Undercutting is not for the long-term. The demise of Low Cost Travel.

Undercutting is not for the long-term. The demise of Low Cost Travel.

As keen observers from the travel world have found out, the €700 million companies (approximately Rs 5,000 crore) travel company “Low Cost Holidays” went into bankruptcy in London on 15 July.

At the time of the insolvency, there were about 27,000 people on a holiday who had booked through the company comprised of a €200 million wholesale arm and €500 million OTA/retail arm. As some holidaymakers are finding out, hotels are calling customers in-house for payment. They are stuck. It’s not the first time in our history that a seemingly invincible travel company has gone broke. Just a few months ago Getway, Belgium went down under. As also was the fate of Transhotel about 2 years ago.

Unfortunately, this will affect travellers and yes, the wholesale arm is one of our suppliers. However, travel agents working with roomsXML need not worry. Says, Prakash Bang, Managing Director, “We have a couple of hundred forward reservations and unfortunately, a few live ones in progress. We have 24 hour rotating shifts continuously working to secure all the bookings by paying hotels directly and switching to other suppliers. In most cases our customers won’t even know.”

Continues Prakash, “We had some hint for last few months that the company was struggling, so we limited the transactions with them by shifting and placed them on a watch list. I spoke with a confidential insider later on who told me that they owe about EUR 7 to 8 million each to some of their vendors.”

So where to from here?

The larger wholesale companies are going to be reviewing all of their contracts with all of their supply chain starting immediately. Hotels have already started hassling customers for payment. For aggregators like us, the financial hit is mostly in the several hundred hours of wages reallocating business and communicating with customers that confirmation numbers (but not bookings) have changed. We are the travel agents insurance policy.

It will now be very difficult for the next 12 months for new players to enter the market as everyone gets a little more cautious. As if recent political, terrorism and financial events have not been enough of a challenge to the industry. Consumer confidence in online travel agencies will take a significant hit. It’s now for the travel agents to let their customers know.

Concludes Prakash, “Undercutting, discounting, price gimmicks, cash-backs and the likes are not going to work. Travel agents should realise that there’s no free lunch. It’s in their interest to opt to work with companies that are profitable… these companies are likely to be around when times become tough!”

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