What do tour operators and bike manufacturers have in common? They have been able to provide the investor with good diversification of their portfolio in recent years. During the pandemic, consumers bought two-wheelers en masse, while the tourism industry subsisted on government aid. The boom among bicycle manufacturers brought investments in production capacity. Everyone wanted to meet demand and fought for market share. natural. Today we can see that that period was an anomaly and resulted from a rapid increase in supply.
Currently, shortly after the pandemic, we are seeing a travel boom. The demand is huge, more than we expected. In 2018-2019, when there was a market reshuffle and TUI became the industry leader, many people talked about oversupply, very low prices and the need for a more cautious approach to supply volume. At the same time, the market is currently growing faster, new players are emerging that take a very aggressive approach in terms of offer and prices, and everyone is happy because We had our best year ever – We have all broken records in terms of volume and profits.
We earned the equivalent of two or three a year. Do we – like bicycle manufacturers – see an anomaly, a short post-pandemic boom, or do we see further years of very dynamic growth ahead of us? Do we have a financial boom ahead?
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Many Poles go on vacation with an office
Let's start with demand and its prospects. Poles spend much less on travel than our near and distant western neighbors, or the Scandinavian countries. Of course, the reason is lower profits. The market's long-term growth potential is great, just like the entire economy.
In 2022, nearly five million Poles went on vacation with travel agencies. It is possible to double this amount within a decade. There is a consensus about this in the market. The problem may be that supply is increasing too quickly relative to wages and the purchasing power of customers, which will lead to a price war. One thing is for sure – the industry is highly competitive, the barriers to entry are almost non-existent, and we have five players who see themselves at the top. We have new, ambitious tour operators with their own planes. According to the classic Porter method, it is not easy to make money in such an industry, and you cannot count on above-average profits in the long term. The size of the market itself, and our market has a turnover of several billion zlotys, does not determine its profitability. Especially since we mostly sell a very similar product: hotel plus flight. It's the details that make us different.
This condition occurs once every three years
For now, we see nothing but optimism, even euphoria, among industry leaders. Sales are growing and so are financial results. Right after the largest industrial crisis in history. The problem is that our financial results are unpredictable and unstable. A very large part of the profits in this record year is due to the appreciation of the Polish zloty. When we launched the Summer 23 offer in late summer 2022, we calculated prices on the basis of expensive fuel and cheap złoty, and then the reality turned out to be much more favourable. Statistically speaking, in the long term, such a situation occurs once every three years. Next, we usually have, in various orders, neutral or negative effects of currencies and fuels on the results.
However, memory can be short and selective. After a good year, the glass is always half full and we bombard our customers with merchandise. Then even a slight mismatch on the demand side with a significant depreciation of the zloty can eat up all the profits. Why? Because our average margin is about 3%. From every thousand zlotys that a customer leaves with us, on average, only about 30 are our profit.
2024 is a record year again
Given the pre-sale showing of the Lato '24, this can be assumed Demand will be at record levels again. So we probably don't face any danger from this side. Fortunately, unlike bicycles, we buy holiday rides every year, or even more often. The question is, will currencies support us or hinder us? Will oil prices rise after the next OPEC meeting? This is just speculation. Today it is impossible to determine in any way what this year will be financially. If it's half what it is in 2023, we'll be satisfied.
Let's close on an optimistic note: With the aforementioned tremendous competitiveness and pocketable results, fortunately, there is something very positive in our industry: great flexibility. We do not have factories or distribution centers, but rather rely on low fixed costs. If we cause oversupply and a price war, or a decline in the zloty, we will turn off the tap for the next season and prices will rise. Because we have to survive and make money. It's a bit like farming here. Things are going well, we plant more and prices go down, then we plant less and everything is fine again. It is important that the long-term trend of demand for outbound tourism is growing. It is a great honor to work in an industry that is growing.
Marcin Demnicki, President of TUI Poland
Echo Richards embodies a personality that is a delightful contradiction: a humble musicaholic who never brags about her expansive knowledge of both classic and contemporary tunes. Infuriatingly modest, one would never know from a mere conversation how deeply entrenched she is in the world of music. This passion seamlessly translates into her problem-solving skills, with Echo often drawing inspiration from melodies and rhythms. A voracious reader, she dives deep into literature, using stories to influence her own hardcore writing. Her spirited advocacy for alcohol isn’t about mere indulgence, but about celebrating life’s poignant moments.
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