TTI2013

ETOA

• Founded to represent thoseoperators who sell Europe in long-haul markets

– Principals

– B2B Wholesalers

– OTAs

&

– Suppliers

The challenging environment # 1

• Internet is an intermediary

– Makes sales

– Incurs costs

– Constant battle to minimise costs andmaintain margin

The challenging environment # 2

• Internet continues to be governed bylaws designed for off-line sales

– Evolved to work outside theserestrictions

TOMSDrafted in 1977

• VAT levied on– Agency Commissions

– Sales costs

– Reservation costs

– Product development

– Sourcing and Purchasing

– Marketing costs

– Brochure production

– Web distribution

– In country promotion

– Sales agencies

– Advertising

– Customer relations

• And– Profit

TOMS distorts domestic market

• Grants tax-free status to non-EUholidays

• Incentivises air-inclusive holidays

TOMS devastates tourismexports

• Imposes a savage differential tax oninbound tourism

– Equivalent of Corporation Tax of 300%

– Or a 12% price differential

• Not payable outside EU

UK Tourism Spend

£-

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

£35,000

£40,0001977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Millio

n

Outbound spend

Inbound spend

Source: VB

Source: VB, adjusted for inflation.

195819601962 196419661968 197019721974 197619781980 198219841986 198819901992 199419961998 200020022004 20062008 20102012-25,000

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

£M

illio

n

UK Balance ofTrade in Tourism 1958 - 2012

TOMS Introduced

Cumulative Deficit

£550 billion

Taxation shapes demand

• Determines supply

– Shapes demand

• Weakened lager

• Three-wheeled cars

• British Sherry

ECJ ruling pending

• AG has indicated that TOMS should beextended to all packages, including B2B

– Possible extension to online packaging

– Significant benefit to placing “package creation”offshore

Where are you?

• Part of European Travel Economy

– Determined and shaped by Package TravelDirective

• Devised in 1980s

• Answered problems from 1970s

PTD blocks internationalbusiness

• Consumers seek “national” financialprotection marques

– Provide repatriation to their own country

• Europe has a siloed travel industry

– Small markets

– Not used to dealing internationally

PTD blocks innovationPTD blocks innovation

•• Adding features, packaging servicesAdding features, packaging services

–– Natural way of adding valueNatural way of adding value

•• Hotels offering tickets or sporting packagesHotels offering tickets or sporting packages

•• Attractions offering accommodationAttractions offering accommodation

•• Restaurants with transportRestaurants with transport

•• Activity with prohibitive entryActivity with prohibitive entryrequirementsrequirements

PTD Reform

• Extend compliance requirements to “click-throughs” and online packagers

– Bonds, repatriation insurance & admission oflegal liability

• Imposes restrictions imposed on amoribund sector on a flourishing one

• Adds multiple costs on consumer

• Renders off shore sales even moreattractive

PTD Reform #2

• Imposes restrictions imposed on amoribund sector on a flourishing one

• Adds multiple costs on consumer

• Off-shore sales will continue

– even more attractive

– Consumer a deregulated world and a regulatedEU.

Competition

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Prohibition on Anti-competitiveAgreements #1

Chapter I Competition Act 1998 and/orArticle 101 Treaty on the Functioning ofthe EU

Agreements which have as their object oreffect the prevention, restriction ordistortion of competition

Prohibition onAnti-competitive Agreements

#2 Not just written agreements:

– Informal discussions

– Concerted practices – practical cooperationbrought about by information exchange

Classic example: price-fixing cartel,collective boycott of a trading partner,market sharing agreement

OFT

• Has investigative powers

• Can levy fines of “no more than 10% ofworldwide turnover”

• Can judge both parties equally culpable

OFT June 2011

• Best Rate Guarantees

– Resale price maintenance

– Methods used to enforce price conformity

UK – outcome unknown

• Germany – HRS issued with a charge sheetin July 2013

• Switzerland – Competition authorityinvestigating OTAs

• France – July 2013 Hotel Union files withCompetition Authority a complaint againstOTAs

• US – class action against OTAs filed inNorthern California

Europe

• Inconceivable that EU will not get involved

Regulatory environment

• Threatening or Cheering

– Depending largely where you are based

• Transparency & Speed of onlineenvironment

– Accentuates existing difficulties and rendersfuture regulation obsolete even before itreaches the statute books