The biggest “winners” to emerge from the coronavirus pandemic, as well as the Russian-Ukraine war, are those in the logistics industry. Specifically, marine shipping and the aviation industries. Today, these two logistics sectors have plenty of reasons to charge exorbitant transportation fees. This in turn increases the production costs of consumer and luxury products, and services by at least 30%.
That said, though, the transportation logistics service is an industry that necessitates enormous sums of operating capital. In addition to massive borrowings for the acquisition of large fleets of ferries and aircraft, astronomical insurance and maintenance costs are also inevitable.
In the past (nearly) three years, transport service providers have continued to operate on humanitarian grounds to ship fuel, merchandise, medicines, vaccines and other necessary items across the globe. The crises have actually presented these operators with unique business opportunities!
But let’s get back to the travel industry. More than 1.5 billion air passenger trips were made globally throughout 2019. Such a glorious historical milestone has since been stalled for over two years owing to the pandemic.
Thanks to the global “revenge travel” trend which really picked up in the second half of 2022, some class “A” airlines have been able to savour the sweet taste of success with their seats all booked up, even at unimaginably high prices.
The thing is, no matter how expensive the air fares are, there are always people who are more than happy to dig deep into their pockets and snap up the tickets, especially during the holidays or long weekends.
Thailand, as expected, has been the biggest beneficiary of this travel trend, with the number of inbound tourists so far this year about to breach the 10 million threshold.
However, for tour operators like us, what we get is a major headache instead. As we need to include such exorbitant air fares in the price of tour packages, most tour fees you see today have increased by between 30% and 50%. And if you prefer to travel in business class, be prepared to fork up between 50% and 100% more!
But as unreasonable as that sounds, there’s nothing much that companies like ours can actually do.
With fuel prices skyrocketing, this triggered a globalised inflation as well as currency devaluation, sharp increases in labour costs and plummeting stock prices. Keeping prices low or even stable is next to impossible for some industries. It looks like only the Prawn King (controversial local entrepreneur Umance Chong known for selling cheap seafood) is able to sell at reduced prices!
Of course, we all hope that the increase of flight frequencies next year will substantially bring down air fares and tour fees. But I do wonder when travel agencies will get to make some money from this revenge travel trend?
We know that consumers think that travel companies are marking up our prices because of profitability. But in reality, we are forced to sell high because the costs have surged.
Yes, travel agencies provide travel services to their customers for a profit. But we pay taxes to the government, too. And any country will require sufficient tax revenue to keep the government running so that the people can enjoy a good quality of life.
For us, specifically, we deduct ground arrangement and airline costs, as well as tour leader/guide fees from our package prices, and then set aside 6% to 9% as fixed expenditure, including pre-paid taxes. The balance is the profit that we make, which is between 2% and 5%. Do you think such a margin is acceptable?
The views expressed are entirely the writer’s own.
Leesan, the founder of Apple Vacations, has travelled to 134 countries, six continents and enjoys sharing his travel stories and insights. He has also authored five books.