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Tour operators squeezed in Europe as some hotels put groups on the shelf

European hotels turning away group business in favor of more lucrative FIT bookings may be risking their reliable, long-term relationships with tour operators in the process, a move experts say could backfire if and when travel demand cools from its post-pandemic boom.

17. May 2024
Tour operators squeezed in Europe as some hotels put groups on the shelf

But as long as demand and consumer willingness to pay premium prices are high, industry experts say hotels may continue to bet on individual bookings and provide less space for groups. 

The shift is nothing new, said Robert Cole, senior research analyst for lodging and leisure travel at Phocuswright, adding "it ultimately comes down to the revenue optimization strategy for these hotels."

And as long as appetite for Europe is high, said Tom Jenkins, CEO of the European Tour Operators Association, tour operators may have to pivot. 

"If this demand pattern keeps growing, the pressure will be on the tour operators to reallocate their efforts into areas where they manifest added value for the hotel," Jenkins said, adding that to do that, they may "shift the emphasis away from peak season offerings toward shoulder and low-season products."

Perillo Tours has felt the brunt of this shift in hotel booking practices in Italy -- in Rome, Venice and Sorrento, where the company has had to scramble to find alternative accommodations. 

Perillo said longtime partner hotels have turned away its group business in favor of keeping space available for direct, FIT bookings, which they can charge more for than groups. And they're not the only ones experiencing this.

"USTOA tour operator members have commented on contracting challenges of tighter inventory and higher costs, especially in Europe where demand has seen no signs of softening," said Terry Dale, CEO of the U.S. Tour Operators Association.

Globus and Tauck said their operations have also been affected by these hotels' booking practices and that they have had to pivot to find accommodations at comparable properties at times. But both said it hasn't been a widespread issue.

"In those cases, we're able to move in advance of a tour to a comparable level hotel or better, to re-accommodate our guests and maintain the flow of the tours," said Steve Born, chief marketing officer for the Globus family of brands.

Tauck said there are hotels turning away group business, but it hasn't been a big problem for the company. 

"There is certainly increased demand for hotel space across Europe, particularly in Italy, but we haven't been hugely affected," said Joanne Gardner, Tauck's vice president of worldwide operations. "We're incredibly fortunate to have many long-term hotel partners across the continent who truly value Tauck's business and appreciate the consistency we bring year-in and year-out despite short term fluctuations in demand.  Some of these relationships date back more than 30 years, and that's not the sort of history you disregard lightly. At the same time, we've also been able to forge new relationships with other luxury hotels in a number of cities, with the net result that rather than being constrained, our business in Europe is up."

Phocuswright's Cole said, "The true essence really becomes the client-supplier relationship. Is it really a long-term partnership where you're trying to achieve mutual benefit? Or is it just transactional, where you're trying to get the most you can, regardless of who your partner is?"

Advisors, too, are affected


European hotel rates have increased substantially since travel reopened after a pandemic pause. They are currently about 20% above 2019 levels on average, said Alexander Robinson, director of industry partners at hotel research firm STR. 

There is more business on the books for Europe hotels now than at this time last year, which Robinson said has been partly driven by big events like the Olympics and Taylor Swift's tour. And while prices have remained high, in part due to rising costs and inflation, year-over-year pricing is normalizing. Italy has seen especially high demand in the past two years, and Jenkins said it will only continue next year with the Jubilee, the Catholic holy year, which could extend the issues tour operators are having with availability. 

The hotel issues are not limited to tour operators. Megan McCaffrey-Guerrera owner of Bella Vita Travels in Lerici, Italy, said prices have doubled over the past two years at nearly every hotel her agency works with in Italy and France. She said some hotels favor advisor FIT bookings over tour operators' group rates, and they sometimes offer advisors incentives like higher commissions or extra amenities for their clients. 

Karin O'Keefe, owner of FNS Travel Group in Springfield, Mass., said that while some hotels cater to advisors, space is still a challenge, and she has had confirmed bookings rescinded or made available only at a much higher price. Across the industry, she said, hotels and some cruise lines favor direct bookings so they don't have to pay commission. 

"What they don't seem to understand is that travel advisors are the ones that suggest the property or the cruise line to begin with, and cutting those ties may not be to their advantage in the long run," O'Keefe said.

Preferred Hotels bucks the trend

At least one upscale hotel portfolio said it is open to group bookings. 

Preferred Hotels & Resorts' Twenty by Preferred Hotels & Resorts platform enables tour operators to book hotels in 80 countries, including Europe, without having to commit to a minimum volume.

Isabella Moroni, vice president of leisure sales for Europe at Preferred, said the company launched this service because many tour operators only booked hotels they had contracts with. "It's been an incredible tool for tour operators and an incredible source of business for our hotels." 

Christina Jelski contributed to this report.


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