Tour operators brace for winter of discontent
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BRENT JANG
From Tuesday's Globe and Mail
December 2, 2008 at 3:45 AM EST
Headed for a tough winter, tour operators are starting to dangle bargain prices in front of recession-weary Canadian travellers in hopes of filling a glut of seats to sun destinations.
The challenge is to get a piece of whatever spending is left for warm winter vacations after consumers count up the cumulative effect of shrunken savings from the market crash, a renewed urge to increase savings in the face of weaker job security and anemic purchasing power after a tumble in the loonie.
"Consumers will be holding back and scaling back on travel," said Robert Kokonis, president of travel consulting firm AirTrav Inc. "People's investments have tanked and they're down in the dumps. Sure, some will still go on a feel-good vacation. But there has been so much cash and wealth taken out of this marketplace."
Unless economic prospects improve by early 2009, it's destined to be a winter of too many tour packages and not enough customers, said Nina Slawek,who co-owns travel website TakeOffEh.com.
Lower prices are "great for consumers," she said, "but the industry has to cut capacity."
David Newman, an analyst with National Bank Financial Inc., surveyed tour operators recently and found that advance bookings have been surprisingly solid.
But he cautions that vacation prices had to be lowered to attract consumers, leading him to believe that the early momentum in bookings will prove to be a "head fake."
He predicts holiday package prices will decline 10 per cent on average this season. Last winter, prices dropped 10 per cent from the previous winter. Mr. Newman also forecasts that seat capacity could jump 20 per cent nationally because companies made plans earlier this year, long before this fall's stock market turmoil, to boost the number of vacation packages.
Given the overcapacity, it will be tough to fill seats without chopping prices first, reducing already thin profit margins, he said.
"The bottom line is that it's going to be a very, very rough winter for tour operators, with skinny margins," Mr. Newman said.
He added that
Transat A.T. Inc., Sunwing Travel Group, Air Canada Vacations and
WestJet Vacations Inc. are all poised to sharply increase capacity even as they face the "Molotov cocktail" of recession, credit crisis and growing unemployment.
Versant Partners Inc. analyst Cameron Doerksen said eroding consumer confidence spells trouble.
"It's got to be more difficult this winter. Clearly, demand isn't stronger this winter and there's more seat capacity. It's a classic economics case of more supply and less demand," Mr. Doerksen said.
In Winnipeg, a variety of vacation packages already have been scrapped because of the lack of demand, affecting trips to certain sites in Mexico, the Dominican Republic and Cuba. Transat, Sunwing and
Sunquest Vacations have scaled back in the Manitoba capital, forcing an estimated 1,000 travellers who had prebooked to make other holiday plans, said Melissa Duguay, a travel agent at Journeys Travel and Leisure Super centre in Winnipeg.
Transat spokesman Jean-Michel Laberge played down the cancellations.
"It's really nothing unusual. It's the kind of adjustment that we do at the beginning of every season," he said. "We see what sells well and what is less popular, and we adjust accordingly. I mean, we still offer five destinations from Winnipeg."
Signature Vacations hasn't cancelled any trips from Winnipeg but its parent company, London-based
TUI Travel PLC, warned last week that winter holiday bookings have slipped 5 per cent at its Canadian unit.
TUI, which runs the Signature Vacations and SellOffVacations.com brands, said its Canadian division posted an operating loss of £4.6-million ($8.8-million) for the year ended Sept. 30, compared with a profit of £5-million for the previous fiscal year. TUI's Canadian operations haven't followed the trend of adding more seats, trimming 4 per cent of its capacity.