The Fischer Group's Executive Director, Jiří Jelínek, looks content. The crisis in the tourism trade seems to be a thing of the past, as advance sales of holiday packages are growing at a double-digit rate. Countries like Greece are going through a boom. The only exception to the current trend is Egypt. "Preferences for destinations are closely related to price and stability in a given region. These factors play the biggest role," says Jelínek.
E15: For a long time, owners of travel agencies have been complaining of unbearably low margins. Is the situation really so bad?
Seen from a long-term perspective, it's true that margins are low, in the Czech Republic and elsewhere as well. If you calculate profit at the EBITDA level, margins fluctuate around three percent. The figures are even lower in Western Europe.
E15: Will this ever improve, or is it a new standard?
Competition in the Czech Republic is enormous, putting travel agencies under immense pressure. On the other hand, a few years back, trips were routinely sold at prices below cost. One reason behind that was the presence of two large charter airlines – Holidays Czech Airlines and Travel Service. Supply on the air travel market was higher than the demand of people willing to pay regular prices that would be sufficient to cover the costs of travel agencies.
E15: Does that mean that you consider the closure of the Holidays Czech Airlines (HCA) charter airline a positive development?
Yes, for several reasons. HCA was operating under conditions that a private carrier could never afford. The truth is that all Czech taxpayers were subsidizing HCA's loss-making performance through taxes. The terms HCA offered to some travel agencies lacked transparency and, more importantly, often disregarded the situation in the marketplace. That provided these agencies with short-term benefits, but the availability of excess capacity was distorting the market from a long-term perspective. The conditions on the market were unfair. That's why we welcomed it when prices and business conditions began to be determined by standard market mechanisms.
E15: Couldn't you have simply switched to HCA for a lower price?
Price is only one of several factors that are at play. Other factors include the offer of capacity and the flexibility to change it, the number of departure airports, and the like. Moreover, we wanted a predictable long-term partnership. Time has shown that not switching to HCA was a good decision.
E15: Won’t Travel Service take unfair advantage of HCA's demise in the charter market?
I don't think so. There are a number of foreign airlines that can fly from the Czech Republic.
E15: Have you looked into this option?
I believe that a number of players on the market have considered this possibility, but in the end, no one has brought a new air carrier to the Czech Republic. We are now completely happy with the services offered by Travel Service and their flexibility.
E15: Since, as you say, HCA's departure allowed the formation of a stable market, does that translate into prospects of higher margins?
Because the market is not affected by the former oversupply of air travel services, selling at below-cost prices is no longer as widespread as before. Nonetheless, price remains the principal factor for customers, and competition in the marketplace simply does not allow for increasing prices and margins.
E15: Fischer's clients fly other airlines apart from charters. What is the ratio of regular and special-purpose flights you use?
We mainly use regular flights to exotic destinations, where they account for as much as half of the business. I expect that their share will continue to grow.
E15: Once in a while, complaints emerge that there is no charter plane on the Czech market that could take passengers without a stopover to distant destinations, such as the Caribbean. Do you see this as a problem, too?
Operating an aircraft like that on the smaller Czech market would simply make no financial sense. Even Austria, where purchasing power is much higher, does not have such a plane. Only countries like Germany or the United Kingdom have sufficient market demand to support one.
E15: As far as destinations are concerned, Egypt seems to be the biggest problem. Have you reduced this year's capacity there?
The capacity remains roughly the same as last year. However, we are focusing on different resorts. Customers are no longer so much interested in Sinai, which mainly includes Tabu and Sharm el-Sheikh, but interest is growing in hotels located further down south, especially in Hurghada and Marsa Alam.
E15: If the unrest continues and erases Egypt from tourist maps, could the country be replaced with a different destination?
It would be difficult to replace Egypt completely. Instead of Egypt, many people who like to travel to five-star, all-inclusive hotels would go to Spain or Turkey. However, the group of customers who visit Egypt because of attractive prices would be hard pressed to find an alternative destination.
E15: So, how is demand for vacationing in Egypt developing?
Advance sales indicate a slight, about five-percent, year-over-year drop. We still consider that a success, because Egypt was selling very well at this time last year, which means that the current figures are being compared to a relatively prosperous previous period, too. Serious problems only began to plague this destination at the end of August.
E15: Are overall advance-sale figures better?
Definitely. Overall, advance sales are up by more than 25%. It's evident that more and more customers buy holiday packages ahead of time. That is mainly due to experiences from the past season when last-minute offers were much scarcer than in previous years.
E15: Isn't it just a sales pitch to say, "Buy early before all the trips are sold out"? But then there are still available spaces in the end.
Ultimately, you can always find something. The question is whether it's exactly what you want. For instance, resorts that feature facilities for children have limited capacity. And taking a chance that there will be an available spot at the last moment might prove to be a bad choice. It is true that last-minute packages are not available to the same extent as they were some three or four years ago. Customers' buying patterns have shifted significantly toward advance sales. Plus, as we discussed earlier, the supply of air travel services on the market has decreased. Nobody buys plane seats in a megalomaniac fashion anymore, only to sell them below cost later.
E15: Do advance purchase customers differ from their last-minute counterparts?
For a last-minute buyer, price is the principal factor. In contrast, those who buy well in advance are predominantly concerned about the destination and accommodation quality. They mainly include families with children. Parents or grandparents think differently than, say, travelling couples. They are very careful not to take too much risk. For a couple, it's often enough just to find somewhere to stay overnight, which means that they can choose a holiday package from whatever is available at a given time. They have no problem waiting until as late as a week before departure.
E15: Are people's preferences changing, for example as far as destinations and accommodation quality are concerned?
Today, four-star hotels with all-inclusive services and full board are the norm required by the vast majority of customers. That contrasts with the fact that half board was the most popular choice until some ten years ago. Preferences for destinations are closely related to price and stability in a given region. These factors play the biggest role. For instance, people were afraid to buy holiday packages to Greece in 2012, but today, this destination is going through a huge boom. Demand for Greek resorts has been growing by tens of percentage points over the last two years.
E15: Is it difficult for you to book capacity in Greece?
It isn't easy. Because Egypt is partly out, Greece and Turkey are bursting at the seams. Czech tourists are not the only ones interested in vacationing at Greek resorts, you know. Demand for Greece is now on the rise in Germany and the United Kingdom as well, and the last three years have seen quite an influx of tourists from Russia. Thankfully, Greek hotelkeepers like a diverse customer portfolio. They don't want their hotels to be exclusively occupied by Russian clientele. True, in some cases, Russian clients are able to outbid everyone else, but most hotels do not like to depend on a single group of guests. That is too risky.
E15: Fischer has partnerships with a number of German travel agencies. Any prospects that the partnerships might result in some sort of acquisition deal?
That's a question you would have to ask the shareholders. I have no information that anything to that effect might be in the pipeline. Three years ago, we acquired Nev-Dama, which is the number one Central European travel agent in ski trips and which is growing in the summer vacation segment as well. Two years ago, we bought eTravel, an Internet-based travel agency, and we also have a new brand for luxury holiday packages, Privileq. Right now, we are able to provide customers with anything they might desire.
E15: Any other acquisitions on the horizon?
It is increasingly apparent that some smaller firms would be interested in joining forces with us. However, there is no company on the Czech market today that would come anywhere close to Nev-Dama, which I consider an excellent acquisition. That being said, there are always some acquisition opportunities, which we examine as they arise.
E15: Data collected in the last several years suggest that more and more people tend to organize their vacations individually, as opposed to purchasing a ready-made holiday package. Doesn’t it seem then that your industry is destined to disappear in the future, as all people will organize everything on their own?
Yes, customers do handle more and more of their business over the Internet. But don't forget what the role of a travel agency is. We take care of the customer's needs from beginning to end. We handle the flight, transfer from the airport, accommodation, meals, local delegates, and a host of other things. Plus, we have insurance against bankruptcy and general liability insurance. In contrast, when you organize things on your own, it might happen, for instance, that you arrive at the hotel and there is no room for you. At that point, you'll have a problem. Yes, there are some tourists who travel individually, but most of them are young people without children who visit European destinations where a certain level of quality exists as far as culture and travel infrastructure are concerned. Moreover, the prices we are able to offer for a number of typical seaside destinations are much lower than what can be obtained by individual travelers.