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Recessionary Travel: Understanding The Issue

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February 8, 2010 Travel Expert 1 Comment

Searching for accommodation in these times can seem like a dream come true. Everything you search for is available and seems discounted.

What could go wrong? In this article, we discuss the issues to keep in mind when planning and booking your trip, and how you might avoid and resolve them to ensure you really enjoy your trip – instead of just live through it. In a recession, every dollar you spend is worth more to you, so make sure you get the best out of it. In a following article (“Recessionary travel: Resolving Issues“), we will talk about the specifics where/how margins are cut and how that affects you.

Behind discounts: The good and the bad of recessionary travel

Sometimes a 10% discount is more desirable than 50% discount. 10% cuts the margin. 50% will surely cut the the product.

Traveling in a tough economic climate can be interesting. Your first hurdle is “can you afford it?” A personal dilemma everyone goes through. Not “do I have the money right now?” questions, but the uncertainty in the future.

Beyond that, it all looks like juicy pickings of the low hanging fruit. Plenty of options because overall demand is low and the feeling that once again your business matters – not like the mid-noughties when there were so many customers businesses just didn’t seem to value you anymore.

But stay on your toes. You can avoid enormous problems by understanding a few simple concepts.

Within a shrinking market, the first cut that gets made is the price of the product – they HAVE to keep the business turning over. This is great. (This is a knee jerk reaction which has some success but long term is seldom the answer. However, we are not discussing what should they do, we are discussing what businesses generally do.)

The cuts in price are seldom matched immediately by the cuts in services, and so there is a period in which the company is selling the same service, costing them the same, at a lower price. When the numbers stop adding up, they have to cut product.

And here is the danger. X and Y service/product are promised on booking. But by the time your booking comes around the business may cutting cost furiously, buying very cheap products, or cutting staff by 50% to do the same amount of work. Your service expectations may or may not have been met before, but certainly won’t be now.

Apply the same business logic to your own personal travel expenditure as you would on a business/corporate level. If you receive a very cheap bid for a project or service, you would question “why”. How can you do this so cheaply? It may turn out to be genuine, but you need to be sceptical.

With your own travel, think like a business person would. 50% discount sounds wonderful, but what are they cutting? Were they really making 75% profit before and now are accepting 25%? Or were they making 30% profit before and will have to cut something major (like your service of product) to make money now.

So follow this Rule – You should understand their business as you expect they should understand you as a customer.

When you consume and sell the same product, you get to understand the economics of the business – so it is easier to spot good value to suspiciously cheap. But you can make some general assumptions by knowing a few basic facts about cost of living of where you are going, and then try to understand the profit on the product you are paying for.

Some examples in Rome

For a car transfer, costing 45+ EUR. There will be around 15-25 EUR in petrol/costs, 5-10 EUR for licensing, leaving 15 odd EUR profit for an hour’s work (30 mins there and back). That is not a huge incentive, so work with these people to help them help you. Otherwise, your business will not be worth it to them.

Hotels can price much lower than apartments. The apartment has much higher fixed costs (cleaning, linen etc is done by a company that travels to the apartment, and they charge about the same for one apartment as a hired employee charges for 20 room cleans in a hotel). But once you stay some more days, the apartment becomes cheaper again (not accounting for more space, washing machines, and the possibility to save 30-60 euro a day by having a few simple meals at home before going out for a drink in the evening).

Tours are more complex. The cost depends on if it is just a person walking you round a square or museum, or transport plus food plus entrance fees or combinations of them. But again, you can work out the basics and identify ridiculously cheap (and of course, ridiculously expensive)

In the next article (“Recessionary travel: Resolving Issues“), we will discuss some of the actual things that get cut or sacrificed, and what you may do to resolve it.

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    [...] on from the article about difficulties and benefits of traveling in recessionary times (Recessionary Travel: Understanding The Issue“), here are some of the specific issues that travelers face and should be ready to [...]

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