On Sunday 6/10/2019 we had the return of the last passengers of the recently bailed in Thomas Cook and it would be a major mistake if we don’t look back to reflect on the failing cultural and business deficiencies of the tourism industry in Cyprus.
Thomas Cook had a strong presence in the Cyprus tourism industry, presence evident both by the number of flight routes that the giant had to the island and back and from the number of hotels it was either directly managing or had agreements with, as a tourist operator.
Thomas Cook was very troubled in recent years and 2019 was no exception, with great losses and pressures from the external environment and bad economic management from the internal management.
I’m not an economic analyst, so I won’t be focusing on what made the company fail but I would rather focus on the aging Tourism Market Management practices which the local hoteliers and local hotel chains follow in Cyprus.
Tour operators used to be, and still are, one of the key business revenue drivers for the Cyprus tourism. In the offline world, it used to be companies like TUI, Thomas Cook, Kuoni and more. In the online world, it’s still the traditional tour operators who managed to survive and undergo the internet transformation plus a myriad of online-based operators like Expedia, Booking, Hotels.com and more.
Even though Cypriot hoteliers have been running hotels all over the island for decades, it seems that the way that they manage occupancy through agreements with tour operators has stayed the same and even though it is not the most revenue positive or effective, it seems that it is the preferred method.
Hoteliers aim to pre-book most of their occupancy to tour operators and online tour operators than to manage their available occupancy themselves. Even though this has some obvious benefits like the decrease in management costs and almost guaranteed occupancy rates, it also means that the revenue made by hoteliers is decreased as tour operators work on commission based rates and also work with the economies of scale model which forces hoteliers to lower the prices of their rooms to be attractive to these operators. This in turn leads to higher prices for direct channels and direct customers as hoteliers try to make up for the loss that tour operators create by charging more expensively through these channels.
This type of occupancy management does not seem to be ideal, especially when considering that hoteliers are almost fully dependent on tour operators to fill their occupancy and that the clients brought by tour operators usually do not have the same purchasing power or “quality” as direct guests. Furthermore, local hoteliers lose control of their client base, as all contacts are being done through the tour operators (Online and Offline) and this removes the personalized experience that comes directly from the hotel, with an almost artificial experience of the middleman in between.
It also handicaps hotels from building their own client bases with contacts, it also limits the possibility of retargeting previous guests to visit the hotel again at a later stage and it also makes local hoteliers, even more, depended on tour operators as this seems to look like an endless loop.
Thomas Cook is yet another example that being heavily dependent on third parties to run your business was never a very good idea and even though tour operators are necessary to some extent, the exposure a hotel should have to them should be as limited as possible for many reasons.
Some of these reasons are:
- Better Customer Relationship Management
- An original and more unique experience
- Better flexibility
- More human approach
- In many cases cheaper client acquisition
- Retargeting of existing visitors
So what is the best way to approach the matter above? Ideally, all businesses should be able to reach their customers directly and keep the revenue for themselves but, this is not easily possible especially if we’re referring to small to medium size hotel businesses with limited resources.
The concept of risk diversification has been around for decades and it has proven to be an effective approach for a number of business problems. Hotel occupancy management could benefit from this approach as well, but the aim should not be to be exposed to as many tour operators as possible but, to try and favor direct channels instead of third parties.
The internet has enabled business opportunities that were unimaginable some years ago and the percentage of travelers looking to book their holidays directly has never been bigger. This trend is expected to continue in the upcoming years, so it should be obvious to hoteliers in Cyprus that they need to start investing in their own channels, not only because the global market is headed that way but also because the revenue made by each reservation could increase up to 80% especially if we consider returning guests. Online advertising costs are very low compared to the commission costs enforced by most tour operators and allow for a greater profit margin and additionally, they enable Hoteliers to have full control over their business and clientele.
It is dangerous for hotels not to have a satisfactory web presence in 2019 with an up to date responsive website, social media presence as well as easy to reach online contact solutions for CRM. Hotels in Cyprus who fail to have the aforementioned minimum touchpoints are doomed to lose control of their revenue streams which could prove to be fatal in the long run.