Travel

#After recession, online tour discounters’ strategy losing steam: Travel Weekly

CORRECTION: An earlier version of this article stated that GlobusJourneys.com is a company that discounts Globus product. It is in fact a Globus website that lists the company's promotions.

During the dog days of the recession, online discounters flourished as they helped tour operators and packagers unload inventory at bargain-basement prices.

But with the industry and the larger economy in recovery, discounters arguably are beginning to pose less of a threat to traditional retailers as their business model comes under pressure and as consumer focus shifts from price to service.

“If you actually discount your margin, you’re reducing your resources to stay in the game,” said Paul Wiseman, president of Trafalgar. “The fiscal pressure on the discounters is going to continue to grow and grow. … They can’t reduce their costs … [and] they’re limited in how they can market through policies like ours.”

In April 2011, Trafalgar instituted a policy that prohibits agencies from advertising any discount other than promotions issued by Trafalgar. Many other tour operators have similar policies in place.

Further, he said, “I would actually propose that a lot of the online-discount-style businesses are under pressure because of the increase in costs to market on the Internet.”

Major online tour discounters like AffordableTours.com, TouringForLess.com and Pavlus Travel (CheaperTravel.com) often attract new customers by buying certain search terms to ensure they are high on the list when travelers search online using those terms. Conduct a search on Google for “discount tours,” for example, and AffordableTours.com is the second website that pops up, after GlobusJourneys.com.

Kyle Pope, president of TouringForLess.com, said that search engine optimization “is one way you compete.”

“We do get business from online search engines,” he said. “We have paid advertising, but our largest source [of new business] is a customer that comes back and recommends us to other people.”

Pope noted that since the economy began to rebound, TouringForLess.com has had to adjust its business to put more focus on service and not just on price, in order to attract repeat and referral business.

“One of the things we’ve switched to [is] we’ve modified our system so that we now use a team of at-home agents to sell our tours,” Pope said.

He added that over the last few years, TouringForLess.com has “been bringing people in with expertise in the touring industry. At the end of the day, we compete on two criteria: price and customer service. And we want to win on both.”

While Trafalgar and other tour operators and packagers no longer allow travel agencies to advertise discounts, they do allow companies to give them. Whether retailers offer those discounts by rebating — the practice of using commission payments to reduce the price — or by cutting into their margins, they still do pose a challenge for travel agents who do not rebate or match online discounts.

John Werner, president and COO of MAST Travel Network in Oakbrook Terrace, Ill. said, “Discounting and rebating — I’ve been in the business for 37 years; it’s been around for 37 years. It really grew with the Internet because these companies that are doing all the discounting today, many of them weren’t around before the Internet.”

He said discounters are just as active today as they were during the recession. The difference, he observed, was that “during the recession, [travelers] were much more price-conscious. [Today], they might be a little less inclined to dig deep for lower prices because they don’t feel they need to do that.”

Agents who don’t rebate or discount report that while customers are less focused on price alone, they continue to lose bookings to online discounters.

“It happens to every agency every year,” Werner said. “A customer who seemingly is loyal will come back and say, ‘We can’t ignore the savings that we found online. If you can match it, great, we’ll stay with you.’”

For many agents, discounting remains a hot-button issue.

“It’s very hard to compete in this market if you’re going against online agents who rebate,” said Jim Marino, owner and manager of Oyster Bay Travel in Oyster Bay, N.Y.

“If I can do a price match through one of our preferred suppliers, which many will do, I offer the client that same price.” But, he added, “I don’t rebate. I just want to show the client that I can offer the same deals as an online distributor.”

‘Turning away some business’

Because of brick-and-mortar agents like Marino who decry the impossible-to-compete-with competition from online discounters, Collette Vacations is one of the few tour operators that has decided not to work with discounters anymore, even at the cost of millions of dollars in lost revenue.

“We’re definitely turning away some business,” said Dan Sullivan IV, director of sales at Collette. He estimates that online discounters were pulling in between $5.5 million and $6 million in annual revenue for Collette when the company still worked with them in 2008. That number would likely be between $10 million and $11 million now, he said. Those figures indicate that online retailers are far from irrelevant.

But in 2009, Collette instituted a policy that prohibits companies from advertising discounts of Collette product. And one year later, the company stopped selling to its three biggest online agency partners — AffordableTours.com, Pavlus Travel and TouringForLess.com — altogether.

“The hope is that we’re making up for it with the agencies that we do work for,” Sullivan said. He said that ever since the company put the new policy in place, it has grown its overall agency revenue by more than 40%.

“I’m aware that there are many agencies out there that think of Collette from a decade ago that was not always a channel-friendly company,” Sullivan said. “This policy is one of the ways we’re showing [agents] that we want to help them.”

As for the future of online discounting, Wiseman said, “It’s not a big list; it’s not a growing list. There are not any new players coming into it.”

And if the rebaters are going to remain relevant, he said, they are going to have to “work equally as hard on customer retention as they do on new customer acquisition.”