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Better times ahead?

In a time when business has fallen across all areas of the travel industry, tour operators are finding that the key to surviving and thriving in today’s economic environment is adaptation.

Tour operators are in a unique position in the travel industry: Because they plan so many facets of a trip, they are in close contact with hotels, airlines, attractions and transportation companies. Because they sell directly to and often travel with leisure travel buyers, they are also acutely aware of the changing priorities and preferences of the vacationing public.

What tour operators are learning from both sides is that we’ve entered a period when some tried-and-true destinations or promotions must be overhauled to remain relevant, and value is king. Around the country, operators are adapting to make the most of tumultuous times.

Hitting bottom

The economic turmoil of the past 12 months has touched nearly every industry in the country, and travel and tourism are not exempt. But a slow business year has not been catastrophic for most tour operators.

“This has been the worst year I’ve seen in 31 years,” said Robert Whitley, president of the United States Tour Operators Association (USTOA). “But I think we’ve gotten as low as it could go. I’m very pleased that the operators are coming through this. There haven’t been any major failures so far this year, which is encouraging.”

Unlike the last travel slowdown, which took place after Sept. 11, 2001, no major tour operators have gone out of business during the current recession. But for many operators, the difficulty of today’s environment is still borne out in their numbers.

“We’ve had a steady increase in tourism traffic over the past few years, but this year, we’re off upward of 20 percent,” said Paul Landis, chief operating officer of Alaska Heritage Tours. “It’s a combination of things, but mainly the economy.”

It’s not that economic concerns have frozen travelers in their tracks. Tim Moulder, director of sales for Sweet Magnolia Tours, says that groups are still traveling, albeit in smaller numbers.

“Like everyone else, we’ve had a down year,” he said. “From the beginning of the spring, the phones just have not been ringing like they normally do. There are still a lot of people out there traveling, but you have to be realistic — [group leaders] used to be able to fill an entire departure of 25 to 35 people, but now they’re getting half that number.”

Some operators have had strong years, finding that their value message resounds with cost-conscious consumers.

“We are actually doing great,” said Susan Damon of Flemming Tours, a company based in Des Peres, Mo. “We are meeting and, in some cases, exceeding our goals, and 2010 looks fairly strong.

“People are still traveling. A couple years ago, they may have done three or four trips. Now they’re being a little choosier and checking their bucket list, but they’re not afraid to spend money.”

All about value

Damon credits Flemming Tours’ emphasis on value for the company’s success in a difficult year.

“We’re a smaller company, we have less overhead, and our margins are lower,” she said. “We keep things pretty tight. We’re a moderate tour operator, and people still want those types of trips.”

Damon said the value proposition has made cruising especially attractive to her customers this year. Flemming Tours is sending groups on two cruises this fall: one with a group of 75 customers and another with 87 customers.

“Cruises are holding pretty well,” she said. “The numbers are good all over the board, from Europe and the Mediterranean to Alaska. And winter destinations are always popular, because people have to get away from a Northern winter.”

USTOA’s Whitley sees value as the driving force in the market right now.

“There’s no brand loyalty with American consumers now,” he said. “It’s all driven by price. Everyone’s looking for a low price, and the hotels and destinations are cooperating. Rates are being lowered drastically in all segments of the trips, from restaurants and hotels to transfers, trying to draw the business back.”

If value is changing how consumers choose a tour operator, it may also be changing how they choose their travel destinations for 2009 and 2010. Stephen Birkett, vice president of sales for Redondo Beach, Calif.-based Premier World Discovery, says that many of his company’s customers are looking for value in domestic vacations.

“The 55-plus traveler is staying closer to home and really flocking to shorter tours of seven days or less domestically that are a very good value,” he said. “A lot of those tours, like the national parks or California or New England, are usually $2,200 or less, and those are the ones that are filling up. Cruises are also selling very well — they’re a very good value, because all of your meals and entertainment are included.”

Birkett said that domestic tours and cruises have seemed especially attractive because of outside factors that have made international travel more expensive. Airline and motorcoach prices soared in 2008, when crude oil was being sold for $140 per barrel. In some cases, those airfares have not fallen in tandem with oil prices, which have come down drastically in the last 12 months.

Leisure groups are looking better to hotels

One benefit of a slow economy is that many travel suppliers are bending over backward to try to earn new group business. This is especially true in the hotel sector, which has heavily relied on business travelers in the past and has seen corporate accounts dry up during the recession.

Tour operators say without exception that they’ve found hoteliers and other suppliers eager to make deals and offer other considerations to earn their business.

“They’re trying to throw in incentives,” said Tim Moulder of Sweet Magnolia Tours. “Vendors are calling and saying, ‘What can we do to make this package more interesting?’ A lot of it has to do with the little extra perks that people enjoy.”

The slowdown in hotel business has also made it easier for tour operators to accommodate last-minute bookings, a trend that has increased tremendously over the past year.

“Hotel occupancy is down, so it’s easier for us to send in rooming lists much later,” said Stephen Birkett of Premier World Discovery. “The hotels are able to add five or eight more rooms, because they’re available in the hotel. In really good travel years, the hotels were sold out or had limited rooms, so you had to turn those passengers away.”

Around the same time, poor exchange rates made travel to Europe more expensive. In 2008, when tour operators were pricing packages for this year, the price of a euro rose to almost $1.70.
“The U.S. dollar got hammered versus the euro, which also made the land portion of a tour extremely high,” Birkett said. “So that Ireland tour that was $2,200 the year before has made it to $3,400 or more. That drove people away from international products.”

Adaptation is key

Though value is important in today’s economy, many tour operators have found that low prices alone don’t always sell trips, and low prices don’t attract repeat customers if the tour product isn’t strong enough to impress them. So operators are also trying to add to their competitive advantage by adapting their products to consumer tastes and adding extra components to their tours.

“In a down economy, this is where the creative people rise to the top, and it sets them apart,” said Moulder of Sweet Magnolia Tours. “Everyone enjoys a lower price, but when you just cut a price, there’s nothing unique about that. Wal-Mart has been doing that for years now.

“One of our comedians in Branson says that life isn’t measured by how many breaths you take but by the moments that take your breath away. And that’s what we’re supposed to be doing in travel.”

For his company, Moulder says that this means finding new ways to creatively theme a tour, and working with destinations and suppliers to create special experiences for tour groups. In Ohio, a group may have a meal in an Amish home; in Branson, group members often meet a star performer backstage after a show.

“The things that are most appealing to people are experiences above and beyond,” he said. “They love it when they get to do something that the typical person doesn’t get to experience.”

Birkett said that Premier World Discovery has been working hard to refine and redesign its products to maximize their appeal to customers.

“You have to be constantly coming up with new tour products,” he said. “A lot of times it’s trial and error. Sometimes your best tours start as an idea that you put out there, and they sell like gangbusters.

“Our hub-and-spoke tours have sold extremely well this year. We do those in Sedona, Oregon, Cape Cod, Chicago and the Canadian Rockies. You get to unpack once, go out and explore each day, and come back to the same hotel each night.”

Tour operators are also adapting some of their business strategies and practices. Flemming Tours is introducing a new promotion this fall that will give group leaders more financial incentives for booking with the company.

“We’re going to give them a choice of two out of three options,” Damon said. “We’re going to lower our comps from one per 15 customers to one per 12, and we’re raising the commission by 2 percent as well. The other amenity that they can choose is a $50 discount per person.”

Moulder said that Sweet Magnolia Tours is working to help group leaders with shrinking participation find other groups with whom they can share a trip.

“We’re trying to offer folks more date sharing,” he said. “That way, if one group gets 15 and another group gets 15, the trip still runs. The catalog companies have been selling that to travel agents for years. But group leaders and bank clubs haven’t looked at that as much, because the economy was good for so long.”

In Alaska, Landis and Alaska Heritage Tours have made up for some declining visitation by welcoming locals on their cruises and sightseeing tours.

“We’ve seen an increase in independent travelers and even the local population from Anchorage,” Landis said. “We’ve offered some Web specials and done some last-minute discounting, but local traffic has made up the difference.”

Pent-up demand

Throughout the industry, tour operators seem to have a positive outlook toward the future. Many expect that the gradual recovery of the U.S. economy will be reflected as early as next year.

“The travel industry will be one of the first ones to show recovery, and we’ve already seen some of that,” Whitley said. “We’ve had something of a surge in the last few weeks, which seems to be on the F.I.T. [individual traveler] side. It looks like Americans are starting to say, ‘To heck with it. I need this vacation, and I’m going to go.’”

Birkett sees some economic factors, such as falling oil prices and the rising value of the dollar abroad, contributing to renewed interest in travel to Europe next year. He also believes that the innate desire to travel will eventually lure gun-shy consumers back to the road.

“Travel will boom again, and I think it will be in 2010 and beyond,” he said. “People can only tighten their belts for so long. They’ve worked and retired and put away money so that they can travel, and they won’t wait forever.”

Brian Jewell

Brian Jewell is the executive editor of The Group Travel Leader. In more than a decade of travel journalism he has visited 48 states and 25 foreign countries.