Industry is experienced in crises
FTI bankruptcy will not find imitators
By Victoria Robertz
15.06.2024, 11:38 a.m.
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FTI is bankrupt, other tour operators are breaking records. A contradiction? No, says a tourism researcher. FTI is a special case. The travel industry has experience with crises and will not collapse now. There is no reason to worry.
In the months before its bankruptcy, tour operator FTI was keen to showcase its turnover: According to the company, it was 4.1 billion euros in the 2022/2023 financial year – that sounds like a large sum. But a large turnover is not worth much in the travel industry, because in the end only a fraction of it remains – if at all.
In FTI’s last published annual financial statements for 2021/22, sales were 3.7 billion euros, but the bottom line was a loss of more than 90 million euros. The fact that it even went into the negative is of course also related to the company’s high level of debt. But even in healthy corporations, the difference between sales and profit is clear. For example, Germany’s largest tour operator TUI generated sales of 20.7 billion euros in 2022/23, but only made a profit of just under 1 billion euros.
Can a business model with such low margins work in the long term or has FTI’s bankruptcy highlighted a fundamental problem in the industry? For Torsten Kirstges, professor of tourism economics at Jade University of Applied Sciences in Wilhemshaven, the answer is clear: “FTI is a special case,” he says in an interview with Capital.
“Package tours, travel agencies and tour operators have often been declared dead, but none of this has come true so far. The industry is experienced in crises and there will be no further bankruptcies now.” In fact, demand for travel is huge again after the Corona pandemic, and other tour operators are breaking record after record, especially in terms of sales.
FTI had suffered major losses of confidence
What is left for them at the end is primarily what they add to the price of the trip themselves. Tour operators usually buy quotas from providers of individual services, such as hotels, airlines and bus companies. They can use these up to a certain point before the trip begins and build a coherent trip from the individual components, which they then sell to the end customer as a package.
“As a rule, the tour operator’s margin is 25 to 30 percent of the travel price if the package tour is well calculated and the tour operator is well positioned in the market,” explains Kirstges. The travel agency’s commission is then deducted from this. The net margin is therefore often only around 10 percent. At FTI, however, it was probably even lower.
“FTI has always had lower prices than others and therefore certainly less margin. This price-aggressive strategy is now taking its toll.” Because it can only be pursued if the corresponding volume is generated and FTI has not been able to do that in recent years.
In contrast to its competitors, FTI was not able to benefit to the same extent from the great desire to travel, apparently also because the company suffered a major loss of trust. For many travel agencies, this is likely due to a data scandal in which booking figures and competitor data were passed on. In addition, there were repeated negative headlines about the company, the strained financial situation and the criminal record of the former managing director Ralf Schiller, which became public in early 2023.
“Colleagues in travel agencies have started asking me whether they can still sell FTI,” Marija Linnhoff from the Association of Independent Travel Agents (VUSR) told Capital in February. “Last year they were all still selling, but now it often only happens at the express request of the customer.”
Strategic mistakes led to failure
Hoteliers in the destination areas also no longer saw FTI as a reliable partner and are said to have even demanded payment in advance – tour operators usually only pay after the guest has finished their stay. However, it was recently reported that hoteliers had outstanding debts of 200 million euros.
According to Kirstges, strategic mistakes in the company’s history and the corona pandemic ultimately contributed to FTI’s failure. However, in his opinion, this insolvency does not indicate the beginning of the end for tour operators or even the tourism industry. Rather, the market is now consolidating and other operators are filling FTI’s gap. This is already evident.
“It is not necessarily more expensive to book through an operator than to do everything yourself, because the operator obviously has a volume effect and gets better conditions than a private individual,” says Kristges. In addition, only when booking through an operator is there insurance in the event of insolvency, as is now the case with FTI via the German Travel Insurance Fund DRSF.
The text is first at Capital.de appeared