The insolvency of the tour operator FTI shows that the tourism industry is a tough business. Nevertheless, no series of bankruptcies will follow, says an expert
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In the months before its bankruptcy, the 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, which 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?
“There will be no further bankruptcies now”
For Torsten Kirstges, professor of tourism economics at the Jade University of Applied Sciences in Wilhelmshaven, 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.
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 priced and the tour operator is well positioned in the market,” explains Kirstges. The commission for the travel agents is then deducted from this. The net margin is therefore often only around 10 percent. But at FTI 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 mass is generated, and FTI has not been able to do that in recent years.
FTI could not recover from loss of confidence
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 probably 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. “The colleagues in the travel agencies 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.”
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.
Booking through an operator can have advantages
According to Kirstges, strategic mistakes in the company’s history and the coronavirus 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 the case with FTI through the German Travel Insurance Fund (DRSF).
Source: Stern
