European Vacation Dollar Gains Revive German Travel Agencies

In Germany, travel booked over the Internet is set to fall for the first time ever as holidaymakers -- put off by the weakening euro -- opt for cheaper packages from tour operators.
Getting more bang for their buck.

The growth in travel bookings over the Internet, a fixture of the web economy, seemed unstoppable last year.

Germany's largest market research institute, GfK, said Internet travel sales had surged 20 percent in Germany in 2013-2014. Non-business travelers spent €20.5 billion ($25.6 billion) on multi-day electronic bookings, while travel agents lost 3 percent of their €31.8 billion share of the market.

The Internet holiday business has wiped out a third of German travel agencies since 1999, leaving just 9,700.

Booking flights, hotels and car rentals online is cheap and easy.

But the new 2014-15 travel season, which is just beginning, is likely to show a decline in web bookings for the first time.

“Business is coming back from the Internet portals to travel agencies,” said Michael Frese, chief operating officer at DER-Touristik, a German tour operator. The company is a subsidiary of Rewe, a supermarket and travel firm, and is responsible for Dertour, Meiers and ADAC Reisen tour operator brands.

Mr. Frese cites one likely reason for the reversal.

“People who are currently searching the Internet to put together individual travel components are paying considerably more than with tour operators,” he said.

The cause is the increase in the strengthening dollar, or more particularly from the German viewpoint, the weakening euro.

People who book vacations in countries that charge in dollars are paying 10 percent more than they did four months ago because of the euro's decline. This not only makes travel more expensive to North and South America and many Caribbean islands, but also to the Persian Gulf, Africa and some parts of Asia.

This is good news for brochure-based tour operators that sell through their own travel agencies.

Operators tend to block book in advance and have locked in cheaper trips through to the end of next summer than consumers can now find themselves online.

“We have completely secured ourselves against the fluctuating exchange rate of the dollar,” said Mr. Frese, the DER-Touristik executive.

DER-Touristik in Frankfurt secured some $500 million through currency hedging - a fourth of its total business volume.

The German-U.K. travel giant Tui also reported “favorable currency effects in purchasing” that it said will be passed on to the customer.

The result is that vacationers booking through agents can look forward to lower prices in the coming season.

“Trips abroad will be on average 3 to 5 percent cheaper,” said Mr. Frese, whose comment was in line with expectations at Tui. He noted that Canada tops the price reduction list at 10 percent, followed by southern Africa, at around 7 percent cheaper.

Trips abroad will be on average 3 to 5 percent cheaper. Michael Frese, Chief operating officer, DER-Touristik

Tour operators are also benefiting from a rise in purchases of early booking discounts, which helps them with planning. “Eighty percent of our year’s business was already sold by the end of July,” Mr. Frese said. A survey by the association of German online travel portals, VIR, confirmed the trend.

Last year, 32.6 percent of Germans booked their vacation more than three months in advance. In 2014, it was 35.9 percent.

But these factors do not mean cheaper travel to all destinations. Vacationers heading to destinations in the Indian Ocean, for example to Mauritius or the Maldives, can expect to pay 3 percent more. Prices are also rising in the German cities Berlin, Munich and Hamburg because of the recent introduction of local overnight taxes.

This will not help the German tourist industry meet its ambitious goals for 2014. The German Travel Association said at the ITB industry fair in Berlin last spring that the overall market would grow “between 2 and 4 percent, possibly even plus 5 percent.”

But several factors are affecting business more strongly than expected.

DER Touristik, for example, saw half of its Crimea and Russia bookings melt away because of the Ukraine conflict. The travel market in South Africa and Namibia is also suffering, as the ebola epidemic discourages African travel. Added to that are the wars and unrest in Syria, Israel and Thailand, which have left many hotels empty.

As a result, DER’s tour operators were only able to increase sales by 1.5 percent to €1.8 billion ($2.25 billion) last season.

And although Tui, the German market leader, can be pleased about increasing margins in Germany, it also said sales development last summer was “flat.”

Rival Thomas Cook would not reveal its figures for Germany but reported a sales slide of 4.6 percent for its Central Europe region, which includes Germany, in the first nine months of this year.

One consolation this year is that there is no soccer world championship in 2015 to keep potential customers glued to their televisions at home.

 

The author is an editor at Handelsblatt covering the consumer goods industry. To contact the author: [email protected]