Retail travel is screwed. Hard to say but, after Flight Centre this morning announced it will lose between $825 million and $875 million for the financial year ending June 30, impossible to dispute.
Flight Centre has already sacked or stood down thousands of its staff and closed many of its stores.
Primary bricks and mortar rival Helloworld is treading a similar path, though not as dramatic because it operates a franchise model and doesn’t own the agencies operating under its brand.
Meanwhile, AFTA Chairman Tom Manwaring told the ABC this week that up to 50% of of its 3000 members could go under by Christmas if they don’t receive targetted government assistance in addition to JobKeeper, resulting in the loss of 20,000 jobs.
But what’s the point?
It’s sad but inevitable that many of these agencies are going under anyway because their business model – which has for so long ignored domestic travel – is structured around high cost international trips and the commissions that come with them.
Now that borders international are closed – a scenario that in some form now may well spill into 2022 – they don’t have a product to sell.
Domestic holidays are much simpler for increasingly cost-conscious consumers to organise on their own through OTAs or direct with suppliers.
It’s telling that many of the most popular destinations are now within a couple of hours’ drive of major cities.
Just look at NSW where regions such as the Blue Mountains, Hunter Valley, Shoalhaven, Sydney’s northern beaches and Southern Highlands are recording weekend demand.
That says consumers are nervous, anxious about not just COVID but also state border closures and do not want to fly if they can avoid it, for both health and financial reasons.
Why book a flight to Cairns if Queensland keeps randomly (and politically) closing its borders?
Simply not worth the risk.
Note also that Sydney Airport revealed that passenger numbers during the second quarter were down 96.6% over the previous corresponding period, contributing to a $53.5 million loss for the half year to June 30.
Total passenger numbers for the period were 9.4 million – including just 400,000 for all of April, May and June.
Then of course you have Victoria.
Australia’s second largest economy has ground to a halt due to the onerous but necessary isolation restrictions imposed by the a state government under enormous pressure to reduce the rampant spread of coronavirus throughout the state.
Victorian agents are even more screwed than their interstate counterparts.
These latest blows come at a time when the reputation of travel agents as trustworthy advocates for customers has never been lower due to their concerning inability to obtain refunds for customers unable to take trips due to travel restriction.
In the six months to the end of June, the Australian Competition & Consumer Commission received almost 15,000 complaints about travel businesses, virtually all them related to refunds, five times more than the same time last year.
Manwaring from AFTA estimates that $10 billion has been spent on holidays that now can’t be taken. He says travel agents are working very hard to clear the backlog, which could take 12 months, for no rewards
While there’s no question most agents are doing everything they can to help clients, when they have got $10,000, $20,000 or even $70,000 hanging in the balance its not good enough – even though it is often beyond the retailer’s control.
Most often it’s the suppliers at fault.
And their issue is this: how can you offer refunds when you’ve already spent the money or need every available dollar just to survive?
In the months following the COVID lockdowns and border closures, the industry came under sustained attack for its “read the fine print” approach to clients during the worst pandemic in 100 years.
Two companies – Flight Centre and Intrepid Travel – hugged the headlines, encapsulating the brand risk in putting business cash flow first and customer needs second, especially when recent history shows that this strategy is doomed to failure in the court of public opinion.
There is no way you can hold back the tide.
However, this is what Flight Centre and Intrepid Travel attempted to do.
Flight Centre, which for years through founder Graham Turner rejected the notion of travel agent charges, slugged customers service fees of up to $300 per person for trips they couldn’t take and in many cases were no longer able to afford due to lost jobs, something the company would understand after sacking 6000 staff late March.
Its money-first approach caused uproar and ran counter to the prevailing sentiment – which is that being kind and fair to fellow Australians has never been more important.
And though it was legally able to charge a cancellation fee, over the weekend Flight Centre bowed to pressure from the ACCC, Australia’s competition watchdog, to waive charges and refund customers.
In the end it was an inevitable outcome and one Flight Centre could easily have avoided by charging more reasonable fees or waiving them altogether.
Meanwhile, the reputation of Intrepid Travel, which aggressively promotes its socially responsible credentials, took a big hit when it changed the rules it applied to bookings by launching a back-dated a ‘no refund, credit only’ policy that not only alienated customers but also ran counter to its corporate persona.
Two tortuous weeks later, Intrepid Travel CEO James Thornton issued a “we could have done things better” apology that read more like a justification for its actions than a mea culpa.
It also exposed the company’s seemingly soft financial underbelly (though the circumstances are extreme): 35,000 cancellations and a 4% profit margin. “When we sell a trip for $2,000, we make around $80,” he said.
Thornton also claimed that “none of the decisions we have ever made as a business, and especially over the past six weeks, have been motivated by money” while at the same pleading for customers to take a credit over a refund to help the business.
“If you can, please take the 110 per cent credit voucher,” he said at the time.
“We understand that some of our customers have also lost jobs and income as a result of the pandemic and a credit simply won’t cut it. We are not denying those people refunds and their well-being is extremely important to us.
“But for those customers who can afford it: giving those refunds now will make it much harder for us to get back on our feet when this is all over, much harder for us to get back to work, much harder for us to do anything.
“It isn’t your money, for money’s sake, that we’re interested in. It’s what your bookings and your commitment to travelling with us means for our staff, our local guides around the world, our suppliers, the communities we visit, and the social and environmental causes we believe in.”
Lofty rhetoric but, crucially, the apology did not detail any substantive change in approach from Intrepid.
And this is perhaps the key issue for the travel industry – a dogged resistance to change, a crazy determination to keep running their businesses in the same way as they have for the past 30 or 40 years.
This resistance to acknowledge we’re living in a different world comes right from the top.
Industry groups remain steadfast in their support for member actions.
The Council of Australian Tours Operators (CATO) has been pushing the credit over refund while AFTA strongly defends the right of its members to charge cancellation fees.
Of course, that is understandable, especially during a virulent global crisis that no-one saw coming.
But his is not a sustainable approach and when the dust settles, the industry needs to rethink its relationship with customers, its outdated cancellation policies, and strengthen a financial model driven by discounting and knife-edge profit margins.
Otherwise, this will happen all over again, albeit with far fewer bricks and mortar travel agents, who faced their moment of truth and were found wanting because their standard business model has reached its use by date.
Footnote: Flight Centre shares actually rose in value following this morning’s news – see announcement.