An Olympic bubble
As a Brit, living close to London, I am incredibly excited by the prospect of the Olympics coming to me.
As a Brit, living close to London, I am incredibly excited by the prospect of the Olympics coming to me. I am sure it will be a once-in-a-lifetime occasion, exceptionally well attended by my fellow countrymen and I have every confidence it will be a brilliantly organised event that will give London a spectacular media profile.
However, as a tour operator who makes a living from bringing tourists to Europe, I’m aware that there is currently a bubble in London’s hotel market around the Olympic Games in 2012, with hotels demanding inflated prices and punitive terms. It seems to have been created by a combination of factors. The London Organising Committee (LOCOG) has pencil booked approximately 55,000 of London’s 125,000 hotel rooms. As a consequence of that plus the inevitable hype surrounding the Games, hoteliers believe they will be full and are demanding inflated prices and extraordinary terms. Traditional tour operators are unable to contract rooms for London in 2012 on the usual basis so it is not possible to present London as a good value tourist destination in 2012.
Recent research reveals a general consumer perception in the majority of the UK’s origin markets that London will be expensive and overcrowded in 2012, which is making prospective tourists less keen to come.
Since regular tourists to London, a much bigger number than overseas Olympic visitors, are being deterred, we have a bizarre scenario where there is falling demand and inflated prices. This cannot last. The accommodation bubble is bound to burst and the only question is: when?
In a normal year, tour operators book space at hotels throughout the tourist season on the basis that they can cancel, without penalty, up to 30 days before the booking and that they receive 30 days credit. However, during the Olympic period, hotels are demanding such aggressive terms and conditions that business is being lost. Some rates are being lifted by 200%-400% in the wholesale accommodation market and full prepayment is required 3-6 months before the Games, with 10-25% of the money on signature and a further 25% 3-6 months later. In addition, hotels are demanding that tour operators bear the contract risk if the Olympics is cancelled. In addition to the high rates and financing costs, tour operators are concerned about the commercial risks of parting with their cash and giving it to hoteliers whose businesses are often heavily laden with debt. A compromise would be to pay funds into an escrow account but this is often rejected by hoteliers.
Inbound tourism to London in 2012 is already suffering. Regular clients are reducing bookings or pulling out of the UK altogether. In response, some operators are waiting to see what will happen and others, including JacTravel, are proactively seeking one-off Olympic business to fill the shortfall.
A moment of truth will come early next year when LOCOG has to commit to a certain proportion of its bookings or give rooms back to hotels. If thousands of rooms come flooding back then, as many in the industry suspect, it will be too late in the long haul business cycle for operators to negotiate terms and start marketing 2012 programmes.
The European Tour Operators Association (ETOA) has undertaken a great deal of analysis, looking into the Olympics and tourism and it has shown that hosting an Olympic Games tends to stall tourism growth rather than stimulate it. The best example of this is Sydney, where the local tourist board ran an advertising campaign soon after, with the now infamous strap line “Where the bloody hell are you?”
ETOA recently released a report showing that Olympic host cities regularly overestimate the number of hotel rooms that will be required. It predicts that of the 125,000 or so rooms in London, less than a third will actually be filled by Olympic visitors.
ETOA’s Executive Director, Tom Jenkins, says: “Every Olympics in recent history has exaggerated the benefits, and minimised the difficulties, of hosting a one-off event. The two impulses are linked. Both are damaging. With 95% of the available tickets going to UK enthusiasts, the 2012 Games will be a major domestic festival. This is a major problem for all those businesses throughout the UK who rely on foreign tourists”.
Hotels revenue managers appear to have overestimated the depth of clients’ pockets and if only they could retreat from the excessively ambitious terms they are currently asking, there would be a chance of avoiding the Beijing tourism disaster where bookings (compared to the previous year) were 30% down the month before the Games and 20% down the month after.
It is a pity for the industry that the people likely to get the best from the Olympic accommodation market will be last minute bargain hunters who will pick up great deals when hotels suddenly realise that the high-spending business they anticipated does not materialise.
Mario Bodini is CEO of JacTravel, a company specialising in the provision of hotels on line and inbound services to the travel trade. For further information, please contact David Tarsh on +44 (0) 20 7602 5262 / + 44 (0) 7770 816 070 or email David@Tarsh.com.