On The Beach adapts its focus amid structural changes in the online travel sector

Barriers to entry, fewer major competitors, consolidation, and hotels de-risking and broadening distribution are all driving the OTA's strategic outlook for the next five years, chief executive Simon Cooper tells Travolution 

Barriers to entry in the mainstream online travel agency sector are too difficult for new brands to overcome, according to the boss of leading OTA On The Beach.

The listed Manchester-based retailer, which released its half-year trading figures this week, said structural changes in the market have given it a different focus for the next five years.

On The Beach is licenced to carry 1.86 million passengers annually making it the third biggest licence holder in the UK behind Tui and Jet2 Holidays.

It’s nearest rival in fourth place, loveholidays parent We Love Holidays, is licenced to carry 1.54 million passengers. 

Other OTAs in the top 10 including Expedia, booking.com, lastminute.com parent BravoNext are cumulatively licenced to carry only around one million passengers.

Asked whether the rebound in travel will see a flurry of new entrants into the market, On The Beach chief Simon Cooper said: “I think the barriers to entry now are absolutely massive. 

“Without some kind of strength of brand you can't afford to pay for the traffic, without some kind of scale and reputation you can't buy the product. How are you going to get the bonding? Which merchant services provider is going to facilitate your online transactions?

“How long and how much money does it take to build a website that's fit for purpose against the backdrop that there are companies that spend tens of millions of pounds on theirs?

“So no, I don’t think we're looking at new entrants. That's not to say you don't have pre-existing competitors, the likes of Expedia, but they've tried before many times, over many, many years.” 

Cooper said he would not characterise the position of On The Beach and loveholidays in the mainstream package sector as a duopoly, but he acknowledged there are now fewer larger players. 

Travel Republic, formerly the UK’s biggest OTA and member of Atol’s top three has reduced its licence since being acquired by Emirates Group’s dnata Travel although it remains in the top 20.

And during the pandemic Teletext Holidays, and its parent Truly Holdings, went into liquidation after the Competition Markets Authority (CMA) began legal proceedings against it over unpaid COVID refunds.

Cooper said these structural changes of the market have given On The Beach a “different focus over the next three to five years”.

“You’re no longer looking to win share against smaller, weaker peers, you're looking to win share against asset heavy vertically integrated or semi vertically integrated operators,” he said.

In its half-year trading update, On The Beach reported it has been able to access premium hotel product it has previously not been able to contract. Cooper said the collapse of Thomas Cook and the pandemic has opened up this market. 

“The hotelier only has two concerns,” he said. “The secondary concern is can someone distribute for me, the primary concern is will they pay me for what they distribute.

“The Thomas Cook failure and the pandemic taught them that there's plenty of people who might sell product for them, but that don’t pay them for it. So what's the point? 

“Actually, you'd be better to have a partner that doesn't sell as much, but pays you for the little they sell than a partner that sells a lot and doesn't pay. 

“The Thomas Cook failure left a lot of hoteliers with unsettled debt. The pandemic further stretched that so as a hotelier, you're looking to broaden your distribution to give you certainty of cashflow. 

“It's as simple as that. And it's building on the messaging we've been playing through with those hotels for ten years.”