eTN: Let’s start with UK domestic tourism. It was all the hype last year. You were saying there wasn’t much need for advertising outside since the hotel rooms were being filled up.
Tom Jenkins: I think you are right. Last year, Europe as a whole was doing extremely well selling itself to itself, and it made inbound tourism not difficult. What it meant was any inbound tourist coming from North America or for Japan – they were competing for hotel space with Europeans, and both the euro and the sterling was extremely strong against the dollar in the end. The situation for 2009 – and what a situation we have in 2009 – is very, very different. I think the situation in the financial markets is so sensational that it has caught everyone’s attention, and I think, quite rightly, people are both alarmed and concerned at what has been happening in stock markets throughout the globe and the complete crisis we’ve had in inter-bank lending. But the good news – and there is good news – is that both the euro and sterling has dropped spectacularly against the core inbound currencies of dollar and yen so that for the first time in ten years, a trip to Europe looks – not a bargain – but it looks genuinely affordable to a lot more people in North America and Japan; that was the case even three months ago.
eTN: When you said domestic tourism last year, I took it as if you meant within the UK. Now I’m finding that it’s really intra-Europe.
Jenkins: Yeah, we deal with Europe as an inbound market. Well, each year I deal with just three things, Nelson. It looks at Europe as an inbound market, because we were set up by travel companies that sold Europe in mogul markets. Back in 1989, there was a genuine group of tour operators who had Europe written on the front of their brochures. This is really what it was, and in those days, everyone had brochures, and everyone called it something, and these brochures, if you sold European destinations, was called Europe. Since then, we’ve had a lot of wholesalers join, and we’ve had a lot of online intermediaries – people like Expedia, lastminute.com – are all members. And the definition of an inbound tourist becomes really rather complicated in an environment where it doesn’t actually matter where the hell these people are based, as long as they book online and the credit card works. So the normal definitions haven’t completely disappeared, though important. It’s a very interesting question what national tourist offices do in this environment, because they are completely locked on very, very old distribution modes. They look at origin markets divided by destination. So it’s a separate matter, but it would be interesting to find out. You go into that room, if you want to sell France to Russia, there’s a strong argument you ought to go and be talking to a company called Destinations of the World, and their headquarters is Dubai. It is inconceivable the French tourist office, if there is one in Dubai, has got any comprehension that they ought to be promoting to the Russians via Dubai. They don’t think in those terms. Here, I’ve got vast clutches of Chinese incoming agents. I’ve got more Chinese incoming agents than anybody else has in Europe, and Mickey and Gulliver’s – frankly, those two companies dominate the marketplace – they’re based in London. Now, none of the European tourist offices trying to sell to China come to London. They go off to Beijing.
eTN: What does ETOA make of the ongoing economic crisis and how is your organization going to address it?
Jenkins: Well, we had a big debate – the head of governance said that this is going to be one hell of a bumpy ride. There were two arguments. One is, Mike, the guy from Gulliver’s, the head of Gulliver’s Travel Pool, was saying it’s going to be extremely bumpy, but the best companies will emerge stronger and bigger than they did before. The weak companies are going to find it very, very tough, and the weak companies – this is his argument – the weak companies are the ones that don’t really add value, that just act as booking machines, that sit on legacy positions. Now, this is very much a corporate analysis. My president, Jack Corona, (and David can give you a transcript to this speech) said very clearly that as far as he was concerned, what everyone was suffering from at the moment was panic. Really, we all panic, and you can’t make any sense of all decisions about panic. All he knew is that the panic will pass; this will stop, and when the dust settles, you will look out over a landscape where you have lots of hotel availability, you have a strong dollar, you have a strong yen, you have plenty of people with money in your origin markets, there are plenty of people with money in Europe even after all these financial problems, you are looking at lower oil prices with lower airfares – you’re really looking at a potential boom time for European inbound tourism at the moment.
eTN: Some have made the argument that the UK and Europe as a whole is going to benefit. So, from your perspective, even for the weaker companies, you say, how can they benefit?
Jenkins: How did we come to this benefit? I didn’t say that. This is what governors were saying – the strong ones will do well, and the weak ones are going to be very careful. But frankly, all he’s saying (don’t quote me on this); he’s basically saying that it’s normal business practice in tough times, just with the volume turned up, that’s all. People, who find it difficult to sell, will find it really difficult to sell. People, who find it easy to sell, because they put lots of investment in it, will continue to sell. This is not, in many ways, is not a particularly original observation. I think Jack Corona’s point is less sophisticated, but it’s just as nuanced if you look at where stock markets hit equilibrium. I’m not stupid, because we’ve got no idea where they’re going to hit, but at some stage, the success of attempts to guess the bottom of the bear, which is what we’re seeing the whole time, everyone’s going, right, now it’s hit bottom, we’re going to pile in, and then it crashes again, and then someone else comes in. But this is going to stop, because some kind of equilibrium is going to cut in. When that cuts in, we’re probably going to feel – the capitalization in the stock market’s probably going to be round about 2003 levels perhaps – we’ve lost five years of growth – let’s look at it like that. But in 2003, we had a big tourism industry here. There were plenty of people traveling in 2003, and most of our target markets are not the people who are seriously damaged by the credit crunch. The people that are really badly damaged are the people who are having their homes repossessed, who’ve overstretched themselves completely in are horrifically leveraged on their domestic borrowings. People are going to suffer, in the primary markets – the people whose jobs rely on those people. I’m trying to quantify the nature, the recession, we’re going to have. It’s going to be tough if you’re a banker, it’s going to be tough if you’re in savings and loans, it’s called in America, it’s going to be tough if you’re involved in DIY and hardware stores and all the stuff that people need when they buy homes and re-do them up, but in reality, people on reasonably secure pensions, people with jobs and people who continue to have jobs, will continue to have money; not have as much money as they had in 2003. So, hey, I think people are looking into their deepest nightmares and thinking that this could happen, and they’re right, you know, anything can happen.
eTN: I don’t think anyone conceived…
Jenkins: No one could conceive this could happen, so they’re now saying, well, think of all the things we hadn’t thought of happening, they could happen, too.
eTN: The Great Depression has always been thought of as a one-time thing, and all of a sudden there’s talk of a “Greater Depression.”
Jenkins: You ought to get the text of Jack’s speech because that could be used. You could actually use that given your platform. It would be a valid platform in eTN. In reality, this is what he said, if I was a tour operator starting out, what would I want? I’d want strong inbound currencies, I’d want hotels worried about capacity so you can go in and buy rooms cheaply, I’d want lower airfares, I’d want volatility, because people who move fast love volatility – you’re going to move in, snatch your tour capacity, get out, sell it. Whitley – you can ring Bob Whitley up and ask him. He came out with a great line on October the 1st; I think it was, in 2001. He rang up, and he said, look, Tom, I want you to know that, I think it was, I forget which; was it Liberty Go-Go? You’ll have to check. It was a company, on October the 1st, 2001, or even September – it was about September the 21st, 2001, immediately after 9/11, ran a campaign in conjunction with Air Lingus – 6 nights Dublin, round-trip airfare, 399 bucks, the lot – air, land included, and Bob said, tom, those guys sold out within 20 minutes of the ad going in the New York Times. America travels if the price is right.
eTN: Crafty people are going to find ways to make…
Jenkins: … a lot of money. There’s no problem out there. Now, the point that Jack is making is really straightforward. It’s that, the big problems we face in the past, in ’86, in ’91, in 2002, were due to irrational behavior, right? Going on European vacation in ’86, ’91, and 2002 wasn’t safe – it was ridiculously safe, it was preposterously safe to take an airline journey in those days, because security had gone through the roof, everyone was worried that they had to be ultra sure that nothing could happen in an aircraft – the safest place to be on earth was inside a jet aircraft crossing the Atlantic, but people were frightened, and their concern was irrational. Now, it’s really difficult to sell to people whose fear is irrational. You can’t reason with irrationality. This problem is to do with money. Money is simple, money is easy, money is straightforward. You can cope with money. Money worries is not difficult, you’ve just got to hit the right price. And so, people say, oh, there’s going to be a huge slump. No, there isn’t going to be a huge slump, not in tourism. There’ll be slumps in other areas, but people will still want to have a vacation. And guys – Europe is suddenly a quarter of the price it was. It’s a bargain. People buy on price.
eTN: One problem for the UK, though, is the excessive taxing, which we talked about last year. What is being done on that front? It’s really just so ridiculous. You look at a ticket purchase, and you just really look at the breakdown, and half of it is going to the UK government.
Jenkins: I’m no defender of direct taxation. Nelson, this is not for quotation, because this is a separate argument. This is a long, detailed discussion at this point. Don’t take a Ryanair declaration of what it costs at face value. It would be half, but don’t forget that’s because when you’re paying very little, normally, for the airfare…
eTN: Actually, I’m not even talking about Ryanair. I’m talking United, Continental, all those other big guys.
Jenkins: Look, that whole amount is about 35 pounds; it’s not fifty percent of the bill.
eTN: 49, 47…
Jenkins: 47 dollars, yeah, it would be round about there, but it’s not. But for a United flight, trans-Atlantic, it’s going to be how many hundred dollars? I’m not defending it, but I’m just saying to me that’s not a huge break on activity. The chief problem with taxation in Europe lies in the way in which it affects the business environment, the wider business environment. And therein, there, is the problem, because the way they choose to tax travel goods punishes those companies who choose to be based within Europe. It’s much easier to be based outside Europe, and that’s why, quite sensibly, you’ll see there are a lot of big companies who sell Europe either based in the Caribbean or in Switzerland or in North America. There are very few big companies based in Europe, selling Europe, in North America.
eTN: That leads me to price-fixing laws. Can you translate what Article 81 and Article 82 really mean to the general tour operator?
Jenkins: The price-fixing discussion we had at our conference really hinged around two areas of activity – one, which was known as horizontal price-fixing, which is where, for example, a hotel or any supplier, sits down with their colleagues, their competitors, however you want to call them, when they sit down together and they agree on prices. That’s what’s known as a horizontal arrangement. The other one is known as a vertical arrangement where a supplier turns around to somebody else and says, we agree that you are not going to sell my product for less than this sum of money. Both are judged by European law, by international law, as being in collusion against the consumer, and as such, the penalties now are extremely severe and spectacular, and that is why we were trying to draw attention to it. I’m not saying this happens all the time. I’m not saying that this is a regular phenomenon, but it is possible that a group of hotels may sit down with one another and agree on prices in an area. It has happened that a hotel, particularly one that distributes on its website, seeks to protect its website by asking anybody else selling that hotel, not to undercut the website. Both those examples I’ve cited are contraventions of those articles and as such are illegal and as such can result in extremely heavy fines. Furthermore, what’s interesting about it is that you cannot plead ignorance of the law. It’s an absolute requirement that you do not behave in that way. The last interesting point is that both parties of that contract would be adjudged to be guilty. So it is not only the supplier who’s asking the tour operator to not undersell itself. If the tour operator signs that agreement, both parties are guilty, both parties are equally cut. So you can’t say as a tour operator, oh no, well, the hotel made me do it.
eTN: The issue of tour guiding in Italy – what has happened to that? There was progress last year when we spoke. You said, oh, we’re seeing progress.
Jenkins: I’m glad you recollect so much. It’s so complicated. Suffice to say, I mean you asked me, ‘cause I know you want to cover this; you’re welcome to do so. Suffice to say the Italians tell us they’re not going to apply the new laws they’ve introduced requiring everybody who goes to Italy, accompanying a tour, to file documents with their local Italian consulate before doing so. Even though the law requires people to do so, the Italians say that they are not going to apply that law. What they are doing is saying that anybody who wishes to do more than accompany a group, who wishes to guide a group and deliver detailed information of a cultural or historic nature, they will have to submit a whole series of forms and documents to the local Italian consulate to do so.
eTN: Pardon my stupidity, but what good is a law if you can’t apply it?
Jenkins: It’s a good question, and I sometimes wonder whether bureaucrats can actually say, yeah, well, we’re not going to apply that law. I thought the law was actually to one side of the bureaucracy.
eTN: Well, we were just talking about how sternly these laws are being implemented…
Jenkins: The point about guarding, and you can quote me on this, is that they are bad laws randomly enforced. It’s manifestly absurd to go around prosecuting people for discussing art. This is not a sensible way to behave, yet this is how they choose to behave. I remember a friend of mine who was stopped when he was taking a very small group around the Louvre. And I’m not saying that what he was doing was right, but he quite reasonably turned around to the security guard, and the security guards couldn’t believe they were being summoned to sort out someone talking about a painting in the Louvre. And he said, is it illegal to discuss art in France nowadays? And exactly the point is that in Italy you can be detained and fined for doing no more than discussing the art in France. Now, why they do this is lost in the reasoning of local monopolies. There’s no reason whereby the consumers are in any way protected by this process. But they do it, and they’ve always done it, and it’s a bit like price collusion – it feels good, and it feels natural, so, therefore, they do it. Why the Italian authorities suddenly decide they lack on their own volition to dis-apply a law. I’m not sure they’re even allowed to. You wouldn’t get away with that in the states, hey look, there’s a law, but I’m the government, so we’re just going to ignore it. You couldn’t, I suppose, except for Richard Nixon.
eTN: I know the Chinese market is one of your favorite subjects. I spoke to the Zimbabwe Tourism Minister Francis Nhema, and he said they were expecting, with their diplomatic relation being in such good shape – Zimbabwe and China – they were expecting an influx of tourists to come from China. It hasn’t happened, which pretty much confirms what you have been saying all along.
Jenkins: I’ve always said about China, and I will repeat, that all markets are important. Near markets are particularly welcomed. And that has to be sort of blazoned as a motto above everything I say. But the Chinese market at the moment remains extremely small, and it will continue to be extremely small, because the Chinese, quite legitimately, are an ancient civilization, but they are a new economic force. And the first thing the Chinese will do, if they have money, is explore China, and that takes a lot of exploring. Nor are they naturally fascinated and interested in the west in the way in which perhaps the Japanese were in the ‘60s and ‘70s. The impact that the West has on China, the openness of China is very different from the reaction of Japan. Japan sought redemption through capitalist economic expansion. China enjoys its expansion almost despite itself, and this is a very different move. The second thing to say about China is that China, being an ancient civilization, doesn’t actually see much need to engage with the West. So you have no… it’s very much a niche interest within China. Whereas in Japan, 45 percent of the people, 50 percent of the people surveyed said they want to come to Europe. I can’t imagine anything like that figure would occur in China, it’s just unimaginable. Thirdly, the problem with China is that most of the outbound traffic is dominated by either business travel – people trying to sell things or buy raw materials – or quasi-business travel, which is sponsored by companies or by the government – people coming over to do a trade visit followed by a small and limited tour of whatever country they are visiting. The latter, which dominate the market – these quasi-business trips – they are subject to government fear, so if there is a problem, all of them get canceled. If there is a diplomatic difficulty, it gets wiped. One of the things that happened with France is that in revenge for the French allowing the Tibetans to demonstrate, a huge collapse in demand for France took place from China, and it’s very difficult to disengage popular reaction from political and party-inspired reaction. So what I’m alluding to then, Nelson, is that you’re not looking at a market which is free, open, and fluid; where you can invest, for instance, advertising and see a return in terms of interest – it doesn’t work like that at all.
eTN: In the US now there’s an agreement between the government to now allow leisure travel. Has that happened here in the UK?
Jenkins: They had an Approved Destination Status agreement with Europe. You know that was signed three or four years ago.
eTN: You’re still saying your numbers aren’t translating…
Jenkins: I just say this is, I repeat, it’s a small market. All markets are important, new markets are particularly welcome. I do not doubt that all being well, in forty years time, that China will be an extremely important market for tourism, but in 5 years time? No. 10 years time? No.
eTN: Not even in 10 years?
Jenkins: Well, the famous statistic from UNWTO of – what is it – a hundred million outbound Chinese by 2020.
eTN: Something like that.
Jenkins: How many are actually outbound? Do you know?
Jenkins: Guess. No, you guess, Nelson. Flatter me by guessing. How many of those do you think are genuinely outbound? I would estimate round about, it’s probably going to be more than 100 million outbound by 2020. It’s probably going to be round about, if the current trends continue, be round about 150 million outbound by 2020. But by that stage, something like 80 to 85 percent of that will be to Hong Kong and Macau. It’s not outbound; they’re just measuring it as outbound.
eTN: Not by the definition that it’s being made out to be.
Jenkins: So everyone assumes that they’re flying over, and they’re not. They want to do two things – they want to gamble, and they want to shop. That’s what they want to do. Those are the two things they want to do – gamble and shop.
eTN: And, look for Chinese food.
Jenkins: Well, they do; they eat Chinese food, but that’s neither here nor there.
eTN: That’s what I was told, though, actually, in Hungary – they want to go gamble then look for Chinese food.
Jenkins: Well, that’s the deal, but that’s what Westerners do. I’ve got a lot of sympathy with the Chinese. You see your standard westerner, in the old days, when they would arrive in China, they would go and seek out a western restaurant and eat in it, that’s what they’d do; that’s how they behave; that’s how everyone behaves. Look at the Indians, for God’s sake – the Indians want to eat Indian food.
eTN: Right. It’s the same thing.
Jenkins: People are rude about the Chinese; I think they’re being entirely reasonable. Not only that, but they get very cheap rates for the things. No, they want to gamble, and they want to shop. Why the hell will they go anywhere other than Macau and Hong Kong?
eTN: Macau has overtaken Las Vegas as the gambling capital of the world.
Jenkins: And Hong Kong’s perfectly good for shopping; they all speak Chinese; the price, they can negotiate the prices.
eTN: Excellent perspective.
Jenkins: Why go to America and go to a shopping mall in America where all the goods are made in China anyway?
eTN: Good point. We’ll see how that goes.
Jenkins: What I’m getting at is that in terms of a long-haul, outbound leisure market, America is fighting for a share of the pie, which is about a half a million to a million people at most, you can afford and do travel leisurely. I mean, I’ll have to double, double, wobble, trouble the figures, but I’ll eat my hand if it’s more than a million people. Now that’s not a big market. That’s kind of… you know, smaller than Belgium. You’re dealing with a small, small outbound market.
eTN: I’m aware that you made a presentation about the Japanese market. I know from going around, that everyone’s saying the same thing. They seem to have disappeared. In Hawaii, it’s like, oh, why is there not many Japanese tourists traveling? What do you make of that?
Jenkins: Japan has had a crisis recently, but most of the problems – a large part of the problem in Japan – has been the crisis of confidence that they have had, having had 35 years of almost unparalleled economic growth, suddenly came to an end in about 1995. Since when, they’ve been going through very, very rough times, and that punches the confidence of the Japanese, just as their birthright, that things would be getting better and better, and that suddenly doesn’t occur. And they’ve underperformed in terms of gross GDP both in Euros and in North America, which is very odd for Japan. Japan expects to completely outstrip everybody else. Having said that, and I think that crisis has affected the confidence of a lot of your target audience in Japan. People just don’t feel as confident as they did, going abroad. That is unquestionably a factor, but the number one reason given why people from Japan were not traveling at the moment, was that the currency was too weak, and, Nelson, the currency’s gone up 45 percent since August. The currency’s not weak; the currency’s spectacularly strong. Secondly, even though the gross GDP in Japan has bounced along at a fairly mediocre level, actually, Japan is one of those few countries where the birth rate is far outstripped by the death rate. Not because they’re killing lots of people, it’s just that they’ve got a very low birth rate, and it means that the population is shrinking in Japan. Now, if your population is shrinking and your GDP is going up slightly, your, actually, GDP per head is doing alright. And, oddly enough, over the last five years, the Japanese have had a higher GDP per head growth than either America or Germany. So they’ve been getting richer than America or Germany in terms of GDP, it’s just they haven’t felt as though they’ve been getting richer, oddly enough. It didn’t look on headlines that they were getting richer; individually, they’ve been getting richer, but their currency hasn’t been very strong. So we’ve got pent-up wealth, we’ve got a benign currency suddenly – literally in the last three months it’s happened – and the big factor in attracting people from Japan, because they all had to take long-haul aircraft journeys to get anywhere, is the oil price, and that’s going down as well. So you’ve got three crucial things happening, and it’s overwhelmingly important.
eTN: Very important. I think a dilemma in tourism has presented itself in terms of nonprofit organizations. What is ETOA’s position on nonprofit organizations within the tourism industry that are profiting as a result of membership fees and holding summits?
Jenkins: I will just say with… I don’t know. Summits exist. If I looked at it from the outside, I suppose, summits exist. So, if people didn’t want to come along and discuss things, they wouldn’t be there. I think, frankly, it’s very difficult for associations to get the right balance between charging for membership fees and charging for attendance fees for these summits. I try to do it as inexpensively as I can, but then, I suppose that everyone says they try to do it as inexpensively as they can.
eTN: You must know that the perception of your organization versus other organizations, and I can name them, is quite different. You deliver on what you say you’ll do.
Jenkins: Well, we try and deliver. I can’t really say, and I mean this genuinely, Nelson, I genuinely think that the tourism industry, if it exists, and I have real structural problems with thinking there is such a thing as a tourism industry, and we can discuss that on another occasion in detail, but if it exists, is best represented by many people, because it’s infinitely varied. We’re catering to an infinite variety of demand, and that infinite variety of demand has to be matched with an infinite variety of supply. If there’s an infinite variety of supply, you’re going to get an awful lot of people representing that variety, and lots of people look at ETOA, and they don’t think they belong there; that’s not us. They feel happy belonging to something else. What I want them to do, though, is genuinely, and the thing that all trade associations should be… that’s one way of looking at it, is that there should be a huge variety because the industry is very varied. The thing that every trade association has got to remember, though, is that it’s got to be humble, because it isn’t the industry.
eTN: And to respect the law.
Tom Jenkins is currently the executive director of the European Tour Operator Association. He is based in London.