Cost Structure, the Crux of the Matter
Le Devoir – Gérard Bérubé – July 7, 2016
The world of travel is grappling with large operations these days, on a background of instability. This business model promoting expansion in a highly competitive industry can come into friction with this environment requiring an ever thinner and flexible cost structure. Facing the changes to come, Colin Hunter draws a parallel with the transformation causing confrontations within Canada Post. In that case, the comparison does not come from more traditional business mail delivery companies but from telecommunications companies, he says. This is also true for tour operators.
The businessman, who combines the roles of founding Chairman of the board of the Sunwing Travel Group and of crooner, visited Montreal on Wednesday to perform during the Jazz Festival, on the big TD stage. During a meeting with Le Devoir before the sound check, he was invited to comment on the transaction making Transat’s European subsidiaries part of TUI, the largest integrated tour operator in the world, as well as on the rumour that Apple Leisure, the third largest tour operator in the United States, would be handed to the Chinese. The Philadelphia company manages a portfolio of forty hotels. Fosun Group, one of the potential buyers, paid 1.1 billion USD to buy Club Med last year. The price put forth for Apple Leisure reaches 1.5 billion USD, including debt, nearly ten times the operating profit for a company that does not own hotels and whose activities as a tour operator only occupy a small segment.
“It is not for me to comment on their choices. These big players are constantly looking for expansion projects. But we must look at the net effect, costs inherited from previous administrations and the marriage of cultures, which can be difficult. ”
Beyond this consolidation, the cost structure remains the most important thing, the difference between profit and loss. And “for me, making money does not mean simply breaking even.”
Colin Hunter founded the Sunwing Travel Group in 2002. He hoisted the company to the second place in its industry in Canada, with a turnover of around $3 billion, by playing the vertical integration card. To the travel manufacturer were grafted an air component, destination management companies, management and hotel property, with more than 16,000 rooms, and nearly a thousand more to come soon. “We still have a lot of opportunities for expansion within our core business and we can count on our organic growth. ”
Sunwing is a private family business. The founding president holds a 51% stake while the remaining 49%, held by TUI, give him an exclusive access to RIU Hotels, to economies of scale and to the critical mass of the worldwide tour operator, now German. Is the relationship still good now that TUI is no longer British? “The relationship has changed somewhat, but their support remains. They can see our results. When a company is successful, it rarely gets disturbed,” says Colin Hunter with a smile.
No Lust for Europe
And Sunwing, specializing in sun destinations, do not covet Europe. “It’s a different world, a market dominated by scheduled carriers. Competition is fierce and the challenges are many, not least with all these unfortunate events affecting the tourism markets in Egypt, Tunisia or Morocco. For us, Europe is not worth the cost. ”
A shift in tourism demand causing pressure to heighten hotel prices follows from these events, he adds. Sam Char, Executive Vice President of Sunwing Travel Group Quebec, adds even more. He speaks of a real bloody war that is currently taking place on the Canada-Europe market, which is experiencing a glaring capacity surplus, mainly in Quebec, where the population trend is decreasing.
Above all, the travel industry is not immune to pressures from the dematerialization of the economy. “The technological evolution imposes administrative flexibility and operational flexibility. It comes back to the cost structure,” says Colin Hunter. Especially since the economic variables, such as the weakness of the Canadian dollar compared to its US counterpart and slowed growth, still affect us. “Next winter should still offer us some challenges,” he adds.
The businessman jokingly points out that he does not rely on his parallel career as a crooner, which brings him to perform in shows at the Montreal Jazz Festival, as well as Jazz Festivals in Lévis, in Quebec City and in the Dominican Republic, and eventually in Cuba. His discography also includes ten CDs. “Even the CDs are subject to the digital shift. Today, it’s all about YouTube or CDbaby. For each piece I perform, I get ¢6! That’s why I keep my regular job,” says Colin Hunter.