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All-inclusive on Steroids
Changing the discussion David Redekop
October 24, 2012
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Let’s talk more about $
and less about arrivals & market
share
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Package Prices Lower than After 9/11
$1,921
$-
$500
$1,000
$1,500
$2,000
$2,500
Winter 2001/02
$1,478
$-
$500
$1,000
$1,500
$2,000
$2,500
Winter 2012/13
Average advertised base package price
for three time periods, one week, all-inclusive,
lowest price, from Toronto to Mexico, Cuba, Jamaica, DR.
-15%
Total Price=
$1,772
-8%
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Package Prices Lower than After 9/11
Average brochure base package price, for three
time periods, one week, all-inclusive, lowest price,
from Toronto as of October 2001 & 2012.
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TUI £14.7b Revenues - £360m Profit
*TUI statutory profit before taxes
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• Transat A.T. Inc.
• $3b Revenues first 9 months FY 2012
• -$36m Operating loss before taxes
Transat & Thomas Cook also
looking for greater margin
• Thomas Cook PLC North America
• £349m Revenues in 2011
• - £67m loss (segmented result)
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SUPPLY EVEN STRONGER
Canadian Travel Demand Strong
7
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Mexico & Cuba #1 for
2011/12 Winter Destinations
88%
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Ranking of CDN
$ Spent per Visit Country
1 Grenada
2 Bermuda
3 St. Lucia
4 St . Vincent
5 Antigua
6 Barbados
7 Jamaica
8 Mexico
9 Bahamas
10 Panama
11 DR
12 Cayman Is.
13 Cuba
14 Puerto Rico
Ranking of Visits
Winter 2011-12 Country
1 Mexico
2 Cuba
3 DR
4 Jamaica
5 Bahamas
6 Barbados
7 Panama
8 St. Lucia
9 Cayman Is.
10 Puerto Rico
11 Antigua
12 Bermuda
13 Grenada
14 St Vincent
Sources: Statistics Canada and CBoC for averages.
Ranking of Winter 2011/12 Visits
Vs. CDN $ Spent per Visit
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It’s a different world
Margin trumps market share
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Drive for margin “There is a prevailing trend towards
online bookings in all of our source
markets and increasing our share of
sales made through online channels
results in lower distribution costs and
higher margins.” TUI
“Our focus is to drive growth
organically and reduce net
borrowings by improving operating
and free cash flow generation, with
an emphasis on protecting
margin rather than market
share.” Thomas Cook PLC
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All-inclusive Has Changed
• Competing on price to gain market share not
sustainable
• Shareholders want dividends and higher share
prices
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$HOW ME THE $$$$ TIME
All-inclusive on Steroids
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Tour Operations Changing
–Cost management ongoing
–Product mix and concentration has
changed
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Tour Operations Changing
Cost Management
• Moving small margin mainstream
destinations to online
• Leveraging size when purchasing rooms
• Rationalizing fleet – TCX, Transat/CanJet
• Greater focus on increasing capacity to
destinations where there is a higher
margin to be made.
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Margins Driving Capacity (Number of seats to Caribbean/Mexico/S. America from Canada)
Seat capacity for winter
2012/13 down by -4.3%
Sources: CBoC calculations using OAG & websites for Transat & Sunwing
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Winter 2012/13 Capacity down
to Mainstream
• 4.3% reduction in overall capacity for Winter
2012/13
• Capacity to “big four” down -5.2%
• Capacity to some higher margin destinations
up 10% or more – Costa Rica up +40%,
Honduras more than double, Aruba +15%,
Martinique +30%
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Package Prices on the Rise (Winter 2012/13 prices versus Winter 2011/12)
• Average package price
up 5.8% for winter
2012/13 to “big four”
destinations.
• Price increase expected
to hold “this time
around”.
Winter
2011/12
Winter
2011/12
Winter
2012/13
Winter
2012/13
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Tour Operations Changing
Product Mix
• More exclusive hotels to help differentiate (RIU
& Signature)
• Greater focus on experiential and activity based
special interest travel -Transat Discoveries
“Centered on authenticity and flexibility….to
allow travellers to enjoy memorable
moments in all four corners of the earth..”
Travel Industry Today
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Cuba
Mexico
Jamaica
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Sunquest Vacations Bahia & Activity
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Air Canada Vacations
Brochure all about activity
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Margins Higher on
“Differentiated” Based Products
• Experiential or activity based travel part of
“differentiated” product.
• Most purchased onsite but operators taking cue
from cruise industry.
• Will gradually move to mobile.
• Travel industry playing catch-up to travellers.
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Cruise Industry Knows How to Sell Activity
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7 in 10 Package Travellers Plan to
Buy Separate Activity this Winter 69%
39%
29% 25%
22%
10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Purchasingactivity whileon package
trip
Water activity Adventure Spa Fitness Golf
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“AIR CANADA VACATIONS IS
FIRST CANADIAN TOUR
OPERATOR TO GO MOBILE”
Air Canada Realigns Sales Organization;
Zeina Gedeon Appointed Vice President,
E-commerce, Product Distribution and Sales
Development;
Selling during more stages of the travel cycle.
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Improved Margins through Mobile
• 44% of package travellers carrying smart
phone or tablet during winter 2012/13
• 19% “very likely” to purchase something
while on package trip with smart device
• 36% to use smart device to research local
activities and things to see and do
• 25% to research local history
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The Operator’s Steroid “The TUI mobile strategy is about responding to
consumer demands, enhancing customer
relations, generating ancillary revenues,
improving use of destination content, being
closer at each stage of the customer
experience”
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Travel Cycle Touch Points
Inspire Research
Planning trip
Confirming
& Closing
Arranging Travel to
Destination
In Destination
activities
Return Trip Home
Follow-up & sharing
Travel Stages
30
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Market Share giving way to Margins
Driving down costs and increasing margins is the
order of the day.
Why?
Shareholders want dividends &
higher stock values
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Caribbean: Occupancy & rates up
Source: STR Global via CHA.
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$$ Canadians will Spend in Caribbean
– 2011-2013
33
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Average Spent per Visit by Canadians
2011-2013
34
Source: CBoC.
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1 Yr. for Canadian Outbound to
Rebound
Sources: Statistics Canada, UK ONS, CTO, US OTTI.
(‘000 of trips prior to and after global recession)
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Outbound Leisure Travel: Average
Annual Rate of Growth 2012 - 2016
36
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All-inclusive on Steroids
• More activity based – much like cruise lines
• Greater segmentation with more exclusive
arrangements with large operators
• Margin driven = happy shareholders
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