On the Beach claims operators are discounting holidays below cost price
In a trading update issued today, the online travel agent said it had seen an immediate improvement in its own trading since Lowcost’s failure.
It has taken a higher share of market traffic, its costs per click have fallen and it has improved revenue per unique visitor.
"The Board believes that there will be a medium term benefit to the Group as consumers look to secure their holidays from recognised brands with ATOL protection," it said.
Lowcost did not sell and has no exposure to any products sourced from the Lowcosttravelgroup.
It said it remains ‘on track’ to achieve profitability for the year in line with the Board’s expectations ‘despite a number of negative external factors’. These include further acts of terrorism in both Turkey and the south of France, the macroeconomic uncertainty and weakening of sterling against major currencies following the EU Referendum and the Lowcost failure.
As a result, it said the lates market is not expected to be as strong as previously expected, which is leading some operators to slash prices.
"We now expect a weaker outcome in this segment, resulting in significantly fewer consumers travelling this year," it said.
"Additionally the supply/demand imbalance has led to widespread discounting of seat-only and packages by some market participants, in many cases below cost, and this has driven short-term share gains for those with distressed capacity."
On the Beach said it would hit its targeted cash margin by driving efficiencies in both marketing spend and cost base, as less than 20% of the Group’s costs are fixed.
Chief executive Simon Cooper said: "2016 has been an extraordinary period for the travel industry and On the Beach is proving its unique strengths and attributes against the backdrop of these challenges.
"Whilst revenue growth will be below our original plans as a result of market conditions, we have continued to outperform the market, stealing significant share. Our focus on profitable sales and cash margins will deliver a PBT outcome in line with the Board’s expectations at the beginning of the financial year, which represents very strong double digit growth over last year.
"The Group trades in a sector that has proven extremely resilient over the past 20 years and we remain confident in the resilience of On the Beach and the market.
"By using our scale to drive exclusivity, our technology to drive innovation and our financial strength and ATOL protection to drive customer trust, we are well placed to capitalise on the structural changes in the market which will only accelerate given the unprecedented current conditions.
"Given our strengthening competitive position, the Group is well placed to continue to take market share and to focus on further profitable growth, as other operators downsize risk capacity or exit the market."
Linsey McNeill
Editor Linsey McNeill has been writing about travel for more than three decades. Bylines include The Times, Telegraph, Observer, Guardian and Which? plus the South China Morning Post. She also shares insider tips on thetraveljournalist.co.uk
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