle. Thomas Cook and the regional tourism ministry have announced that an Ironman 70.3 triathlon is to be staged in Alcúdia on 14 May next year and also in 2012. Apart from some 2,500 anticipated competitors, the tour operator reckons the event will attract 20,000 visitors. I’m sceptical, but I’ll bow to the company’s knowledge. Nevertheless, the triathlon could well prove to be positive, and perhaps its potential does have something to do with the bienestar falling by the wayside. If you want to attract sports tourism, then better to go with a flagship-style event, rather than the vagueness of what was on offer. Relief for Alcúdia then, but what Muro and Santa Margalida make of it, who knows.

Any comments to andrew@thealcudiaguide.com please.

Islands In The Stream

Oh for days of yore. Those Boxing Days of old when Fred Pontin would enjoin us to “book early” and the Warners would wander onto the screens looking like a trio of M.J.K. Smiths* grinning cheesily and with embarrassment. Those days of Clarkson – pre-Jeremy – when package holidays cost about a tenner before Clarkson became one of the first great holiday company collapses.

Nowadays there are few holiday companies to choose from, and what few there are make virtues of saturated, high-definition television to whisk the consumer off to azure seas and sandy, palm-lined beaches. And so First Choice and Thomas Cook decorate our holiday dreams with flat-screened exotica, and in the case of Thomas Cook they do so courtesy of … the Redknapps. Yes, everyone, Jamie and Louise, the sub-Beckhams, the under-Coles of football-girl band marital marketing opportunity. No more the Warners, reminiscent of a 60s England cricketer with spectacles. Now we have the aspirations of “Hello”-style froth from waves gently caressing the shore, aimed at Royle Families gathered on the nation’s sofas who would have more in mind the price of a lager and the savings to be made by going all-inclusive.

Why would you go anywhere that the Redknapps go? And if you were to, where – in Mallorca – would it be? A clue lies in an article Louise once penned for “The Mail On Sunday”. Portals Nous. That’s where. Portals Nous, home to the tippy-toppy-stilletoed, brown-wrinkly expat band of shallowness that the daily variety of “The Mail” exposed (even if there was some doubt cast as to the accuracy of that piece). Portals Nous is far removed from the everyday Mallorcan holiday experience, e.g. that of Magaluf, a point Mrs. Redknapp made: “I had a picture in my head that was, well, pretty inaccurate. Everyone has heard of Magaluf, and that’s what I was expecting – a giant concrete resort with mile-upon-mile of tower blocks, noise and chaos”. Jamie and his missus discovered the more “authentic” side of Mallorca – yep, Portals Nous, all luxury yachts and Jimmy Choos.

So when you don’t just book it but Thomas Cook it to Mallorca and admire the Redknapps on golden beaches, it is to Portals Nous that you should be heading. It is to here, the über-celeb locations of the island, that the aspirations of the Thomas Cook Redknapped ad are calling you. Not that you will be able to book anything in Portals, as on the Thomas Cook website there is no mention of the place. Poor old Jamie and Louise. They have set themselves up for a good kicking – one on the shins by lumbering centre halfs in Jamie’s case, or by Danny Baker on his radio show the other day or by one of the authors of http://advertsihate.blogspot.com**: “they (the Redknapps) are just like the sort of people you befriend over sun-parched bacon and eggs at Frank’s Beachside Taverna before regretting it for the remaining thirteen nights”.

‘Arry’s boy and Mrs. R are generic holiday – in Thomas Cook land – but by association they are specific, as in the Cook ad for the Balearics. Here is something that has been exercising some of the good people on the PuertoPollensa.com forum, as apparently the Menorca bit shows Puerto Pollensa. Could have fooled me – from what is streamed via the Cook site – but if eagle-eyed ad watchers make the mismatch it does suggest a certain sloppiness on the part of the production people. Nice one, the chap who spotted it.

* I have this recollection that there were indeed three Warners and that they all looked like the one-time England cricket captain, M.J.K. Smith, a bespectacled and rather gawky fellow. Have tried to find some google evidence of the Warners but none has cropped up.

** This is partly a Manchester journo called David Quinn who also has a site – http://www.wordsdept.co.uk – on which, among other things, you can read about the ten most awful people on television in 2009, one of whom – the number one in fact – is Michael McIntyre. Amen.

One More Time

Following on from yesterday … . The central government’s tourism ministry reckons that an increase in IVA (VAT) of one per cent (to 8%) for certain tourism-related activities (accommodation, transport and bars/restaurants) will have no effect on the number of tourists. It also reckons, as noted in “The Diario”, that the average price of a hotel stay (one night presumably) will rise by a mere 50 centimos as a consequence. The secretary of state for tourism believes that the fact that the rise will not be implemented until 1 July next year (as would be the case for all categories of IVA, including the general rate) will act as an incentive for bookings prior to this date. While true, it’s also a tad disingenuous, a case of looking for a benefit from something essentially negative. The government is possibly on firmer ground when it points out that the hotel sector has been the beneficiary of a vast amount of investment finance, though to what extent this is actually being exploited one doesn’t really know. 

 

The date for the rise in IVA is probably not coincidental. It will kick in at the start of the third financial quarter in Spain – IVA inputs and outputs are calculated each quarter and payments or credits issued accordingly. The third quarter covers, of course, the peak months of July and August. 

 

The wider point, though, is the drip-drip effect of a tax rise. With complaints about prices having been given a good old airing everywhere this summer, you can bet your life that once it becomes known that there is to be an increase, the forums and all the rest will be full of even more damning Mallorca’s so expensive propaganda. One per cent, in the scheme of things, does not amount to much, but it does add to a cumulative perceptual impression of price rises. The tourism ministry, not least the local one in Mallorca, should be paying heed to those complaints. Indeed, the president of the regional government has expressed his concern about the planned rise. 

 

The response by the central government to the criticisms of the tax rise from the boss of Thomas Cook suggests, at least in part, that it has been stung into making a statement, with its tourism ministry, headed by Joan Mesquida, himself a former director general of the Guardia Civil and National Police (interesting career progression, but there you go), to the fore in issuing this response. The suggestion that he, Mesquida, was actually seeking to keep the 7% rate – one that came from the Spanish tourism promotion organisation, Turespaña – has been rebutted. The party line, so to speak, is being held. But it speaks volumes that the intervention by the head of the second largest tour operator should provoke a response. The true power in the tourism market resides with the tour operators. The tourism ministry, as the frontline contact with the tour operators, should be seeking to distance itself from the argument and looking to keep the operators sweet, but of course it can’t and is so backed into a corner, even if officials might actually agree with Thomas Cook. It will be interesting to hear what TUI, as the leading operator, might have to say about all this.

Here Comes A Fontella-Super Nova

When a bigwig from the world’s second largest tour operator makes a pronouncement, the Mallorcan tourist authorities, hoteliers, town halls should all take note, and in the case of the tourism minister, it looked as though he had been made to – with some force. Manny Fontenla-Novoa, chief executive of Thomas Cook came, spoke and put a dirty great VAT cat among the pigeons of the regional and national governments. In addressing hoteliers in Palma, he was clear that proposals for rises in IVA (VAT) were, shall we say, less than advisable. Damn right they are.

 

Governmental coffers are less than flush at present. Spain has been one of the countries worst affected by recession, and will – in all likelihood – be one of the last to limp out of it. To remedy the deficits the government is running, they have come up with increasing indirect taxation (IVA/VAT) as the solution. Badly though revenue may be needed, this could well be counterproductive. As far as the tourism industry is concerned – bearing in mind that in other countries, such as France, there has been a reduction in VAT as it is specifically applied to tourism – any increase is bound to push up prices. These are not necessarily the prices of holidays, but those that would be charged in the bars and restaurants and so on. At a time when spending is falling and when one hears all those stories about high or higher prices, a VAT increase is the last thing that’s needed. To add to this picture of woe, Thomas Cook are saying that the level of all-inclusive packages is set to rise next year, by a factor of 20%. That’s a perfectly believable increase. Furthermore, as noted in “The Bulletin”, Fontenla-Novoa has reserved some criticism for the promotional spend by the Balearics authorities. It is around 30 per cent of what Egypt, for example, dishes out. The comparison is not entirely fair as Egypt is a country; the Balearics are not, you may have noticed. But we get his point, even if also Egypt is diverting massive resources to establishing its place as a tourist destination. Yet of course in this regard there is a pretty fundamental issue. If tourism is so important not only to the Balearics and to Spain as a whole, why is not more promotion undertaken and why are measures adopted that positively have a negative effect on tourism, to which we must now add an increase in IVA?

 

From today in “Talk Of The North”, you will be able to read a thing I have written about the season. One point I make is to question the tourism authorities’ belief that the summer tourism model – the bread and butter of tourism – is working ok. It clearly is not, and recession and the pound are not the only factors. Thomas Cook would seem to agree, and rather pertinent, I felt, was a probably unintentional photo that “The Bulletin” had of those at this meeting in Palma. But it was terrific – in the centre, Fontenla-Novoa, a tall man with an easy smile and one suggesting just a hint of superiority or of having made his point, to one side of him the head of Iberostar looking ever more fabulously like a long grey-haired Red Indian, and to the other, shorter than the Thomas Cook boss, Miquel Nadal, tourism minister, with an expression as though he’s just been given a severe ticking-off in the head’s study but is required to pose for the school photo.