Vendor organizations in Sitia in the far-east of Crete report a significant drop in revenue from dining and entertainment in the area so far this year. Shop owners and restaurateurs report a 30% drop in tourism-related income as compared to 2018. As bad as this news is, the situation may be far worse by the end of 2019. Here’s a report on the state of the Crete hospitality market which will show key flaws in the strategies in place to serve this tourism destination.
According to the President the Association of Shops, Restaurants, and Entertainment, Manolis Angelakis, the problem is lower pricing and promotion of the Turkish, Egyptian, and Tunisian markets. Angelakis told reporters low prices owing to these countries having their own currencies contribute to the loss for Sitia businesses.
April and May of 2019 have been horrible months compared to last year’s toll. The large tour operators are clearly playing a role in selling cut-rate vacations to other destinations. Last year Crete vendors’ expectations were elevated by reasonable profits, but this year those expectations have been dashed, according to Angelakis.
Vendors in Sitia have moved to upgrade their offerings, and the overall services in and around the seaside resort show this. But, the effects of a 30% drop in revenues is already taking its toll. Ekathimerini reported on Sunday a drop in air arrivals dropped of 7.2 percent in Iraklio in May and 5.6 percent in Chania. But, this is not the biggest indicator of losses to be expected.
A month ago a survey by the Institute for Tourism Research and Forecasts (ITEP) polling hotel owners showed that 43 percent of hoteliers expect a 16 percent drop in occupancy this summer. More significantly, one in six of those hoteliers (16 percent) see their prices falling an average of 13 percent from summer 2018.
But, the situation is a bit more complex than these simple numbers indicate. To find out more about the root causes and possible solutions for Crete businesses, I called a friend and colleague, Minas Liapakis, who’s the owner of EyeWide Digital Marketing, one of Greece’s most successful hospitality marketing companies.
Mr. Liapakis attributes a part of the loss of sales in late April and May to the unseasonable weather here on Crete and in places abroad like the UK. The EyeWide executive also pointed out the plight of some tour operators unable to meet their contractual quotas with hotels owing to slashed Turkey and Egypt prices and other factors. The “bottom line” for hotels dependent on these guaranteed sales, is unbooked rooms that must be sold. Here’s what Liapakis had to say about the situation when I asked him about marketing and ad budgets being a possible solution.
“The obvious solution is to sell unbook rooms at the best possible price. This is not actually a problem except that unanticipated unsold inventory is much harder to sell at the right price. Online sales are the solution, and many of the more proactive clients are moving to enhance this sales channel already.”
EyeWide’s founder went on to describe in detail how the marketing mix for any hotel needs to more flexible, and that strategies have to be dynamic in order to minimize losses such as we’re seeing. We also discussed things like channel conflict and market saturation, but Liapakis’ advice on price stability and end-user value shined a light on the situation for me. Liapakis offered a case in point where a large tour operator had to cancel out on part of a guarantee leaving 20 available rooms unsold.
Right here I should add, that it is now peak season on an island that is usually 110% booked. Those rooms will be sold through online sales at a “last-minute” price, which is a stopgap measure that causes a kind of vertical conflict. Ergo, we have Liapakis’ channel balance solution before a crisis. Interestingly, Liapakis told me that hoteliers who made their marketing pushes before ITB Berlin in March, are now fully booked (or close) for July and August. Furthermore, he tells me that even 25%-35% discounts are not getting booking results now.
At the end of the day, an incorrect sales and distribution mix is going to hurt third-party sellers as much as it does suppliers. The tour company that had to renege on a contract to sell rooms did not gain confidence or increased business. Crete hoteliers and the resellers connected to this market lost the same 30% in profits even if Turkey or Egypt won out. And this goes to my arguments about budget tourism overall. I can only think of our hotel colleagues who were not doing that well even when the island was booked to capacity.
For hotels and other businesses riding thin margins, this kind of drop will spell disaster. Hoteliers who operate year-round reported a 24 percent reduction in occupancy rates year on year, and the survey suggests most expect even further price reductions before the year is out. The problem can best be addressed by understanding the root causes suggested by Minas Liapakis and other experts, and the larger problem markets like Crete have.
Crete hoteliers have almost undersold themselves out of existence. One major problem is the tendency to overbalance yield management’s importance at the expense of good revenue management solutions that could rescue a property from this sagging market situation. Packaging and other value “added” means have been delegated to the tour agencies that guarantee room bookings. This leaves naked yield strategies which are not appropriate for budget focused markets where fluctuations can kill a business.
Without breaking off into an in-depth hotel back office report, it’s sufficient to point out how ill-prepared most hotels are for atypical seasonal/market situations like exist on Crete and other destinations. To make matters worse, Crete has been transformed into a dirt-cheap destination it never should have been. This diverse and unique destination should have been marketed in a much more balanced strategy. The Greek economic crisis set the stage for undervaluation, and this is a huge problem now. Yield management that is focused on supply and demand based mostly on block guarantees is going to fail – sooner or later. And on Crete, the balance has tipped because of some ill-factored variables, and in particular a narrow customer segment.
In short, Crete has relied too much on TUI, Thomas Cook, and the myriad smaller tour companies. The effect has been to create an ecosystem that is less flexible and ultimately less desirable for the middle and upper-class tourist. So, when pressure on economies or the weather changes, guess who suffers? Yes, the whole system from all-inclusive hotels to retail shops and local communities. The problem can be understood by looking at what’s happening to airlines flying out of the UK to Spain and to Crete. Here’s what Gwyn Topham of The Guardian had to say about the whole underpricing situation:
“Big European airline groups such as easyJet, IAG, Ryanair and Lufthansa have seen profits slump on the back of what they have described as weak yields from overcapacity. In other words, fares are low because there are too many airlines offering too many seats.”
For some experts, the key to avoiding this “underselling” situation is in more creative dynamic packaging, and in not treating travel as a commodity in the way TUI and other corporations do. In fact, Crete hoteliers I’ve spoken with exude a kind of corporate brainwashing when they speak the numbers and cents of bookings. The rare case is the proactive business person whose energies allow for dynamism. This is what is needed, in my view, for the preponderance of Crete businesses to survive. The coming of tax season will tell, but the smart hotelier had better be diversifying long before then.
Next time I’ll delve more deeply into how dynamic packaging and cooperation will create huge success stories on Crete and around Greece.
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