News Analysis: Distance equals profits

Tour operators are looking to long-haul holiday destinations as short-haul margins drop away, writes Nicola Clark.

To coincide with the annual August holiday exodus, First Choice has launched a £6m campaign to promote its long-haul destinations (Marketing, 2 August). This reflects a growing trend in the market - mainstream tour operators, squeezed by the availability of cheap European flights and the demands of increasingly independent travellers, see long-haul travel as a key emerging revenue stream.

Tim Williamson, marketing director at First Choice, says long-haul holidays make up about 15% of the group's business, but he expects this to rise to 25% over the next few years. 'Our expansion in long-haul is mostly driven by Florida and the Caribbean, but other growth areas include Thailand, Kenya and Sri Lanka - where destinations offer consumers a genuinely different cultural experience,' he says.

Many long-haul destinations have seen rising numbers of British visitors over the past few years, according to TGI. Egypt is one boom area; it is expecting almost half a million Britons to visit in 2006 - up from just under 200,000 in 2003. In contrast, the US, a traditionally strong long-haul market, has experienced a decline in numbers of British tourists, despite the weak dollar encouraging bargain-hunting trips. Analysts say the US government's security-related tightening of immigration policies has begun to affect tourism.

Burgeoning destination Dubai, meanwhile, has benefited from an increase in luxury hotels, such as the Burj-Al-Arab, encouraging long-haul city breaks. 'Eighteen years ago there was one hotel,' says Clive Wratten, general manager UK at Gulf Air. 'Now Dubai has become such a mainstream destination that the original travellers to the city are looking for something different.' New hot spots include Mozambique, Ethiopia and Buenos Aires - which, thanks to the Philippe Starck-designed Faena Hotel, is attracting the cream of upmarket travellers.

Crucially, where the short-haul market has been squeezed so much on price, the long-haul market offers tour operators higher profit margins. This is partly because consumers are willing to spend more money on a longer trip. Those whose group spent £1000 (excluding spending money) on their last holiday has increased to 9.3m in 2006, up from 8.5m in 2003, according to TGI.

Richard Cope, senior travel analyst at Mintel, says a fifth of trips taken from the UK are now long haul, representing a huge opportunity for tour operators that can provide destination expertise and specialist holidays. First Choice's purchase of a number of specialist holiday firms illustrates this trend toward specialisation among mainstream tour operators.

Earlier this month, it entered into a deal to buy Pacific World, which has a network of operations in South-East Asia and China. The group's existing specialist operations include FlexiSki, which provides tailor-made ski holidays, adventure holiday outlet Exodus and villa specialist Sovereign Villas.

Although Mintel says consumers booking long-haul holidays are more likely to go through a travel agent, online travel sites such as lastminute.com are also offering more long-haul destinations. 'Consumers are web and travel-savvy,' says John Bevan, travel director at lastminute.com. 'They are happy to make high-value long-haul travel purchases online.'

It is unlikely that long-haul will outstrip demand for short-haul holidays any time soon, however. Sarah Mason, marketing manager for Club Med UK, says that while people are more confident about travelling to far-flung destinations, factors such as bird flu, earthquakes and hurricanes make consumers wary about travelling too far from home.

First Choice's Williamson also believes that lack of comfort and the length of long-haul flights has suppressed the family market and, in response, the group advertises the extra leg room on its planes compared with British Airways and Virgin.

Both airlines and tour operators are increasing their offerings, meaning that destinations previously on the radar of only gap-year students or those taking extended holidays are now within the reach of the average consumer. Earlier this month, Oasis Hong Kong Airlines announced plans to operate five direct Gatwick-Hong Kong flights a week from October, with tickets costing from £75 one way. In peak season, the difference in cost of flights to Mexico City and France is relatively small.

Inevitably, the growing popularity of these destinations will encourage adventurous travellers to broaden their horizons. Richard Cook, executive editor of Wallpaper, says cities including Rio de Janeiro and Shanghai are growing in popularity. 'People are no longer daunted by visiting new places,' he says. 'In our increasingly homogenised world you have to go further to experience something genuinely different.'

DATA FILE - DESTINATIONS

Top-selling long-haul city break destinations 2006

1 New York
2 Dubai
3 Las Vegas
4 Bangkok
5 Hong Kong


Fastest-growing long-haul holiday destinations 2006*

1 Brazil
2 Australia
3 Gambia
4 Kenya
5 Canada
6 Mauritius
7 Maldives
8 Thailand
9 Dominican Repulic
10 Oman

Source: lastminute.com
*Compared with 2005 figures


Visits by Britons in the year to February 2006

m Yr/yr %
Western Europe 50.2 2
North America 4.7 -5
Other areas 11.7 15

Source: Office for National Statistics

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