a day ago
Explaining our industry using table seasonings
Richard Turen
I found myself keeping a luncheon appointment with a trusted media source I talk to from time to time. This person is a great contact who has never worked inside the industry.
This was all background, so I will not cite names. We met at a diner in Miami Beach. One of us ordered the Reuben sandwich. The other ordered a bacon caesar salad with dressing on the side. We both drank iced tea. It was 101 degrees in Miami that day.
We made small talk. I was interested in advertising trends, and I was advised that social media advertising funds were increasing proportionally to the decrease in magazine advertising. However, it had not yet reached any critical thresholds.
One fact that emerged was the data showing that travel consumers absolutely love "best" lists. Ad revenue tends to increase when best-of and "recommended" lists are promoted.
But my source was clearly interested in pursuing one rather specific question based on the travel industry changes and news of the past six months. As the food arrived, the big question came with it:
"So, Richard, we are wondering how someone like you would explain how the industry really works in a way that every consumer could understand. How would you make them understand how the hospitality industry, cruise lines and virtually every tour operator seems to be competing for your client's business while also, somehow, cooperating with you? We are wondering how you explain it in the simplest of terms to your own clients."
The Reuben and the fries were getting cold. But I had to respond. I reached to the left of the tabletop and slid the salt and pepper shaker and a sugar bowl to the center of the table.
"Let's start with the salt."
I explained that the salt represents the profit margins on the travel product: a hotel room, a cruise, an escorted tour, etc. I talked for a few moments about the fact that most travel products have additional income from every guest in addition to the built-in price profit. In the case of a cruise, for instance, the spa, the drink packages, the shore excursions all add profit in the form of onboard spend.
"So then, let's imagine an average supplier profit in the range of 4% to 6%."
Then I reached for the pepper. "Too much of this can kill you. These are your expenses, all in, and if things are going well, total expenses are a little less than total revenue.
"Every successful travel business needs to contain more salt than pepper," I said.
I then cradled the sugar bowl in my arms before putting it in the center of the table. "This is the built-in travel agent commission. It is built into virtually every product in every facet of the travel industry. When it comes to cruises or tours, for instance, the commission will average 12% to 18%, or as much as triple the projected profit."
"If any travel entity, be it hotel, cruise line, tour operator, etc., can convince the consumer to contact them directly via their website or the telephone, they have taken a significant step toward seriously increasing profitability, which is always the goal and is always Wall Street's expectation. The commission either goes into the pocket of the travel advisor, or it goes into the coffers of the supplier, dramatically affecting total profits on the sale."
Of course, I explained, there are many variables, such as the very real cost of doing direct business and staffing res centers, and travel advisors, overall, bring higher-margin business than direct sales.
"But in a nutshell, the goal of the game from much of the supplier side is to turn sugar into salt. That is how our industry works."
As to "how we explain this to our clients, the short answer is we don't."
Not yet.
