Late last month Heraklion Hotel Association President Nikos Chalkiadakis questioned the accuracy of Bank of Greece numbers on the actual state of hospitality revenues for 2019. According to Chalkiadakis and other Crete hoteliers, BoG figures of a 13.9 percent rise in revenues for the January-September to €3.19 billion euros are a fiction.
The long and short of the situation is this. In an industry where margins have been squeezed to the point of collapsing profitability, false-positives have no place. That is if the industry is to remain healthy fiscally. Here is what Chalkiadaki told reporters.
“These figures are incorrect. I do not know how the Bank of Greece computes these figures but they certainly do not correspond to reality.”
Chalkiadakis (left) went on to say the nine-month period in question amounted to an increased revenue gain of only 2 percent for Heraklion hotels. This situation of grandstanding crucial figure brings to the forefront, the paradigm for Greek hoteliers.
Chalkiadakis went on to say the nine-month period in question amounted to an increased revenue gain of only 2 percent for Heraklion hotels. This situation of grandstanding crucial figure brings to the forefront, the paradigm for Greek hoteliers. Calkiadakis, who is also Managing Director- CEO – Cactus Hotels, was right to question these misleading figures.
The Altered DNA of Crete Hospitality
These inconsistencies mirror a much bigger problem Crete hoteliers face. Profitability, sustainable business practice, and the strategies that support those practices are drastically skewed on Crete and in Greece overall. The problem is about the environment for tourism and hotel businesses here on Crete. Market dynamics for Crete, in particular, are moving faster than the hoteliers can cope with. For decades now the Crete market has evolved according to the huge marketing forces of tour operators like Thomas Cook and TUI. I’ve discussed this (warned, if you will) many times in the past.
In this report some months before Thomas Cook went belly up, I used a photo of Thomas Cook CEO Peter Fankhauser with Greek Tourism Minister Haris Theoharis smiling and shaking hands as if nothing in the world was wrong. This was July 27th, and TC crashed in a fireball by my September 24th announcement. Thomas Cook succumbed to its own unsustainability, to the DNA it tried to infuse into not only the Crete market but everywhere the company operated. What TC and other corporate entities have done, essentially, has been to inject a pricing virus into every limb of their business body. The arms and legs of TUI, for instance, are battling the head and torso over tiny fractions of profit – to extract a small margin overall. TC is gone, and TUI is right behind if someone does not do gene therapy on the company and its affiliates.
As I type this TUI’s net profit margins for the last reported quarter are down 17.15 percent. Net income is down 15.12 percent. Ironically (maybe poetically) the company’s total revenue is up 2.47 percent, which more or less coincides with Crete hotel profits and the world market overall. I think TUI has huge problems and their selloff of Hapag-Lloyd Cruises Unit To JV TUI Cruises In €1.2 billion euro deal. The deal looks more like a loan from TUI’s partner Royal Caribbean Cruises, but I’m no mergers and acquisitions expert. At the end of this market announcement, there’s a €700 million euro cash component that seems interesting. I won’t get into TUI’s debt, cash flow, dividend strategies, and other aspects of their business here (Read here on this). But it seems clear it would not take much to put the German company in big trouble.
A Market Running Aground
A year before Thomas Cook plunged into the abyss, the company was flying journalists around “educating” them about how package tourism is “back”. TUI was also giving away trips as part of their overall marketing scheme too. One story at The Guardian reveals the disastrous hurdle Heraklion hotels now face. This is the disclaimer for the story to let people know the story was advertorial.
“Trips were provided by Thomas Cook and Tui. From £383pp for seven nights’ B&B at Cook’s Club Hersonissos, including flights. From £670pp for seven nights’ half-board at Tui Blue Jadran, including flights.”
A week with airfare to Cook’s Club Hersonissos for under 400 quid? Well, the official website of the hotel is down, but their Facebook page is still live. Looking at the images there makes me sad, actually. The hotel looks half-deserted in most of the pictures posted by their social media people. My thoughts here are; “If the big travel agencies cannot fill their own hotels, how can they generate real profit for their hotel partners?” TUI’s UK site currently advertises Crete 7 night vacations for as low as £ 282 pp, which is at the family-owned Dream Village apartments outside Hersonissos. From my research, it looks like TUI has guaranteed most of these apartments, which can be had for about £14 pounds per night via other booking sources. This brings me to the big problem with hospitality entities depending so heavily on package travel.
Using the very nice Dream Village hotel as a rough example, it’s fair to say the owners could be losing anywhere from €40,000 to €100,000 euro per year in gross revenue by depending too heavily on TUI. The problem is, these clean well-appointed efficiencies and apartments are worth a lot more than the €14 euro (we can’t know the real figures) TUI may give. I won’t split the numbers here, but a tent on Crete in June should go for €20 a night.
In five years these people lost enough money to buy two or three Airbnb properties or an expansion on current operations. Piskopiano and Koutouloufari villages are super nice places to establish as a vacation home base away from the noisy seafront. Dream Village has a 4-star TripAdvisor rating with 400 reviews! This begs the question; “For how long and at what price can hoteliers maintain the guest experience?” An old friend who’s an icon of industry news, HospitalityNet founder Henri Roelings offered this comment when I phoned him last week:
“For many years, many Mediterranean resort hotels have been running their business on auto-pilot. Their Business was easy with one or two major travel agencies bringing in the bulk of their bookings. Apart from the immediate distress and panic, hopefully the Thomas Cook disaster will stimulate these hotels to diversify distribution channels and focus on guest satisfaction… becoming genuine hoteliers again…”
Henri Roelings’ wellfounded advice is poignant if we consider the essence of TUI and other travel agencies today. Trust me on this, nobody in this business knows more than Henri. Travel agents are just that, people or entities acting to coordinate, market, and sell travel and tours. The hotel and hospitality aspects of travel are “facets” of the process, and of the end product. Heraklion hotels doing well hosting guests impacts TUI’s brand and sometimes the bottom line, but playing host is NOT what the big agencies are in business for. Put bluntly, the agencies leverage too much control, which is not even good for their business.
A Crete Matrix
Coming up on 13 February, the Heraklion Hoteliers Association, in collaboration with EyeWide Digital Marketing, and RevitUp will hold the first masterclass for online sales and digital marketing for hoteliers. This meetup may be a turning point for some Crete hoteliers caught in the mad matrix of imbalance, and especially luxury resorts trying hard to maintain a perfect guest experience with pricing constraints in place. I’ll come clean here and just lay it out simple.
Nikos Chalkiadakis seems to have set up the perfect forum for Heraklion hotels to learn and reassess their possibilities in light of the Thomas Cook disaster. EyeWide Digital, led by Minas Liapakis, has custom-built RevitUp, the hotel revenue optimization service designed specifically so luxury resorts can take back part of direct revenues, while at the same time ensuring there’s a “Plan B” in place when market forces go haywire. I’ve known Liapakis for many years, and I’ve seen the solid revenue gains of Eyewide client hotels. In fact, conference attendees in Crete, Cyprus, in Athens, and at Halkidiki have seen the figures too. The black & white as newspaper print.
I’ll never claim to be the great Karnak of the hotel business, but I do know many of the pioneers and their success stories. And I know well enough to differ to their judgment when I have questions. In a previous report, I cited Thomas Magnuson, who is one man who reshaped the hotel industry with his maverick ideas and fortitude. Let me quote him once again, on the state of the rate competition and market share are concerned:
“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.”
Tragic. A tragedy. That’s the negative side of Greece hoteliers’ unsustainable, two-dimensional approach to business. What’s ironic here, is the fact that some Heraklion hotels have already caught on and are optimizing their balance and earnings. For me, it seems like a no brainer to play follow the leader. I recommend Heraklion hoteliers to head over to the Chamber of Commerce on Thursday. Expedia will be there along with Chalkiadakis, Manolis Lapidakis (Founder/Owner of primalRES), Liapakis, and RevitUp co-founder (Plarino Sales Co-founder) George Ergazakis, Google Ads/Analytics execs, and others.
Ask them the tough questions. Clear the air so Heraklion hotels can prepare for every eventuality. Don’t take my word for anything. That’s the best advice I can give. I sure would hate to be writing an “I told you so” report in November. I did my best here, the writing is literally on the wall.