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The Structure of the Travel and Tourism Industry 2 - Activity

Phoenix from the Flames? Kosmar and Travel City Direct

Background

When XL Group folded in September 2008, it led directly to the collapse of XL-owned brands Kosmar and Travel City Direct. Although XL's failure could been seen as 'only' the collapse of a big charter airline, the company's other brands were stronger market players.

XL's business model relied heavily on achieving scale. This means that the firm felt that it could command market power by being a bigger player in the market. The way they planned to achieve this was by selling a greater number of Greece, Turkey or Florida holidays, flight-only deals and flights on other operators' packages. The trouble was the poor profit margin at which these sales were made.

Apples

Size matters in some business models
Copyright: iStock

By selling so much of their product range at knockdown prices, XL were running a huge risk. As long as market conditions stayed the same or improved, the firm could sustain its business model with large and growing turnover figures but meagre profitability. All it took, in the end, was the dizzying rise in the price of oil to plunge XL's strategy off the edge of a cliff. Unable to finance its need for aviation fuel, the firm went into administration.

Biz/ed's original resource, which analyses the collapse of XL from a marketing perspective, provides a useful start to following the progress of this story.

In the meantime

Stress at work

The credit crunch threatens to affect all parts of the economy

In the intervening months, the credit crunch has bitten into company and consumer confidence, spinning the UK economy and that of many other countries into recession, although at the time of writing (January 2009) this has yet to be officially confirmed in Britain.

Simultaneously, the value of the UK's currency, the pound sterling, has plummeted against that of the euro and the US dollar. Holiday costs in the eurozone countries now appear to be significantly more expensive to people in the UK than they did even three months ago. The same is true for visits to the US. The idea of a short shopping trip to New York seems a distant dream at the moment.

The Brooklyn bridge

That New York trip might have to be postponed

So prospects for the travel and tourism industry look less sound than for a long while, as reflected by Biz/ed's recent In The News entry.

The phoenix rises?

Into these market conditions returns one of XL's former major brands, Travel City Direct. An article in Travel Mole explains how Virgin Holidays has acquired some of Travel City's assets, including its customer database and its trademarks, and begun trading under the Virgin name.

The other big former XL brand was Kosmar. This Greece and Turkey specialist company was bought by what was then known as Excel Airways in 2006. Kosmar had a strong reputation for providing holidays in Greece, having been in the market for more than twenty years. Kosmar offered cheap breaks in more than eighty resorts in Greece. The firm's holidays included self-catering studios, apartments and bed and breakfast hotels (b&bs). When XL went bust, Kosmar collapsed too.

Greek church

Why is one travel firm attractive when another is not?

This Trip Advisor forum discussion focuses on the Kosmar case. The discussion takes place at the time of XL's demise.

What these cases show

This series of case studies, inter-connected in many ways, illustrates a wide range of activity in the travel and tourism industry:

  • They help us to examine tour operators' pricing policies and impacts on the industry
  • We can see how suppliers of tourism products such as hotel owners can be affected by change experienced by tour operators
  • The role of the customer in demanding holidays at low prices
  • How other market participants can benefit by adding brands such as Kosmar or Travel City Direct to their product portfolios, whereas previous owners were unable to do so
  • How, increasingly, social network platforms such as Trip Adviser host discussions among travel and tourism industry staff and representatives

Tasks:

Your task is to choose a number of these links and carry out the following exercises:

  1. Create a written summary of what you find out from the Web page.
  2. Kosmar was regarded as a provider of 'cheap' holidays to a wide range of resorts in Greece, Turkey and Cyprus. What dangers are there in appealing only to the lower end of the market?
  3. Travel City Direct are also seen as offering 'affordable' Florida holidays. Why are they an appealing business, in the eyes of their new owners, Virgin Holidays, but Kosmar are not?
  4. Examine the impact of the following changes on hotel and other accommodation owners:
    • Falling demand due to the weakness of the pound sterling
    • Falling demand due to economic recession cutting UK holidays abroad
    • Health and safety scares following increase in crime in their resorts
    • Their tour operator enters administration
  5. After reading the opinions expressed in the Trip Advisor discussion forum, summarise the arguments around the following statement: "Tour operators have to make a profit. Holiday customers might say they want cheap foreign breaks, but in the end they get no say as far as prices go."
  6. Read this BBC article about non-inclusive pricing and Travel City Direct. Describe this pricing technique. Why has the firm decided to change its price presentation?