Clients: Three international travel companies, served for considerable time – also as part of managements. One headquartered in Scandinavia, the second in the U.S.A., both active in large-volume tourist air charters and local arrangements.The third was a Miami based cruise line start-up company. A fourth company, an airline, was involved in our work with the first, although not as a direct BSAG client.
The first tour operator – here “A” – was a result of acquisition and later merger between a high-end, luxury operator and another operator active in the low-end, cut-price market. They were both brought into a large conglomerate we served also in many other areas. The conglomerate also owned an efficient airline with own scheduled flights plus air service for various tour operators, including “A”.
The airline, here “B”, was not directly our client, but we cooperated with management on solutions for tour operator A that would also benefit airline B – both under the same ownership. Airline B had invested in a major fleet expansion to serve the new, internal tour operator A as well as other, competing tour operators. These suspected that tour operator A was subsidising A through higher priority and lower seat prices, since A and B belonged to the same concern. Tour operator A was unable to live up to volumes needed to fill airline B’s increased capacity.
The other tour operator, here “C”, Boston based, had a license to serve huge nationwide U.S. associations in covering travel and touristic demands of members, in cooperation with several airlines and one specific cruise line (see below).
The cruise line, “D”, Miami based, with some of the same owners as “C”, had borrowed heavily to purchase an entire fleet of used Atlantic liners in order to offer low-price cruises to Caribbean destinations. The low-end market was under-served and assumed to offer substantial potential particularly in northern U.S. states and Canada.
Situation: All the companies (except the airline B) experienced heavy and increasing losses, and their existence clearly was at stake. Their different or parallel owners and Boards called-in Business Strategy BSAG to find solutions for the each company to survive and if possible to take advantage of existing market growth – and later to actually participate in the management of both tour operators A and C.
Issues: What chances exist for each company to survive and grow in the face of typically high fixed costs, limited volume, poor results and strong competition? How increase sales and number of customers, if it turned out to be the essential factor for success, through more effective sales operations, better marketing?
Findings: There was clear evidence that as expected, problems were serious at both A, C and D. Poor sales with tour operator A also reduced capacity utilisation with airline B instead of increasing it as hoped. And declining sales with tour operator C left large numbers of unsold cabins with cruise line D, thus adding totheir problems.
We concluded that improvements were possible at least in part and would provide results at least in the short and possibly medium term. – This was the case for both tour operators A and C, where increased sales could save A and provide measurable benefits for the concern’s airline B. Similar for tour operator C and cruise line D, which were also under a common ownership.
Solutions: More relevant, new market and segment priorities. Fast, massive and well-directed sales/marketing efforts. Elimination of unprofitable destinations. Reduction of non-direct costs to achieve minimum overheads.
- For tour operator A, eliminate the problem of selling the same product to two different traveller segments through splitting product offers and marketing clearly into two segments. Avoid any destination and flight where even direct costs are not covered. Continue selling through agents and introduce sales rewards rather than using a high standard percentage commission. Create a more positive staff atmosphere through rewarding 0sales of profitable products and tours.
- For airline B, define with A what capacity A can commit itself to. Possibly reduce overall charter capacity to allow competitive and profitable seat prices on remaining capacity.
- For tour operator C, step up direct advertising to members and reward loyalty for best customers. Reduce operations to a profitable level. Work effectively with the cruise line D to monitor sales better and earlier, and share risks.
- For cruise line D, improve cooperation with tour operator C, share risks of unsold cabins under common agreements. Renew market/submarket strategies by defined levels of potential.
Implementation: On demand by top managements, for prolonged periods BSAG (Gunnar Hauge) participated in the management in both tour operators A and C, to help implement recommendations.
For tour operator C, and to avoid bankruptcy warning from cruise line D, set up and managed an urgent-mission team to sell cabins on several critical ship departures where sales were too poor at a too late stage. Sales and TV ads were highly successful and every ship was oversold. Thereafter, ensured better and earlier monitoring of sales, cutting short any time loss prior to action.
Results: Tour operators A and C were kept alive for at least several years following expected bankruptcy. Airline B enjoyed substantial growth in charter tours even though tour operator A closed. Cruise line D showed spectacular growth without tour operator C and became a clear world leader in economical and profitable cruise shipping.