Tour firms juggle luxury, packages in profit battle

Thursday, 15 September 2011 00:10 - - {{hitsCtrl.values.hits}}

* Travel industry more susceptible to economic shocks

* Demand for luxury hotels growing

* All-inclusive deals popular in UK

COLOGNE, Germany (Reuters):Travel groups are juggling exclusive, luxury products and package deals to ensure they attract customers and maintain returns in the face of online competition and consumer cutbacks, a travel and tourism conference heard.

“No business model is immune to shocks and our industry is more susceptible,” Horst Baier, chief financial officer of German tourism and shipping group TUI AG , told the conference on Tuesday.

“We believe we’ve already achieved reasonable margins but we are not where we want to be yet,” he said at the conference in the western German city of Cologne.

The travel industry has taken a knock this year from the uprisings in Egypt and Tunisia, two fast-growing and popular markets.

In addition, tour operators TUI Travel Plc (owned by TUI) and rival Thomas Cook Group Plc have both seen sales in the UK come under pressure as public spending cuts bite into people’s budgets.

“It’s a hard business. The Internet has made competition tougher and people have become more experienced travellers,” WestLB analyst Raimon Kaufeld said.

Big groups like TUI Travel and Thomas Cook have therefore put a lot of focus on “differentiated holidays”, with sport packages, expeditions, spa holidays and hotels they can offer exclusively.

For example, the German arm of Thomas Cook offers more 4 and 5-star hotels in its catalogue to respond to rising demand for greater luxury when on holiday.

While attracting more customers, such holidays are also good for companies’ earnings, since yields for specialist sport holidays can be around 10 to 15 percent, TUI’s Baier said. That compares with an average of 2 percent in the sector overall.

On the other hand, there are families just looking for a regular holiday, and vacationing in one’s home country has also become popular, a trend that among others British budget hotel chain Travelodge is looking to tap into.

“The specialist providers are where the margins are, but we must also keep improving on our bread and butter products,” Norbert Fiebig, head of tourism at German group Rewe, said.

All-inclusive holidays, with food and drink thrown in, also appeal to customers looking for value. Britain’s First Choice, part of TUI Travel, has announced that as of May 2012, all its holidays will be all-inclusive, comprising flights, transfers, three meals a day and local drinks as part of the deal.

While many in the industry are still seeking ways to cut costs, Fiebig said the challenge was to ensure a certain level of quality remained. “You have to be careful not to squeeze every last drop out of the lemon,” he told the conference.