Analyses - April 6, 2006



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April 2006


Print Distribution networks, etourism and technology,

Tour operators moving online

Tourism giants, particularly TUI and Thomas Cook, have long been expected to become a strong web presence. Rebuilding from some difficult years, the major European tour operators have found a way to respond to discount carriers and online agencies, whose e-commerce breakthroughs have been gradually siphoning off market share. Tour operators are now directly and effectively reaching consumers via their new reservations portal, TV campaigns and call centres.

Maintain market share

Until recently, major tour operators specializing in selling holiday packages were staying away from online distribution, essentially relying on their traditional travel-agency networks. The latest estimates suggest direct sales by European tour operators stood at just over 8%, at a time when they were also concerned about not penalizing agencies, which account for a major portion of their revenues. And according to PhoCusWright, just 9% of online vacation-package sales were recorded by operators in 2005, with online agencies accounting for the bulk of those sales.

But the winds seem to be shifting in favour of large-scale tour operators like TUI and Thomas Cook, which have begun the transition to e-commerce (see image). Their recent massive investment in developing e-commerce platforms is beginning to bear fruit, and a new dynamic is in place.

Such a move was becoming necessary to preserve market share, as more and more travellers wish to buy online. In Britain, for example, dynamic packaging (in which the consumer designs his/her own package on the internet) is expected to account for more than 34% of revenues by British tour operators in 2007 – compared to just 3.8% recently.

In addition, the short-haul vacation market has become ultra-competitive in Europe since the arrival of discount carriers. With fares for all flight segments of both scheduled and charter carriers available online, internet users can easily compare prices and seek out bargains. So traditional holiday packages face a threat, because consumers can now find out the price of each component and create their own personalized packages. Tour operators were forced to react to this very real threat of losing the traveller to online agencies or other suppliers offering the same dynamic packaging possibilities.

Tour operators target consumers directly

In 2005, TUI posted record sales due mainly to internet transactions, which reached 1.8 billion euros, an increase of 44% over the previous year. The company is a dominant presence in the German and British markets, where it has 18% and 13% of market share respectively. And this is only the beginning, as TUI’s global portal, with its many applications, was officially launched just this past December. Though known for its vacation packages, TUI is also recording significant increases in online reservations for other products such as flights and accommodations; including reservations made through call centres and sales resulting from television ads, direct sales to consumers now account for 25% of the TUI tourism division?s revenues, totalling 14 billion euros.

Tour operator Thomson, a subsidiary of TUI, is offering several innovations designed to seduce the consumer directly. For example, the firm hopes to deliver its latest offers to customers via RSS feeds to their cell phones. And since February, customers have been able to view their prospective vacation site in 3-D, thanks to Google Earth technology. In addition to numerous images, the site also has a bank of some 1,700 videos to facilitate the process for internet users as they buy various products.

Thomas Cook marketing blitz

Over at Thomas Cook, the other tourism giant, online sales in the British market now account for more than 20% of revenues. In February 2006, the British conglomerate also launched a major advertising campaign to influence consumers’ perceptions of the very nature of the company. The strategy was to position Thomas Cook as the main leader in terms of internet offers. The firm went with a message that took direct aim at its two main rivals, Expedia and Lastminute, with the objective of showing that its site is a one-stop shopping solution – a source of scheduled flights, charter flights and dynamic-packaging options as well as the usual holiday packages.

In addition to sponsoring film screenings and television programs where it offered a chance to win a trip, Thomas Cook promoted its Neckermann brand specifically in the television media. It even created a character, Supernecky (see image), that symbolizes the tour operator’s “values of proximity and accessibility,” to serve as a communications tool in relation to both the general public and the distribution network.

Commissions cut

Another key step in the tour operators’ global strategy involves changing the business model for compensation to the distribution network. In January 2006, several operators cut travel agency commissions to 7%. The move, initiated by Thomson, was very badly received by retail agencies, which worried that tour operators were accelerating their business strategy vis-à-vis direct sales to travellers. Analysts expect the money saved will be reinvested in direct marketing.

By way of protest, many travel agencies stopped selling Thomson products, but paradoxically, Thomson’s website has become one of the most-visited sites on the internet. The move seems to be paying off in spades for Thomson, and other tour operators may be inspired to follow suit. Another cut in commissions, to 5% this time, is likely to be announced soon.

Closer to home, the Transat group dominates the Canadian vacation-holiday scene. The Québec-based tour operator is still relying largely on its network of retail agencies to sell its products, but a steadily growing portion of its revenue is now coming from online sales, direct to consumers, through its website.

Meanwhile, wholesaler Go Travel Direct’s strong arrival on the Quebec scene had such an impact that the players already in place were forced to change their distribution methods. Go Travel Direct’s strategy is low prices that circumvent the agency network; Transat’s response came via its Nolitours banner, which offers similar products thanks to reduced commissions and direct online reservations. One thing seems certain: the race for bargains is increasingly defining business dealings between consumers and the distribution network. “Disintermediation” is proceeding apace.

– Carroll, William J. and Peter O’Connor. “European Hotels: Managing Hospitality Distribution,” PhoCusWright, September 2005.
– Filliâtre, Pascale and Stéphane Jaladis. “Les TO passent à la télé,” L’Écho touristique, No. 2754, February 3, 2006.
– Fox, Linda. “Thomson Trials Phone Technology,” Travelmole, March 23, 2006.
– L’Écho touristique. “Thomas Cook préfère la télé,” January 16, 2006.
– Sileo, Lorraine. “PhoCusWright Assesses its 2005 Predictions, Makes New Ones for ’06,” PhoCusWright, 31 janvier 2006.
– Skidmore, Jeremy. “First Choice Set To Follow Thomson with 7% Commission,” ABTA Convention Special Report, November 25, 2006.
– Skidmore, Jeremy. “Operator Accused of “Hypocrisy” over Commission Cut,” ABTA Convention Special Report, November 25, 2006.
– Thomas Cook. “New Thomas Cook Advertising Challenges Online Travel Perceptions,” Press Releases, January 30, 2006.
– Thomas Cook. “Thomascook.hit!” Press Releases, November 2, 2005.
– Travelmole. “Thomson Holidays Gives Customers Google Earth,” February 2, 2006.
– TUI. “TUI Starts the 2005/2006 Travel Wear with Increased Bookings Turnover Growth in Key Source Markets / Online Turnover Up by 44 Per Cent,” Press Releases, March 8, 2006.

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