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Bringing Europe BackJanuary 19, 2009 By: Michael Browne, Jena Tesse Fox Travel Agent
After a dismal 2008, the industry looks to breathe new life into the European travel segment
Some may say that Europe’s sagging tourism scene may be unable to resuscitate itself in 2009. There are certainly enough indicators to support that belief: U.S. visits to Europe dropped 9 percent in September 2008, according to the latest figures from the U.S. Department of Commerce. That completed a peak season (May through September) in which U.S. visits declined 7.3 percent, the first peak-season decline since 2002.
In fact, last year ended well short of the record 13.33 million U.S. visits to Europe in 2007. All told, travel to Europe by Americans was down 4.8 percent in the first eight months of 2008, compared to the same period in 2007. As we enter 2009, U.S. travel appears to be dropping at a steeper rate—10 percent or more.
In addition, it may be harder for Americans to get to Europe in 2009. More airlines are considering mergers as passenger demand declines, which will result in fewer flights. For example, British Airways has been in talks with Spain’s Iberia and American Airlines as worldwide air travel fell for a third consecutive month in November. Virgin Atlantic Airways recently announced it is slashing fares and may trim seats to ride out a slump in demand for air travel.
And according to the latest Hotel Price Index (HPI) study from Hotels.com, although European hotel prices were not significantly impacted in 2008—due to a reasonably strong summer season—prices are now starting to come down and they will likely be forced to cut room rates significantly in 2009.
That’s all a pretty bitter pill to swallow for travel agents who have in years past counted on high-ticket European vacations as a significant part of their sales. Add to all of this the global economic crisis and an unstable euro-to-dollar exchange rate, and it becomes even more difficult to market Europe as a destination for U.S. travelers.
The Pricing Problem
As of the end of 2008, the euro was poised to post its first annual fall against U.S. currency in three years as the financial crisis sparked a rush into the dollar this year. While the euro suffered an overall 3.9 percent drop in relation to the dollar over the year (and stood at $1.36 at press time), it is difficult to forecast what the future holds for these two currencies. After all, it was just last spring that the euro was at an all-time high of $1.60.
With the currency fluctuating as much as it has, tour operator Isramworld, which primarily serves Eastern Europe, Russia, Spain and Portugal, offers a price-protection guarantee option on all its packages. “Although the dollar did get stronger against the euro, the economy is still worsening and these two forces will offset each other in the short term,” says Isramworld’s president and CEO Ady Gelber. “We see people losing jobs, and Americans are facing an unprecedented credit squeeze. I expect people to adopt a wait-and-watch approach and things should start moving again sometime in the middle of 2009.” For $100, Isram passengers now have the option of locking in a rate and being protected from adverse movements in currency, rates, etc.
Even as the euro-dollar exchange rate stabilizes, most operators have deals locked in with their suppliers that allow them to pass on added value to their customers. Should the euro go up, customers are locked in at their rate in dollars; if things equalize, or the euro drops below the dollar, the customer is still getting a good value for their money based on the rate the operator negotiated with its vendors.
“Once the client buys a tour, the price doesn’t change,” says Scott Nisbet, COO, Globus Family of Brands. “We’re locked in at a very favorable exchange rate. When it comes to our vendor partners in Europe, our deals are negotiated in euros and paid in dollars. That trickles down to the customer, who is charged in dollars, and we honor that price no matter the fluctuations of the exchange rate.”
In addition, says Nisbet, although Globus traditionally toes the line on pricing, “we have done some real aggressive price promotions recently, which have helped to stimulate sales.
“We’ve also experienced some trading down,” he acknowledges. “There is growing interest in our Cosmos division, which is our more affordable segment. At the same time, though, our top-tier Globus Platinum seems to be holding steady.”
“The euro against the dollar is a bit unpredictable,” admits Harry Dalgaard, president of Avanti Destinations, “but we’ve established an exchange rate that gives the travel agents and their clients 20 to 25 percent savings compared to last year.”
Despite the economic challenges, there are those in the industry who believe that 2009,
in fact, could be a surprisingly good year.
“I believe Europe will not struggle,” says Marc Kazlauskas, president of Insight Vacations, “because three things will happen in 2009: One, European currencies have come down dramatically; two, air fares will come down along with the fuel surcharges; and, three, you will see deals to Europe you have not seen since 9/11.”
Still, any success will require a change in strategy for agents selling the destination.
“Agents should definitely focus on demonstrating value to their clients,” says Tauck World Discovery spokesperson Tom Armstrong. “With the soft economy, people are being more careful about how they spend their money. Agents will need to show how the travel choices they’re recommending to clients provide excellent value.”
Armstrong believes that agents should also give special focus to their upscale and luxury clientele because, in general, they’re more resistant to economic downturns. In addition, with many agents landing fewer overall sales, it’s critical that the sales they do make deliver as many dollars as possible to the bottom line. “Selling upscale all-inclusive packages to Europe, with virtually everything built into the price and thus commissionable, is one of the best ways for agents to put the most dollars in the cash register with every sale,” he says.
Likewise, Insight Vacations is also emphasizing the value of tour packages. “I believe this will be the year of the escorted tour for two simple reasons,” says Kazlauskas. “[First,] given the inherent value of a tour—that so much is included—clients are looking to know exactly what they will spend, as household budgets have been cut; and second, agents will want to sell tours more now than ever before because of the huge commission potential, especially when compared to selling a cruise. We have more interest now from agents wanting to know how to convert cruise customers to tour takers.”
Scott Nisbet at Globus has also seen growing interest in tours from agents, and notes that, for agents, “a tour or river cruise can mean commissions three times as high as an ocean cruise. These are high-ticket items that are fully commissionable.”
Indeed, with that growing interest in tours, other players are getting into the mix. Ritz Tours, long a leader in China and Asia packages, announced last month that it was launching 2009 Europe packages, certainly a vote of confidence in the future of travel in Europe.
Nisbet says that Globus is optimistic about getting bookings in the first quarter this year. “January through April are our peak booking times,” he says. “With the peak travel season for Europe running from May through September, we still have time to bring those bookings up. One of the things we’ve noticed is that bookings are happening much closer in now.”
Nigel Osborne, president of Virgin Vacations (the inclusive tour arm of Virgin Atlantic), reports that travel to Europe in December 2008 has only decreased 5 percent from the same month in 2007. “We’ve seen online business increase 10 to 15 percent over last year,” he adds, and after a sale in conjunction with Virgin Atlantic that offered six nights in London for $749 (with taxes), the company saw an enormous increase in travel to the UK. With the low prices for airfare and hotels, travelers were eager to purchase such add-ons as theater tickets and trips to Stonehenge, where they could enjoy sparkling wine at sunset. “One of the keys to successful marketing is giving people control over their vacations,” he says. While most vacations last for a week or more, Osborne notes that “35 percent of our business is last-minute.” As airfares keep dropping, he adds, people will wait to find the best deal.
Tony Potter, CEO and managing director of CHI Hotels and Resorts, agrees that suppliers should not discount their packages, but increase the value. “I think what’s important for the consumer [to ask] now is, ‘What is this gonna cost me?’” he says, noting that people will balk if their room is inexpensive, but their food and drinks are not. “If we start to discount, then we’ll both suffer. We’ve got to offer extreme value for money, and a certainty about what the final bill is.”
In spite of the economy, Avanti’s Dalgaard believes that Europe will continue to draw American visitors. “With the 20th anniversary of the fall of the Berlin Wall, Berlin really comes through as a hot destination for Europe, especially since Germany as a whole provides a great value comparatively,” he says. “The value of Spain and Greece come to mind also. The food, the natural beauty, along with culture and beach time, really give the traveler a well-rounded experience at a good price. If fuel surcharges and taxes continue to decline, the pent-up demand for people traveling to the ‘old country’ should rebound.”
Furthermore, Europe offers two specific modes of travel that agents can focus on to ensure greater value for their clients: rail and river cruises.
Rail Travel: Changing the Landscape
Over the past few decades, high-speed trains have been making Europe seem smaller, darting between cities at speeds as high as 186 miles per hour. Ever since the Chunnel linked England to the Continent in 1994, travelers have been able to go from one end of Europe to the other with ease, appreciating the landscape as they go and stopping in cities that they might otherwise have missed.
Today, with increasing concern about the environmental impact of air travel and the proliferation of high-speed trains throughout the continent, train travel in Europe has entered a new era. Indeed, some countries are seeking to eliminate short-haul flights altogether in favor of trains between cities. As reported by TravelAgentCentral.com in December, Trenitalia’s new Milan-to-Rome high-speed rail link is cutting an hour from the prevous schedule, connecting Italy’s political and financial capitals in just three-and-a-half hours. Travelers throughout Italy are clearly paying attention: Last year, our sources say, Trenitalia reportedly took 60 percent of the market share from troubled Italian flag carrier Alitalia.
The popularity is understandable. Trains allow travelers to go directly from downtown to downtown rather than renting a car and driving from the airport into the city. Travelers can arrive minutes before departure and still make their trains, as opposed to waiting an hour (or more) in an airport lounge, and trains are less likely to be delayed due to weather.
Rachel Morton-Young, corporate communications coordinator for Eurail, emphasizes the “freedom and flexibility” of train travel, as well as the environmental benefits. There are also economic perks: Eurail is partnered with other businesses to offer reduced or free access to private railways, sightseeing attractions and hotels, adding value to the product. In addition, Eurail passes can be purchased in dollars before departure to Europe, offering a better rate than purchasing tickets upon arrival.
Charles de Gaspe Beaubien, senior vice president, business development of Wandrian, the parent company of RailAgent.com (a website that allows travel professionals to purchase train tickets in numerous countries, including much of Europe), says that rail is one of the most affordable ways to travel in Europe. “We buy [tickets] in euros or in pounds from the railways, so when the rate fluctuates, the price is lower on RailAgent.com,” de Gaspe Beaubien says. “They are locked in—in the local currency—and then when the U.S. dollar gets stronger, it makes those tickets cheaper.”
River Cruising: A Value Niche
River cruises throughout—and sometimes between—European nations have become increasingly popular for travelers looking to get the most out of their vacation dollars. A river cruise combines all the benefits of a cruise (all-inclusive price, multiple destinations, high commissions for agents) with the traditional elegance of a European vacation. Travelers can go to sleep as their small boat (which typically holds fewer than 200 passengers) moves quietly along the Rhône, Rhine or Danube and wake up in a new city every day. From there, they can participate in an escorted tour of the city or set off on their own to explore, returning at night to start all over again the next day.
See more of Uniworld River Cruises in the video below:
Guy Young, president of Uniworld River Cruises, believes that the current crop of deals on European river cruises are “probably the best opportunity that we have seen in years. The U.S. dollar has strengthened considerably vs. the euro in the last six months,” he notes. “That said, currencies remain very volatile and it is hard to predict where the U.S. dollar will have settled by the time consumers actually travel to Europe.” With a river cruise, Young says, clients prepay in U.S. dollars for a package that is virtually all-inclusive. The price is locked in, and there will be very few out-of-pocket expenses once in Europe.
See more of Viking River Cruises in the video below:
Richard Marnell, senior vice president of marketing for Viking River Cruises, believes that travel agents are a vital partner for suppliers, especially in bad economic times. He notes that, in the case of Viking, “Sales from travel agents are up 33 percent over the past month alone—quite an accomplishment in this economic environment.”