12 May, 2003

Putting More Balance Into The Business

Imtiaz Muqbil

Emirates Holidays, one of the Middle East’s most prominent wholesalers, is pushing ahead with a major strategy to balance its over-exposure to the UAE and Gulf country markets as source of revenues.

– From the 10th Arabian Travel Mart, May 6-9, 2003 in Dubai.

In this dispatch:

1. PUTTING MORE BALANCE INTO THE BUSINESS: With the Iraq war over, Emirates Holidays, a subsidiary unit of Emirates airlines and one of the Arabian Gulf region’s best known wholesalers, last week launched its 508-page tour brochure for 2003/2004. About 80% of its business originates in the UAE and Gulf countries. Pursuing more business from other source markets is a major strategy going forward. Which new markets? Be prepared for a surprise.

2. EMIRATES HOLIDAYS MAJOR PERFORMANCE FIGURES FOR 2002/2003

-0-

1. PUTTING MORE BALANCE INTO THE BUSINESS

Emirates Holidays, one of the Middle East’s most prominent wholesalers, is pushing ahead with a major strategy to balance its over-exposure to the UAE and Gulf country markets as source of revenues.

The tour-wholesaling unit of Emirates airlines pulls in 50% of its revenues from the UAE and another 30% from the Gulf countries. That total of 80% exposes Emirates Holidays somewhat excessively to the huge shifts in travel patterns taking place globally. Although earnings and growth are good, says Emirates Holidays General Manager John Felix, achieving a better systemwide balance of revenues, markets and seasonality of booking periods is now a major objective.

“The best thing would be a flat line all year, all around. The only way to do that is to get a mix of different markets. That is part of the strategy of what we are trying to achieve as then we are not 100% dependent on one market. If there is a problem we can always shift attention to another market. But still have a fair bit of work to do to achieve that.”

Of the total number of holiday packages sold annually, 60% are generated from the UAE and Gulf market only within the four summer months of May-June-July-August. By the end of that period, which also mark the first four months of the airline’s fiscal year, Emirates Holidays has a good idea of whether it is going to meet its annual targets, giving it the luxury of another eight months to fix any shortfalls. “We try to achieve as much as possible and as fast possible within the early part of the financial year,” says Mr Felix. “It is not a luxury that many other tour operators enjoy.” However, he adds, “over the long term it is not sustainable, not the ideal situation to be completely dependent on one region.”

In this search for balanced markets, a surprise emerges. Rather than targeting traditional generating markets in Europe, Southeast Asia and Australia, Emirates Holidays is focussing on Bangladesh, Pakistan, Sri Lanka, Turkey, Cyprus, East Africa and other such markets that would be considered lightweight.

However, the new strategy has been slowly rolling out for about a year, and these markets are already producing growth. In fiscal year 2002/3, which ended in April 2003, Emirates Holidays’ revenue from the Levant countries (Lebanon, Egypt, Jordan & Syria) was up +21%; from S. Europe (Turkey, Cyprus, Malta) +45%; from Africa (East Africa) +85%; and West Asia and the Pacific Rim territories (primarily sub-continent countries excluding India) +59%.

By comparison, growth from the UAE was up 10% and from the Gulf countries, Yemen and Iran up 28%.

“These new markets are not known as major outbound markets. But as an FIT operator, we are not looking at huge volumes. (All these developing markets) have segments (of the population) who are pretty sophisticated, who are fairly well travelled already. Like in Sri Lanka where they have 18-19 million people, there will be 100,000 to 200,000 people who will fit in to the top end. Out of that, if we get a percentage, it fits in with our strategy of being FIT players with a smaller client base but a better yield.”

In each of these markets, Emirates Holidays is in what Mr. Felix calls the first stage of brand-building, which will last about two years before it moves into high-gear distribution phase. He said relationships are being forged with the travel trade to “give them the confidence that they can actually represent us and that we will back them up.” The squads of travel agents from these markets invited to the Emirates Holidays annual brochure launch and product briefing is also growing steadily.

Mr Felix noted that focussing on these countries also helps balance the seasonality of travel; for example, the high-season outbound period from the Levant countries is winter as against the Gulf residents who travel in summer.

Within each country, too, the sources of business are being balanced beyond gateway cities. Said Mr Felix, “Customers are spread through the country. We not just looking at the main capital cities. The strategy is not built around cities but around countries or even regions”.

At the same time, these new markets have future potential and less competition because they are not being serviced by anybody else. “So you grow with the market. Whatever (effort) we put in there, it will evolve and adapt with the market. If you go into an established market, you are up against all the other players and seen as a johnny come lately.

“The more difficult it is (to establish a market foothold), the better yield it generates as there will be fewer players. It also means that if you go in and work the market, you set up yourself up as an accepted supplier who is serious about having a long-term market presence. You have put in the effort required and then built up the market and not simply taken up something ready-made.”

Mr Felix acknowledges that sooner or later, competition will emerge and price under-cutting will result. “No-one can stop that. But we try to establish the brand and the backup systems and highlight the value that fetches. At the end of the day, it is the customer’s choice whether to pick that up or not.”

It also fits in with the airline’s strategy to seek a better balance between business and leisure traffic. “It’s no secret that airline yield has gone down. Air fares today are perhaps what you may have paid in the 80s, and sometimes even cheaper. That’s normal. In the 80s, there was less (seat) capacity, and today there is more.”

Mr Felix discussed a number of other wide-ranging issues in the interview (reproduced here with slight editing for structure and clarity):

Q. What has been the impact of SARS and the Iraq war?

A. We are obviously relieved that the war is over (just before the start of the main high season for summer travel). As for SARS, it is too early to predict a trend.

Q. What’s new about the 2003/2004 brochure?

A. We’ve got a print run of about 350,000 copies which is about the same as last year. It’s a lot bigger, though. New destinations this year include Japan, Belgium, Austria, Seychelles, Greece (beyond Athens). The presentation has changed with bigger pictures and less text. Pictures have to sell the destination and the text is kept only relevant to what the customer would need. It also overcomes language problems.

New sections have been created for niche-markets like safaris and honeymoons. People were once going only to one country for honeymoons, now they often visit two or more. Popular honeymoon destinations are Maldives, Mauritius, also places in Italy, south of France, places projected with a bit of romance, or with a reputation for being exclusive and isolated in some form, where it’s just you and nature. The experience has to be something really memorable.

Sporting activities have not yet been broken out into separate categories but are included if say, a golf course is attached to a featured hotel. The objective still is to sell the mainstream holidays based on the destinations, and then package the options together with it. If the client happens to be a climber, tennis player or trekker, those opportunities will exist.

[Mr Felix said Emirates Holidays is also exerting greater control over distribution of the brochure and trying to ensure that it has greater exposure at UAE consumer shows like wedding and fashion fairs or other places with a large congregation of women, who are the major decision-makers for the mainline family holiday.]

The brochure once used to be distributed by the travel trade with the expectation that it would be given to the consumer. That is changing. Travel agents do not have to ‘distribute’ the brochure at such events but get the business derived from it as the consumer still has to go through the agent to make the booking.

Q. Any changes in prices in this brochure?

A. Nothing significant, just that the presentation of the price guide has changed. The (prices of the) actual packages themselves are not very different as crises or currency values have led to depressed pricing. Now, the price guide presentation is purely with a lead-in prices for multiple products. This is because the system is being constantly being upgraded with rates which are fairly fluid. We have to be on top of that in order to give the best available rate. A lead-in price is just an indicator so travellers have some idea of what it could cost and then they can get a final cost based on date of travel and the various components of the package.

Q. How are you going to market the holidays this year?

A. We are going more and more into lifestyle magazines, those with a longer than average shelf life, typically those which do not get (quickly) thrown out and are seen by more than just a person. We are also doing a lot more co-branding with national tourism organisations, especially for tactical campaigns on a dollar-for-dollar basis. We did it last year with Thailand, Malaysia and Australia. We are now trying to work with them to identify specific segments such as the UAE nationals, the western and Asian expats. These are the three segments in our core markets and we have to tailor the message specifically to each of them. This also helps the NTOs cut costs, especially if it is not a key market which they otherwise may not have tapped. The timing of the campaigns is negotiable to ensure that it does not clash with any of our other campaigns in the market or complements them in order to have a double impact.

[He said about 1m dirhams (about US$280,000) has been budgeted for co-branding campaigns in the Middle East. Overall, about 35% of total cost structure goes into advertising, by far the vast majority of which is directed at consumer media.]

Q. Any plans to start taking direct bookings over the Internet?

Q. No. I cannot duplicate the distribution power of the travel agents and see no point in bypassing them. Anyhow, a direct or indirect booking source is not an issue. The objective is to get the booking. The travel trade is everywhere. It makes no sense (to bypass them) unless we can replicate 5,000 offices around a country.

We would rather concentrate on making them better at what they do, and motivating them through volume-based incentives. We are trying to help them get them up their professionalism and help them succeed in the core markets. it can only help the industry as a whole. If you are living in Thailand and are working with one travel agent and he offers you my product, you will go for it. The cost to me of that acceptance is much less than if I were to try and attract the customer directly. It wouldn’t make sense to short circuit that.

Q. How are your relationships with hotels?

A. [Mr Felix noted that this goes through its normal loops in times of crisis. However, he said it was important for hotels not to be seen as ‘fair weather friends.’] When things are going well (for them), they don’t want to know you. When things are going badly, they pop up all over the place. And then they expect you to deliver. In any relationship, when things are tough, you need to stand in. But remember that things are tough on both sides.

Today, crises days are here again and the hotels have come. They are being dealt with very honestly. We don’t shut the door on anybody. We want to be perceived as being professional, with a clear vision but also humble. If you (the hotels) have a strategy that does not match mine, all you have to do is to tell us, so we will not keep coming back to you. We may not work together but at least we have a relationship. Further down the line, strategies may change and we can talk again. But if you don’t tell me that, next time we become more wiser and you have to do a little more work (to get the Emirates business). In such times we will remind you of what you did in the past, but if (the offer) does make business sense for us, we will not become arrogant about it. We will handle it professionally.

Q. Are you trying to maintain a good mix between independent hotels and chains?

A. Yes. Our job is to sell packages. To do that have to know where customers are from and what they want. And we select the properties accordingly. If they happen to be part of a chain, we talk to the chain on the basis of those properties (we want) across the brochure. Hotel general managers also tend to work independently even though they are part of a chain. So the strategy for us is not (to specifically) look out for a chain unless that particular chain is one that the customer will recognise.

Q. Is health tourism featuring more prominently in the brochure?

A. Not medical check-ups, no, not as a mainstream product. Spa treatment is an add-on to a hotel if it is offered but we will not go into as a specialist product.

Q. Are booking periods changing?

A. About nine days is the current average. Some people book well in advance especially for key periods like summer or Christmas or New Year. They understand the need to block their rooms early. In the UAE, however, it is 3-4 days before travel. That’s not changing. We are offering a 5% discount if clients book and pay 21 days out.

Q. Are more travellers buying insurance?

Q. It’s becoming more and more understood in our markets but still not the norm. There is more awareness of its value, especially in the wake of the increasing number of crises, man-made or otherwise, facing the industry.

We do not see insurance as a revenue stream, only as a value-added to customer. The problem is that the value of insurance is not understood until after the fact. Now insurance companies are trying to bring the value across to the travel trade, and highlight what benefits they would have if travellers were protected. Don’t forget that credit card companies are also promoting insurance as part of their package. Most people here have credit cards and they think are automatically covered but it does not have the same travel holiday package cover, or the structure and break-down is not the same. It (the value of insurance) will grow over time. We have had cases of people who bought insurance, had a problem and got covered and that’s getting around by word of mouth.

Q. Are you requiring that your destination management companies must now have crisis management capabilities?

A. They have to be set up to deal with these eventualities. It is not part of the formal contractual process but it will help when the renewal process comes up. The DMCs (we deal with) are seasoned veterans. They are capable of handling it. Many crises cannot plan down to the last level of detail. As long as we know there is somebody who is taking care of the situation as it unfolds. However, they have to upgrade those areas.

Q. Are you looking to buy equity in any of your ground handling companies?

A. We require that the ground handlers grow with us. Either they are partners or they are not. But no, we are not looking at buying equity in any of them.

Q. You’ve got a new computerised system coming in. What’s new about it?

A. We’ve been working on this for more than a year. Because we are operating out of multiple markets, we needed a system that could cope with different currencies, a lot more volume and more flexibility. The system should cut over in June but bookings will only start after 15 August. By winter, we should be 100% operational. It is also a point-and-click operation. We spent about US$ 1.5m on it. It also had to fit with the airline system. It will be available to anyone who has an Emirates airline terminal as of Day One.

-0-

2. EMIRATES HOLIDAYS MAJOR PERFORMANCE FIGURES FOR 2002/2003

REVENUE SOURCE

UAE 50%; Gulf Co-operation Council countries, Yemen & Iran 30%; Levant (Lebanon, Egypt, Jordan & Syria) 11%; Africa (East) 2%; West Asia & Pacific Rim 3% (Sub-continent mainly excluding India & small contributions from Singapore, Thailand, Hong Kong); Southern Europe (Turkey, Cyprus, Malta) 4%.

SOURCE MARKET REVENUE GROWTH

UAE +10%; GCC, Yemen and Iran +28%; Levant (Lebanon, Egypt, Jordan & Syria) +21%; S. Europe (Turkey, Cyprus, Malta) +45%; Africa (East Africa) +85%; West Asia and Pacific Rim (Primarily Sub-continent excluding India) +59%.

MARKET SHARE BY DESTINATION

Asia 30%; UAE 27%; Europe and North America 22%; Middle East 9%; Africa and Indian Ocean 9%; Australia and New Zealand 3%.

GROWTH IN PASSENGER NUMBERS TO DESTINATIONS BY REGION

UAE +12%; Middle East +3%; Africa & Indian Ocean +167%; Asia (includes sub-continent) +16%; Aust & NZ +12%; Europe and North America +1%.

-0-