What to do after the Thomas Cook bankruptcy?

September 24 2019 (12:27 WEST)

In 2014, we organized the Global South Forum in Lanzarote, which was attended by: President Zapatero, IMF manager Michel Camdessus, IDB president Enrique Iglesias, Argentine economy minister José Luis Machinea, Colombian economy minister José Antonio Ocampo, and others. We held the Forum in Jameos del Agua, a tribute to Cesar Manrique, who fifty years ago was already talking about sustainability. One of the talks that impacted me the most was by Antonio Catalán, a businessman who started from scratch with a hotel in Pamplona and today is the president of AC global and Marriott Spain.

Antonio was very critical of low-cost tourism, especially with the excessive dependence on tour operators, and warned that the model was running out. In the front row were Paulino Rivero, then president of the Canary Islands, Pedro San Ginés, president of the Cabildo since 2009, the hotel associations, and the main businessmen of the island. Since then, we have organized several forums, and most of them have addressed the need to modernize the tourism sector, adapt to digitization, changes in consumers, make use of big data and artificial intelligence, develop consulting to advise other tourist destinations in other countries, and generate better quality jobs in Lanzarote, and above all, prioritize innovation and attracting talent and European digital nomads to develop new companies, taking advantage of the privileged fiscal conditions of the Canary Islands and its ZEC zone, and one of the best climates in the world and quality of life in the world. I would highlight the Forum we organized in 2016 with María Garaña from Google and Cristina Garmendia from Cotec.

When I read the news of the Thomas Cook bankruptcy, my first reaction was sadness. These giants are the main protagonists of the Spanish and Canarian tourism miracle. They saw the potential of our beaches and our sun, chartered planes, and advanced the money to build many of the hotels on our coast. The bankruptcy of Thomas Cook represents a change of era and the inability of a company to adapt to changes. The capitalist system ruthlessly follows Darwin's premise of evolution. The one who does not adapt to changes dies and is replaced by new companies that take their place.

I haven't bought an organized tourist package for more than ten years, and most people under 30 have never done it. The main cause of the Thomas Cook bankruptcy is that its customers are getting older and dying, and it is not getting new customers to replace them. The same cause as the travel agencies that continue to use the Amadeus system to book airline tickets, which continues to use codes similar to those of MS-Dos that Bill Gates invented forty years ago.

Thomas Cook is the chronicle of a death foretold. Julius Caesar said that you had to row when the wind was in your favor. In the last five years, the Canarian tourism sector has had a strong tailwind. Many hoteliers have taken the opportunity to invest and improve their hotels, to reduce their dependence on the tour operator and raise the prices and margins of their hotel. In the last two years, overnight stays have fallen in the Canary Islands, and the bankruptcy of Thomas Cook will intensify that fall in the coming months.

The short-term reaction has been to ask for subsidies so that Ryaniar continues to operate on the island and that Aena stops charging airport fees. These are emergency measures, but the crisis is structural. If the Lanzarote model is to compete with Turkey or the Caribbean and make it cheaper, the salaries in Lanzarote will be close to Turkey and Mexico, or the model will not be viable.

The key is to do it better and at a good price, but never be the cheapest. There is always someone willing to do it cheaper than you. To reduce dependence on the tour operator, you need to have teams with experience in customer loyalty, digital natives, and accustomed to working with big data and artificial intelligence tools. You have to develop the brand, you have to identify the brand with quality and values that customers demand, especially sustainability and the UN SDGs. The big chains already do it. The medium and small ones either unite and learn to cooperate to do it, or to preserve employment and wages, it is better to maintain ownership and put in a franchise of a brand that allows you to do it. Those who do nothing will end up going bankrupt like Thomas Cook.

Companies must be created that provide this type of service to the hotels in Lanzarote. And then those companies must go around the world to sell those services to other hotels in other countries. Silicon Valley was a desert fifty years ago and today it is the world's technological center and they pay the best salaries in the world. Innovation centers such as Magma must be promoted and that ecosystem must be grown. Just as Lanzarote has a privileged climate to come as a tourist, it has it to come to work. Today digital nomads can work remotely, the island has good connectivity with the main European cities and the ZEC zone offers unsurpassed tax benefits.

Photovoltaic panels must be placed on the roofs of the hotel to reduce the cost of electricity and achieve 100% sustainable hotels as a brand image to attract European tourists who are increasingly committed to the fight against climate change, as Manrique was 50 years ago. Wind turbines must be installed to take advantage of the wind and cover the demand for electricity at night when there is no sun. In a few years, electrical storage batteries will be profitable and electric cars will have affordable prices and technology will allow Manrique's dream of zero emissions in Lanzarote to be fulfilled.

A respectable and justified option is complaint and lament. Now Thomas Cook goes bankrupt and we discover that we have lost some precious years to adapt to change. Another option is to get to work, putting the long lights on, dreaming of a more socially and environmentally sustainable Lanzarote and transforming this crisis into an opportunity. Which one do you choose?          

 

 By José Carlos Díez, Professor of Economics 

Most read