Conquest Vacations as the Conference Board of Canada sees it

I've reproduced some analysis by David Redekop of the Conference Board of Canada regarding the demise of Conquest Vacations that was released today.

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Yesterday’s announcement concerning the collapse of Conquest Vacations was not entirely surprising. We had expected a consolidation amongst Canada’s tour operators this winter. No major package operator in Canada has been pleased with their margins. While demand for package travel in Canada has been strong for many years, the growth in capacity has been even stronger. This imbalance between the demand for travel and the growth in capacity is the main reason for the demise of Conquest Vacations.

Conquest Vacations had been in business for 37 years. The company was managed by experienced and respected people that knew the business. Conquest Vacations was once of the largest tour operators in Canada. The operator was once the number one supplier of seats to Las Vegas from Canada and a major supplier for Florida, the Caribbean and Mexico; particularly in the Ontario market. Conquest Vacations had only 11% of the approved charter capacity (85 thousand seats) for winter 2008-09. Combining the charter and schedule capacity, the operator had less than 5% of the available seats for this winter. Mexico and Cuba were their top destinations. Ten or fifteen years ago, Conquest Vacations had about double this share of seats.

The demise of Conquest Vacations was not the result of mismanagement (as say for the auto industry and some notable banking and investment institutions). The company failed because of systemic problems in the package travel industry in Canada. An imbalance between the demand and supply for package travel in Canada has resulted in artificially low prices for far too long. Canadians spent on average $1,103 per person visit (excluding air fare) in the Caribbean in 2002 according to Statistics Canada. By 2007, the expenditure per visit had fallen to $917 or by nearly 17%! Yet for operators, the cost of fuel, hotel rooms, salaries and wages continued to grow. It is a testament to the astute management abilities of Canada’s tour operators that most of them have been able to survive under these conditions. But ultimately, this situation could not last.

In 2007 we saw the merger of four major operators in Europe –first MyTravel and Thomas Cook and shortly after TUI and First Choice. More mergers in the UK have taken place since 2007. Meanwhile Canada has seen an increase in tour operators with the emergence of Sunwing Vacations and WestJet Vacations. This excess of capacity has driven down prices; especially for destinations in the Caribbean and Mexico. Although Canadian travelers have enjoyed bargain holidays, the imbalance between demand and supply has not been healthy for the travel industry. A consolidation of Canada’s package tour business has long been needed.

Everyone (travelers, destinations and companies and their employees) suffers when an industry is out of balance. Travelers are inconvenienced and lose confidence while destinations receive fewer dollars per visit. An imbalance such as we have with package tour operators forces companies to focus on their margins rather than expanding operations, improving their product line and introducing innovative programs and products. No one wins.

Conquest Vacations became a victim of the imbalance that exists in Canada’s tour operations industry. Despite their collapse, the imbalance between the demand for package travel and the supply of packages remains. We expect to see a further consolidation amongst Canada’s remaining package tour operators over the next 12 months. Consolidation among operators would be healthy for the industry, destinations and ultimately Canadian outbound travelers.

David Redekop
Principal Research Associate
The Conference Board of Canada
255 Smyth Road
Ottawa, ON K1H 8M7

Email: dredekop@conferenceboard.ca
Tel. (613) 526-3090 ext. 324
Fax. (613)526-4857