Is Tourism Business in for Disruption?
Whenever there is a deviation from the traditional form of business or the way an industry operates, it can be termed as ‘Business Disruption’.
Some business disruptions are ‘deliberate’ or the ones that are initiated to branch out into new territories, expand markets or multiply market reach. These are often innovation driven and a kind of development of a new business models. Other business disruptions are ‘natural’ and happen in the course of time when old methods of conducting a business become redundant and businesses migrate or adapt to new ways, even though compulsively but have to, as they need to keep themselves afloat in the market.
The most common reasons of business disruptions have been, the huge penetration of information technology, natural and manmade calamities, economic downturns, survival in the most adverse times etc. In the present circumstances, we probably have all of these coming all together, thus business disruption is simply inevitable and just round the corner in travel industry.
A new form of business disruption that is now about to emerge and has already started peeping out in the travel and hospitality industry may be termed as ‘COVID Driven Business Disruption’. This form is driven by the fact that businesses have to survive and in the wake of their survival, many inevitable changes will take place which then might stay on and be considered as normal.
We have been talking a lot about the ‘New Normal’ but we refuse to believe that there will be a whole lot of businesses that are already planning for their future innings, where they are modeling themselves on the concept of ‘earn more – save more’, so as to turnaround much sooner than what they could have when they were based on the earlier business models. Some travel businesses are exploring expansion, which may sound weird in times when travel and hospitality businesses are accumulating huge losses and looming n uncertainties. This expansion into new markets and adding new service verticals are with the prime objective of expanding revenue heads, recovering and turning around faster. .
We have all heard of the term ‘Breakeven’ but it is now going to be an era of ‘Re-Breakeven’. Even oldest of travel and hospitality businesses have exhausted their reserves, no matter how financially disciplined they were and how robust their businesses were, all have dug into their capital and burnt a big hole in their coffers, a hole so big that any small income will just slip out in no time.
I have tried to examine rather predict the kind of disruptions that may be taking place in the tourism industry.
Direct Hotel Bookings
From brick & motor agents it had slipped onto OTAs (Online Travel Agents). Hotel websites for quite some time were just limited to understanding the product and then the end customers did a bit of rate shopping to compare the offers on different platforms before booking his stay which usually happened on OTA platform. Hotel websites did a low business as compared to OTAs, big chains that had loyalty programmes may be an exception to this and did some business on their own websites. Somehow I am seeing hotel websites coming back and OTAs will be a good publicity and marketing tool for hotels listed on them. It will be back to hotels again, where hotels are trying to woo its guests back to their websites by offering the best and bundling the offers with add-ons that OTAs may not be able to match.
Cash is another most important requirement of the hotels in the present times and free flow of cash can only happen with direct customer base and not through the credit hungry travel agents. Also, there have been many defaults in payments from travel agents to hotels in recent times. Pre-COVID debacle of Cox & Kings and then the pandemic defaults are yet other reasons why hotels will change their route of business.
Pre-purchase of rooms for cash and cash guarantees will be one thing that will rule the businesses and this advantage can be taken by cash-rich travel agents or hotel aggregators through whom travel agents and tour operators will proceed to take hotel rooms in future.
Credit to Cash
It is no hidden fact how in India larger companies enjoy credit with right and inordinately delay payments causing a lot of hardships and reducing the utility of money. When the rate of interest is factored into the outstanding/receivables, returns diminish further. And then, there are bad debts that though were always a problem and it only increased now due to the pandemic. Hotels, transport companies, ground handling agents et al, suffered hugely due to indiscipline in making timely payments to vendors and intermediaries. Payments are delayed by more than one and a half year for many and still there is no hope in sight.
This pattern will lead to service for cash or cash reserves and the worst sufferers will be the big travel companies who till now enjoyed credit and earned handsome interests on deposits that were payables by investing in liquid funds etc. All that’s going to change and trust deficit might creep in between the operator and the end service provider.
Limited Hotel Services
Hotels have learnt to cut cost and corners too during this pandemic and so have their guests learnt to accept limited services. This may be one thing that will now go on to counter any lows of business seasons even when COVID is gone. Limiting the use of staff and intelligent staff deployment are yet other new learning by the hotels and this too may continue, thereby changing the service parameter. After all there has been a difference in service offers of a European and American five stars compared to the Asian five stars. If we Indians can accept it in the US or in Europe, we will learn to accept it here too.
Destination Management Company (DMC) may be passé
India is too big, too diverse and has a huge problem of plenty to have just one DMC being ‘know-all, do-all’. It is all set to change now with increased knowledge about the destination and better reach to smaller specialised companies.
Visualize the map below to understand the size of India as a destination and see more maps on : https://archishmanb.wordpress.com/2015/08/29/gauging-the-true-size-of-india-through-4-perspective-altering-maps/
Similarly one can gauge the diversity through the following data as under:-
- More than 19,500 dialects are spoken in India as mother tongues
- There are 22 official languages in India.
- India comprises 28 States and 8 Union Territories
- Major religions practiced in India are Hinduism, Islam, Sikhism, Christianity, Buddhism, Jainism, Zoroastrianism and Judaism.
- India has 8 recognized classical dance forms and more than 200 folk dances spread across India.
Regional players who have a better hold on their regions (mind you our states and regions are bigger than countries), were the actual service providers have sprung up during this period of COVID and are now known much more by the outside world than they ever were. The spread of information technology, multiple webinars, self-training and e-explorations by foreign tour operators will only add to this disruption. The amount of knowledge that the foreign operators and intending tourists got during this period is beyond compare with anything in the past. Then there are specialized themes and subject for niche travel that general DMCs just cannot cater to on their own. Also large DMCs till now covered everything and kept all wrapped up, percolation limited information to foreign operators that suited them and their business. White-labeling services and products was yet another tool that showed large DMCs being omnipresent.
One can easily decipher that the foreign operator can now reach smaller operators (I love to call them micro-DMCs) who cater to specific to smaller areas, are much more and quite focused in their regional knowledge, can provide immediate and seamless information and due to their small size can offer personalized attention to the clients. And of course cost is yet another major advantage that FTOs will look for when restarting with India.
Meetings Conferences and Exhibitions
Oops! Did Zoom, Google Meet and many other interventions change the way we met, did our conferences and meetings. MICE is a huge industry in itself within the domain of tourism. All this time we have learnt, how not to travel for face to face meetings, conferences and exhibitions, or how to limit our travel This may cut the industry to a smaller size where hybrid events may take the foreground. A conservative estimate is a reduction of 35% in size (based on a survey conducted asking participants to choose between the physical presence and e-presence).
We as MICE operators have to gear-up for a hybrid model and adapt to the technology to be able to offer a robust solution.
Similarly ‘I’ of MICE which stands for incentives will make a slow recovery and incentive group travel size may be reduced to much lower numbers, thereby bringing a drastic downfall in revenue. Incentives are also directly dependent on financial health of a company and with the downturn in general economy, this for sometime at least will remain muted.
Staff Outsourcing and lean staffing
The major takeaway from COVID is to have a slim staff strength and increased reliance on automation. A lot of staff outsourcing is bound to happen in the travel industry. Till now only hotels and airlines relied on outsourced manpower but it’s time now that even travel companies and tour operators will increase their dependence on outsourced workforce as compared to the ones on company’s own rolls.
After all, travel and tour businesses are highly seasonal and for almost 5 months in a year, companies have to maintain their staff without much operational work in their kitty. Barring a few key positions, companies may now hire work-based staff provided by third party HR outsourcing companies. This trend may catch up initially, at least till the business return to 2019 levels.
Multi tasking of the staff will help cut on numbers thus bringing down employment in the travel and tourism sector. This trend is a bit worrisome as it will reduce the number of opportunities at least initially in this sector.
List of business disruptions may be much longer than just the ones mentioned above and ‘disruption’ of today will gel so well into the business eco-system within no time that it will not look different and we will learn to live with it as if it were always there. ‘Evolution’ is the next word that replaces ‘Disruption’ in the course of time when ‘Business Disruption’ is termed as ‘Business Evolution’.
Published in Travel Newsy: https://travelnewsy.com/2021/06/22/is-tourism-business-in-for-disruption/
The author of this article, Prateek Hira is the President & CEO of Tornos, travel academician and a researcher. He is the Chairman of FICCI’s Tourism Committee, UP State Council and Chairman of UP Chapter of IATO. Click here to know more about Prateek Hira