The potential of sustainable tourism for Crete island and other eastern Mediterranean destinations is tremendous. Recent initiatives by the public and private sectors seek to eliminate barriers, while at the same time balancing competitiveness and its negative impacts. Events in Greece and Cyprus reflect a shift in ideas and methods to achieve the best strategies for 2020 going forward.
When Thomas Cook went bust last year, hospitality businesses and their staffs were hit hard by the realization that even a “sure thing” can become a big question mark. Hotels and resorts here on Crete have depended for decades now, on the assured bookings, the guaranteed revenue flows, and the relative security TC, TUI and other operators once provided. And even though faith in these guarantees is eroded overnight, the over-dependence on tour operators persists as if tomorrow will never come.
Market Sustainability Prophesies
For years now hospitality marketing has been outsourced to the big tour operators. So, hoteliers are now paralyzed by the obvious realization their revenue and sales strategies my be in the drink. Interestingly, this report (PDF) from 14 years ago predicted the present state of affairs. “The market influence of tour operators on the hospitality industry” by Dr.Dimitris Koutoulas of the University of Patras, shined a light on one dynamic that caused the decline of Thomas Cook. The rub then was the fear that competition between Mediterranean destinations combined with a clear cost disadvantage in the case of Greek resort hotels, would lead to a meltdown. And this is exactly what is happening now.
Although Dr. Koutoulas did not frame it exactly this way, this is what is happening in Greece and other markets. Koutoulas discussed the spectrum of interdependency, market influence, and other positive/negative aspects of corporate rivalry and market factors in the aforementioned paper. His arguments are at times flawed because of the incorrect factoring of “low cost” efficiencies, but the conclusion is sound in that the predicted “oligopsony” has led to a flawed hotel and resort operational mechanism. Dr. Koutoulas predicted this, in his own words:
“The enormous market power of the major tour operators strongly affects the way these hotels conduct their business.”
Koutoulas’ assertions are backed up by research done by Constantinos Bastakis and many others, which showed the market power of TUI and other tour operators put undue pressure on the providers in the accommodation sector, which face “a vicious cycle of declining quality and depreciated prices”(Bastakis et al. 2004: 153, 162). Dr. Koutoulas’ assertions end up being amazingly prophetic, and his suggestions indubitably correct. Here is the gist:
“The main target of resort hotels should be to limit their dependency on mass-market inclusive tour traffic, which is dominated by a few powerful tour operators.”
The paper went on to suggest the correct strategies, which no Crete or other Greek hoteliers seem to have advocated, namely:
- diversification of markets by attracting new market segments,
- product differentiation, and
- diversification of distribution channels.
Crete Region in Focus
This brings me to my recent discussions with several industry experts about how Crete and other destinations can re-balance the situation for a more sustainable outcome for Crete hospitality.
To get insight from the public sector, I called on Crete Region’s Tourism Director Nikos Alexakis. While the government’s area of responsibility is much broader than just the accommodations area, Alexakis and his colleagues are keenly aware of all aspects of Crete’s and Greece’s touristic product. Alexakis made me realize how just complex redirecting and rebalancing is. First and foremost where hoteliers are concerned, there is the necessity of profitability. No matter how idealistic or even altruistic any of us are, discussions about “new courses” is unnerving for any business in such competitive markets. The Instagram from the region’s famous Incredible Crete initiative points to the island’s fantastic off-season value.
Mr. Akexakis framed how the region is dedicated to expanding the tourism offering overall. He also pointed out the irrevocable truth, that Crete is one of the world’s most attractive sun & sea destinations where all-inclusive packages will always play a major role. I totally agree, even though my editorials sometimes come off as anti-tours narratives. However, what we are really talking about is refinement, sustainable business practice, and achieving a more perfect balance.
A Preponderance of Evidence
After my meeting with Crete’s tourism director, I contacted my old friend Thomas Magnuson, the co-founder and energy behind Magnuson Worldwide, the world’s largest independent hotel group. As usual, Tom pulled no punches:
“It’s tragic to see hotels and resorts fall when mega tour companies such as TUI and Thomas Cook fall—especially because it’s the small businesses in every village, town, island, and city that have “partnered” by providing the highly discounted wholesale rates that build the mega-companies in the first place.”
Once considered a renegade in the industry, Magnuson climbed to the top of the management heap with honest practicality and by keeping his fingers on the pulse of the industry. He counsels hotels to have a very broad and resilient distribution plan. Magnuson Worldwide adheres to a strategy of “developing many sources and segments of business to better withstand the uncertainties and imbalances that are increasing in this new world economy,” as he puts it.
Returning to address the problem of the Crete hospitality imbalance, Thomas Cook failed because the company was too resistant and too late to conform to new market conditions. In fact, given Dimitris Koutoulas and many others warned of this over a decade ago, TC and even TUI probably never had a viable business model for the long term. This is a subjective point, but if you look at TUI’s P/E of 14.8 (down since TC failed) which is below average (20.6) in the German market, you must wonder at the true potential of the company in light of Thomas Cook going bust.
TUI, in my mind, is one Boeing 737 MAX crisis away from major problems. Already, a 2020 Mexico catastrophe is in the making as British TUI customers show fears a new resort won’t open on time. In an ever more precarious market, we must also wonder what happens if foul weather or other 2020 factors cause the German company more problems. It seems to me, logically, that these tour conglomerates should begin thinking outside the box. This goes for hoteliers too.
The Way Forward
To get a traditional sales/marketing take on the situation, I called Minas Leapakis, who’s the Founder of EyeWide Digital Marketing and one of the visionaries behind the new RevitUp revenue optimization service. Liapakis built Greece’s most successful hotel marketing firm from scratch at the same time OTA and tour operator influence were in their booming years.
I knew from previous interviews that Liapakis’ team created RevitUp specifically for luxury resorts to have not only a stop-gap solution in case of market shifts (or cataclysm like TC’s demise) but for achieving the correct balance and diversity I discussed previously. The EyeWide visionary mirrored the regional tourism director’s concern over hotelier/market paralysis. Liapakis, who is at the Hotel Association of Halkidiki meetup in Thessaloniki tomorrow, offered this:
“Since we started in this business, there’s always been a tendency for hotels and resorts to focus short term. This has led to a huge imbalance and long-term problems like the Thomas Cook situation brings to the forefront. The big tour companies are a vital part of our industry, but cannot escape dynamic market forces forever. This is why we’ve created a holistic service, one that helps resorts to optimize every facet of their business.”
At the end of the day, a sustainable tourism business will demand a rethink by all the players. Sea, sand, and sun destinations certainly need an economical solution to fulfill a tourist segment, but more and more resorts and hotels will face the same constraints TUI and others are. Destinations like Crete island have a massive potential for tour experiences and other forms of alternative travel. This Skift report from 2018 shines the light on this facet. Pricing a destination into oblivion, marketing around stagnant efficiency, and underestimating the deeper implications will certainly lead to a breakpoint. For TUI, in particular, operating with blinders on leaves the door wide open for forward-thinking competition.
I leave you with a thought about what Skift referred to as “long tail of activities,” which will soon be bookable online and on mobile. Imagine you’re a Crete island hospitality business on a pristine beach on Crete, just a stone’s throw from hundreds of cultural, adventure, sporting, and gastronomy possibilities. Now superimpose a huge travel demographic willing to pay a premium price for a “bucket list” experience. At the other end of the spectrum, what if you operated a tavern in the mountains of Sfakia, and you are being run out of business by an all-inclusive buffet down the beach. I’ve run out of space here, but the point is made. The oligopsony will end one way or another. It’s in everyone’s best interest to hammer out a new feasibility study and strategy.