The Big Interview of Coral Travel

Last winter season, there was no profitable destination, as Coskun Yurt, Chairman of Board of Directors of Coral Travel, said in an interview with RBK. The company goal for coming summer is to get out of the winter minus.

- What are the results of the winter season? Did they follow your expectations?

- (Laughs.) Yes, since we expected catastrophic decline in demand in the last two or three months. Initially, of course, we had other plans. In early 2014, we assumed to have an increase of 30%. But in August, the market started to have problems, the dollar has become dramatically more expensive, the political situation has changed, and plans had to be adjusted. Adjusted, corrected, and that's what we've got. Here are some figures for each month. In October 2014 compared to October 2013th we had an increase of 28% ...

- This is the number of tourists served?

- Yes. In November we continued growth by 25%. In December it already has been minus 9%, in January already minus 26%, in February almost minus 50%, and in March about minus 40%. By April, we now see 98% of sales, it is somewhere minus 25%.

- That is to say that the bottom line is passed?

- I think yes. From November to April, the reduction of our programs compared to last year is about 22%. But these are our numbers. Reducing for the market in general could be more than 40%.

- Are there any destinations that you have shown this winter growth the same time?

- Only those on which we recently started working. And it is easy to explain the growth of a low base. For example, we for the first time began to fly to Vietnam from the Russian regions. All the main destinations are in minus, of course. And, of course, if we talk about money, then there was no one profitable destination.

- This winter was quite calm. We didn't see such failures as it was in summer 2014. Why? Tour operators began to follow more reasonable strategies or just anyone who had to leave, had already left the market?

- We have, of course, no desire to have someone bankrupt, although in the past year, we have used to bankruptcies. This is a very valid question. Actually not only tour operators, but also air companies and foreign incoming agences had to get bancrupted. The fact is that there are companies whose problems are not related to the current crisis. But just because of the fact that the crisis began, these companies simply froze payments of their debts. And those whom they have debts, were not insisting on payments. How to claim the money Ii such a situation? So, if there were no problems in the economy, these companies may have gone bankrupt this winter. Some companies have debts since 2013. Their business has been long time unprofitable. So, the crisis just helped these companies to leave the market.

- Why at the same so many tour operators left the market last summer? The companies referred to the drop in demand, as the result of the prohibition law for officials to travel abroad.

- This is just one of the reasons, not the most significant one. Those ruined who had were incorrectly organized business processes. If the company has huge amounts, but no facilities- either technological or financial - to serve these volumes, how did she not go broken? On the other hand, Labirint [a major Russian tour operator for Greece, stopped operations on 2-nd of August 2014] was normal one, although it was unclear how its avia broker business was arranged. All other companies which bankrupted last year were small: someone sent abroad a maximum of 100 thousand tourists, someone - 30 thousand tourists, someone 10 thousand tourists. And their main focus was Europe. When the flow to Europe decreased, they automatically had difficulties. But the market was not affected by withdrawals of these companies. Although, unfortunately, it had a negative impact on the relations to all tour operators. A serious problem would be if one or two tour operators from the top ten would have bancrupted. 

- The Turkish press reported earlier this year about local company Alkan Group which applied to the court for bankruptcy. We know that this company was once the parent company of tour operator Tez Tour. Is not that wake-up call for the tourism industry? Now Tez Tour, again as the Turkish press wrote, has no longer in Turkey its own host company, its customers are serviced by a third company.

- As far as I know, Alkan Group has been not bankrupted, it applied to the court for protection from creditors. The court case is still going on (we know this from the press), the result is unknown.

- Who are your main competitors?

- First of all, we are competing with the rest of the market as a whole. Each of our competitors in the top ten has its advantages. And we pay attention to all of them. We have a rule: do not talk about our advantages, we should not waste time on it, let's talk about the benefits of our competitors: what they are doing better than we do. When we compare ourselves with other tour operators and see on their background our shortcomings, that is the main competitor for us .

- Do you have an explanation why Biblio Globus is recently booming ? 

- Well done. Let it continue to grow.

- The Biblio Globus has any advantage over you? Is it something to learn from?

- We all know that the main advantage of Biblio Globus is the price.

- And due to what reason can they give such prices?

- I do not know. There can be dumping, or it may be some unknown to us financial facilities. Perhaps Transaero gives them very good conditions, but this is only speculation. Price is very important. The difference in $10 (which is now about 500 rubles) is important for consumer, and the difference of $100 is even more so. But constantly compete only due to the low prices is impossible.

- What are the results of early booking this year? What will the summer season be?

- We expect that this year people will buy tours at the last minute. Early booking volumes at end-March were lower than last year by 45%. In April the figures approach the data of the last year. But it is difficult to make conclusion about whole season according to early bookings. In our forecast, we mostly focus on the results of the winter season and customer surveys through travel agencies. Our conclusion is that the European destinations will decline by 40-50%, long-haul destinations will descrease in general throughout the year least by 50-60%, if any large-scale improvements in the economy will not happen till winter. In the summer season, we expect a decline by 10-15% in Egypt, and around 20% in Turkey.

- Turkey, according to your estimates, will decline even more than Egypt, because the Egypt is more budget destination and preferences will be given to cheaper tours?

- Yes. At our company we have such plans: in Greece - zero growth, because this year we have got in Greece an exclusive product, Mitsis Hotels. This will maintain the volume. In Spain we expect a decline of about 40%. Bulgaria is expected to grow due to the large number of budget tours. Last year we started to work on that destination, so there will be the low base effect. In Europe as a whole we expecte decline by 15-20%. Over the entire 2015, we wait the reduction by 40% on long-haul destinations, and by 15 - 20% in Europe. In Egypt, taking into account the last winter season, decrease will be by 20%. A total number of served clients, according to our calculations, will be diminished by 15%. These are tours abroad. But we have also tours within Russia. And by them, we partially compensate losses from foreign trips.

- Explain why you have expressed interest in domestic tourism a year and a half ago when the crisis still has not been spoken about?

- We did it in accordance with our business plan. In 2013, we began seriously to prepare, and last year entered the market. Now domestic tourism because of cheaper rubles is interesting for many tour operators.

- For several years, Russian Union of Travel Industry compared prices for holidays in Turkey and the Black Sea coast of Krasnodar region. And every time Turkey was cheaper, and the quality of services there was higher. Is it difficult to select Russian hotels that would meet the expectations of customers?

- We did such analysis. According to the current exchange rate of the dollar, Krasnodar region is roughly 20-30% cheaper than Turkey. In Anapa and Gelendzhik the difference is even bigger than in Sochi, it is about 15-20%. Quality of services is a bit different than in Turkey. But the first thing for a customer to care is the price, so tour packages to Krasnodar, as we believe, will be in demand.

- How much clients did you have for Russia last year, and what are the plans for this season?

- Last year it was about 18 thousand people

- Which is for you like a drop in the ocean.

- These were different services booked through us. Somewhere we offered only accommodation, somewhere a complete tour package including air or rail ticket. We sold tours not only to Krasnodar region, but also to the suburbs of Moscow, to the Golden Ring of Russia, as well medical and ski tours. We wanted to try different possibilities to get ready for 2015. We taught our travel agencies. They were almost unaware of such a product as tours within Russia, they could only sell tours abroad. We hold seminars for approximately 10 thousand travel agents. Then we organized a separate legal entity for work on the domestic market, where now more than 70 people work. We had to create separate IT-products.

Already in July 2014, we decided the volume for the next year and started signing agreements with hotels. Then we planned to send 120 thousand tourists in Russia. These plans have changed: now we expect to have 150 thousand tourists in Russia. This is without taking into account the Crimea region. In Crimea, we look forward to send about 50 thousand tourists. And these are only package tours.

- Just wanted to ask about the Crimea. You are a Turkish company ...

- Why? We are a Russian company.

- The Russian company, which is part of a large Turkish holding. As you stated earlier, the holding does not exclude the possibility to go on foreign exchanges. The cooperation in the Crimea is not confusing?

- And why should it confuse us? Why cannot we send Russian tourists in the Crimea? There's not much to discuss.

- But you're reading the news: American Carlson Rezidor Hotel Group left the Crimea because of sanctions ...

- It's another thing: they worked there. And we live in Russia, we send Russian tourists to Crimea.

- Do you plan to organize its own incoming company in the Crimea?

- Yes. In all Russian resorts we should have our own incoming company. It is important for us that tourists get the same high quality services for which they are accustomed on our overseas destinations.

- This year Russia must become self-sustaining destination or it is still an investment project?

- We will keep our plan, either zero or slightly earned. Definitely it will not be a loss. We, as I said, have begun to sign contracts with Russian hotels in August of the last year. And in winter, despite the crisis, we invested in some of them, for the owners to be able to make repairs, or to construct additional building, to equippe beach. It is important for us that the Russian resorts to be in constant demand. Today Russian hotels use the advantages of sutuation with weak ruble. We want this product to be sold also in a year, even if economic situation changes. Therefore, we now send owners and directors of Russian hotels to Turkey for mini conferences and seminars, we show them how Turkish hotels work. 

- So the next step might be a hotel chain in Russia under your own brand. 

- Why not? I will not tell our three-year plan, I can only say that in the near future we want to send 1 million tourists to Russian resorts per year. Already this year Russia will be the third largest destination for us. In addition, we have started now sending individual tourists from Turkey to Russia. In the future, we want to do it from all the countries where we operate. We seriously think about incoming business in Russia. 

- You mentioned that not only tour operators, but also air companies and incoming agencies face the problems now. Are you sure in all your partners? For example, do you continue to work with Transaero, whose management asked for help from the Russian state in late 2014?

- I do not want even to think that something can happen with Transaero. I'm concerned about their position from the press and from the figures of airline. It is not easy to estimate the state of  the company of such level. We regularly meet with the management of Transaero, and I would like to believe that everything will be fine.

- Were there any partners from cooperation with whom you have refused in the last months?

- There were, of course. But it would be wrong to call them. We are developing our own business. We have our own airline company [Royal Flight], it has six aircrafts, and its fleet will grow. The same time, we grow the cooperation with those in whom we are sure. 

- The next question is about insurance companies. Can we say that, as shown by the last year, the institute of financial guarantees has been not justified? Clients of failed tour operators received very small payment.

- Let us first talk about positive facts. There is Turpomosch [trade association to which all outgoing operators should annually contribute annually at least 100 thousand rubles and which carries out as emergency evacuation customers of ruined tour operators], and it has a fund.

- Are you not hurted that customers of Neva, Labirint, South Cross and other bancrupted tour operators were brought back home on your money as well?

- Of course, it is insulting. On the other hand, an example: every year we pay insurance for our air planes. If in the past years the number of accidents in the world has increased, our premium insurance cost increases immediately. And no matter that we were well last year. One way or another, I think that Turpomosch is a positive phenomenon.Negative discussion is about liability insurance for tour operators.

Last March, the State Duma adopted in the first reading the amendments to the tourism law where it proposes to increase the size of financial guarantee. In general, I think, it is wrong to protect the consumer by 100%, . The consumer has every opportunity to decide what to buy and from whom to buy. The customers also have to bear at least some responsibility for their choices. Perhaps half of the tour price. After all, what's happening? Clients buy impressions, in fact, the air. Only arriving at the resort, they sees what they paid for their money. So, if you buy experience, please study, get ready for the trip in advance. If you, for example, get sick, you probably start thinking, to what doctor to go, you start phoning friends, asking their advice and recommendations. The same should be with tourism.

-Is it easy to find an insurance company now?

- It is not easy. Because of last year's events, insurance companies do not want to work with tour operators. I think it is wrong. How can the entire Russian tourism industry be assessed as unreliable due to 10-15 bankrupt companies? 15-16 million people flew abroad last year, and if you take into consideration the domestic tourism, it has been 30 million tourists. Turnover of whole Russian travel market is about 30 million people, and the volume of the total tour was about 800 thousand. Insurers refuse industry in which billions of dollars are spinning . If the industry has such turnover, how can the market be risky?

- Several times the idea to insure every tour package was expressed on the market. But tour operators and insurance companies argue that it is not realizable. Why?

- Probably, it might be very difficult for an insurance company to analyze risks. But for us, tour operators, the idea is unprofitable. That means that we, as tour operators, have to say to client: insure our risks, we can go bankrupt at any time. But this is ridiculous! We are forcing consumers to doubt in our sustainability. We can agree with this idea, only if the government will oblige to insure each tour package. But we must understand that the cost of the package will also increase.

- The State Duma is now proposing to introduce self-regulation in tourism. In 2012, the business itself has performed with such an initiative, but then it was rejected. In your opinion, what is better: a self-regulatory organization or Turpomosch, which each outgoing tour operator shall join?

- Who cares?

- Your self-regulatory organizations could refuse to accept, relatively speaking, the same Labirint.

- It would have found another self-regulatory organization.

- Yes, but when Labirint recognizes its financial insolvency, not your self-regulatory organization is to pay for, but the other, which has assumed the risk.

- I do not think that this is the decision. Such self-regulatory organization might bring together up to 20-25 companies. But if something will happen with one of them, will this organization have enough funds to pay off the affected consumers? On the other hand, one big self-regulatory organization is also bad. Each option has its pros and cons.

- Association of Tour Operators of Russia offers such an approach: let us abandon financial garanty and create two compensation funds. One is the analogue of Turpomosch, where all companies pay to, the other an individual fund that every tour operator generates on its own.

- We are in the Presidium of the Association and are now looking for a compromise. It might be that financial guarantees remain, as well as tour operator can create an individual fund. Each company chooses what mechanism is more suitable for it.

- In yet adopted in the first reading amendments to the law "On the basis of tourist activity in the Russian Federation" is a requirement: a travel agent, retailer of tourism services, can only work in the name and on behalf of tour operators. Why latest categorically against it?

- For the consumer, it may be an advantage, but it brings a lot of disadvantages for the whole industry. Primarily travel agencies will be affected. According to our estimations, there are about 25 thousand travel agencies in Russia nowdays. Every day, some agencies are closing, some new are opening. If there be a requirement to work only on behalf of a tour operator (and, hence, the agent must meet certain criteria for the tour operator), then automatically at least half of the agencies will be closed. Because I as a tour operator simply will not give this right to work on my behalf.

- What's wrong with that? Only those agencies will be left who match your criteria.

- This is just part of the problem. Half will go, but where is the guarantee that the remaining part will perform well? They will make promises to their clients, will bargain with them in order not to lose, will come up with some maneuvers. How can I as a tour operator control them? I can not always control emloyees, and we talk about thousands of people working in the agencies. Can you imagine what damage could it be to the tour operator? If the agent as a legal entity signs a contract with a tourist, then it is responsible for it. A tour operator shall be responsible for product that is sold by the agent to the client. But if the agent received the money and disappeared, why tour operator should be responsible for that?

- By the way, what are your plans of developing its own travel agency network?

- At this moment we have more than 1 thousand travel agents in our networks Coral plus Sunmar. About 30 offices of these are our own, and all other work on franchising. We do not have a goal to develop further our own offices. Why? There are professional agencies that we offer to work under our brand, which guarantees them the flow of customers. In this winter season , we looked specifically at the sales of our franchised agencies and everyone else. Our agencies had minimum decrease, and the others had decrease about 50-70%. That is why travel agencies are interested in franchise. But we do not take everybody. In some cities, we already have an agency under our brand, so we cannot provide others with our Coral Travel brand name. In such cases, we offer agents to work under the brand of Sunmar. In general, our network, I think, will increase to 1.5 thousand sales pointswithin a year.

- Are independent tourists a problem for you? Did you notice that you lose customers on some destinations?

- Not yet. At least on mass destinations where we sell package tours. There are independent tourists on some European destinations, and their number, of course, will increase. But in Turkey and Egypt, their share is very small. Maybe only in ten years, independent tourists will get noticeable part of the share of these destinations.

- Let us talk about the forecast for the summer season. You already said what will happen with tourist flow. But will the season be profitable?

- In general, we set a goal to have either zero or a small plus. Because last winter was already in big minus. Iit is necessary to get a plus in summer to compensate winter losses. Honestly, we did not accept such budget for long time. All previous years were profitable, even 2009. Only in 2011 due to Egypt, it was a small drop unexpectedly for us [because of the "Arab Spring" when in February and March, Russian Federal Tourism Agencyin urged travel agents not to sell tours to Sharm el Sheikh and Hurghada, resulting in the most massive winter destination was actually closed] .

- And in general, what are OTI Holding plans for a year? Might other countries compensate minuses of Russian division?

- In Turkey, outbound tourism develop well, we expect 150 thousand tourists this year which is almost double growth. In Poland, things are not bad, we expect an increase of 25% to 250 thousand tourists. In Ukraine, of course, the number of tourists fell, and as well as in Russia, we expect to go to zero. Hospitality business is profitable, security, even though it is small, too. Last year was an investment for our airline, so this year wealready wait for profit. Therefore, this year should be a profit in overall, although, unfortunately, not at a level that was in the last two or three years.