Successful branding can be a mixed blessing when things go wrong, argues Steve Endacott
The recent TV and press coverage surrounding the mass cancelling of flights by UK airlines due to staff shortages after Covid-19 disruption reminded me of arguments for and against travel ‘super brands’.
Back in 2002, the Airtours Group decided it was time to bring together its Going Places travel agency chain, Airtours tour operation and MyTravel airline under one super brand called MyTravel.
The vertically integrated model was born in the 1990s as the battle for high street distribution heated up.
Three of the big-four tour operators decided to buy and build their own chain of high street agents due to the dominance of Thomson’s Lunn Poly shop network which gave it guaranteed distribution and the ability to trade sales of competitors’ products in shops for sales of its tour operations in competing outlets.
At the time, the branding of the retailer was left independent of the tour operator because it was felt shops needed to serve the needs of local communities, selling a wide range of product to maximise commission while ‘directionally selling’ inhouse tour operations.
This also meant plenty of stock left to sell in the lates market in case its own tour operator had little left to sell.
Each division of an integrated group operated its own profit and loss account. Not surprisingly, too much effort was spent initially on internal arguments about commissions.
At MyTravel, this was resolved by introducing ‘matrix’ earnings at group Level. Simply put, the retail division needed to believe its highest commissions came from its in-house tour operation, say 15%, while the tour operator needed to regard in-house shops as its cheapest distribution, at say 10%.
Clearly, this was an impossible task until Airtours founder and MyTravel chief executive David Crossland introduced a ‘matrix’ group subsidy that consolidated out in top-level accounts.
Similar arguments existed between the tour operator and airline, which was often used as the ‘bank’ with the tour operator being overcharged for seats compared with market rates to ensure it did not discount profits away. Not surprisingly, the airline normally won any arguments.
The motivation for creation of a super brand stretching across tour operations, airline and retail shops was the brand synergy it created, with one TV campaign benefiting all divisions and customers being surrounded by a coherent and always present branding experience.
The biggest opposition to the super brand” came from the high street shops which feared for their commercial survival if customers believed they only sold in-house holidays.
In hindsight, they may have been right as the shrinking of in-house shops has been much faster than independents on the high street. However, this argument is blurred by the growth of lower-cost internet retailing which clearly suited single brands.
The Tui super brand
It was international expansion that finished the super brand debate at Tui. How could Tui retain the legacy Thomson brand in the UK while bringing together all its international brands under the common Tui branding?
Although this was initially resisted by the UK management team, the transition from Thomson to Tui was completed in an incredibly short period, with minimal damage to the company’s market position.
However, this was mainly due to the strength of the exclusive, differentiated hotel stock Tui controlled, and to the weakness of its biggest competitor Thomas Cook.
The biggest fear in creating a super brand was that an aircraft might crash and potentially destroy the brand overnight. Thankfully, this has never happened.
But how much brand damage has cancelling 36,000 holidays due to “operational” issues at the airline done to the Tui brand in the UK?
Travel requires a massive amount of brand trust. Buying a holiday is one of a customer’s biggest annual purchases where all they receive on booking is an email or paperwork promising to deliver a future holiday.
Covid-19 has already damaged customers’ confidence in this promise. How much worse are large-scale holiday cancellations?
Tui will rightly argue that 36,000 holidays are a small fraction of its overall carryings. But cancellation is a major breach of the holiday promise, and these disappointed customers are unlikely to book with Tui again.
However, I fear widespread TV and press coverage could create a multiplier impact of millions of passengers who could hesitate to book Tui next year.
Whatever the actual impact, the last thing Tui needs is brand damage. The large debt mountain Tui was forced to take on during Covid-19 needs to be paid down by further issues of shares and this can only be done when sales and profits return to pre-Covid levels.
This latest brand damage will push back the date that this refinancing can occur.
In the meantime, a shortage of working capital has forced Tui to reduce its hotel pre-payments, leading it to lose many of the exclusive hotels that created its differentiated product, creating a negative spiral and leaving Tui competing head-to-head with easyJet Holidays and Jet2 Holidays in the commodity beach holiday market.
I remain confident that Tui, with its long history of holiday excellence and strong management, can trade out of this situation, but it cannot continue to shoot itself in the foot.
I’m sure there will be interesting internal debates in progress between operating boards, but it’s irrelevant compared to the prospering of the super brand.
All I can say is ‘Good luck Tui.’ I genuinely wish you well as the last man standing of the big-four tour operators.