Many industries were hit extremely hard by the COVID-19 pandemic. Restaurants, bars, hotels, and hair salons have been shut down for weeks, relying on donations and government stimulus to stay afloat.
As a tour operator, my company is in the hospitality industry and has obviously been hit very hard. However, in this industry in particular, we have been hit harder than most. Every partner and competitor I know has had to lay off huge numbers of employees to have any hope of staying afloat.
The reason group travel has been hit so hard is twofold: payment structure and popular travel times. Here is a brief explanation of why these two factors have come together to make a worst-case scenario for my company as well as many other group travel providers.
I’ve talked before about tour operators being paid in commission. We sell the hotel rooms, and the hotel gives us a cut of the profits, usually around 10% before taxes. Because the majority of our money is made from the hotel, we don’t get that money when the travelers book. What winds up happening is that the traveler will book a room on the trip, the tour operator will pay the hotel and other vendors for their services before the trip begins, and then the tour operator will be paid their commission after the trip travels. Actually, receiving the commission payment can be anywhere from 30 days to 90+ days after the trip travels. This means a tour operator can collect money from the travelers months or years in advance of actually getting paid for their work on the trip. Generally, the idea would be to have enough in the pipeline so that commission from past trips is coming in regularly and can keep the company operating until payments from current trips come in and the cycle continues.
The problem with that structure and COVID-19 is that the most popular travel times tend to be late spring, summer, and early fall. Because most of our business falls during these timeframes, we wind up making money only about six months out of the year and then utilizing that overage to survive the remaining six months until more commissions start coming in again.
When COVID-19 hit in February and March, we weren’t in danger of running out of money right away because we’d just finished collecting on all of 2019’s summer and fall trips. But our busy season usually starts in May. With the pandemic, people began panicking early, and as things progressed, all our spring trips, and many of our earlier summer trips, had to be canceled or rescheduled, pushing back our expected commission payment dates by months, eventually pushing some of them in mid-2021 instead of the anticipated late 2020. We weren’t going to run out of money in March or April, but we were in danger of running out of money sometime in October or November, leaving us with no cash to pay hotel deposits and fulfill contractual obligations.
The small business loans cover salaried employees for up to two months, plus overage to help cover expenses such as rent and utilities. However, in the group travel industry, many employees are contractors, so the loans would not apply to them, and two months’ salary doesn’t help the issue of running out of cash much later in the year. It also doesn’t help the issue of trips being canceled entirely due to COVID-19. A restaurant can stay alive with small business loans for a couple of months and then start earning money again because their income is made from immediate sales rather than future services. A tour operator can’t force people to reschedule trips, and there’s no stimulus package for lost revenue that happens months after the pandemic.
With all these factors coming together, the only recourse is to cut costs, most of which are in employee salaries. There is no better solution to the situation, of course. It sucks for many reasons, and many people are out of work, and many businesses are being forced to lay off their workforce, some even closing their doors altogether.
The hospitality industry just asks that you postpone your trip rather than cancel it. Let us keep the funds so we can keep our companies operating and provide you with an amazing vacation as soon as it is safe to travel.
