Now that Apple Leisure Group has announced it is no longer going to be selling Playa Hotels and Resorts, it brings up those old nagging issues about market consolidation and raises the question: Is bigger really better?
There are many relevant elements to consider in this discussion, and they are now all spinning together in a giant whirlwind that makes it very hard to see clearly what is happening, or where all this is leading.
Consolidation of the Market
Keep in mind as we consider this question that last April the largest behemoth in the American vacation packaging market, Apple Leisure Group, swallowed up what was probably its staunchest surviving competition for the massively lucrative Caribbean and Mexico wholesale vacation packaging market.
The Mark Travel Corporation was a family-owned and operated company that had grown from the wildly successful Funjet Vacations into a giant diversified conglomerate that operated private label vacation packaging brands such as United Vacations, Southwest Vacations and many more over the years. Now it’s part of ALG.
And lest we forget events a little farther back in this headspinning market evolution, a few years previously ALG had already swallowed up Travel Impressions, another major pillar of the marketplace and one of Apple Vacations toughest competitors.
The whole structure of the wholesale vacation packaging industry is changing and it is probably too early to predict what it will be when this process settles down, if it does.
As Sandals cuts off ALG, the industry is starting to look like a bunch of fiefdoms aligning for war. What happened to the free market?
Yes, there is still some competition for ALG’s flagship brand Apple Vacations, the powerhouse packager that was the rock ALG was built upon. But in terms of the mass market, so much of it is under ALG right now that the company practically owns the market.
What are the implications of this? I don’t expect to be able to satisfactorily answer this question today. But at least we can raise some questions and start thinking about these issues.
The End of an era
So many elements: where to begin? Maybe at the beginning. The wholesale vacation packaging industry as we know it today only dates back to the early 1950s when Fred Kassner and Gil Haroche created a new model of business.
Keystone Tours, which was later renamed GOGO, was founded in 1951 by Fred Kassner and Gil Haroche, who practically invented the model of vacation wholesaling that came to dominate that tier of the travel industry.
When he was still living, Fred Kassner told me himself: “We revolutionized the travel industry by introducing the vacation package concept. By combining hotel accommodations, airfare and ground transportation to our initial two destinations, Puerto Rico and Florida, we became your neighborhood wholesaler.”
Although vacation packages did exist at the time, according to Kassner they were mostly for European travel and mostly deluxe.
“Our innovation was doing it mass market as opposed to luxury,” said Kassner. “In the ’30s and ’40s traveling was for the rich, students and teachers. The blue collar workers went to the Jersey Shore or Wisconsin Lakes. They didn’t go on cruises or to Miami. Our packages took that market and got them to travel. They didn’t know they could get all that for that price.”
That was the model that many vacation wholesalers were built on, including Pleasant Holidays, Funjet Vacations (which grew into Mark Travel), Travel Impressions, and of course Apple Vacations, as well as numerous small players that have faded out of the market and out most memories.
One of those smaller players was Inter-Island Tours, which spawned CheapCaribbean.com, and that too has been swallowed by ALG.
It was a diverse, competitive marketplace. The companies were all run by dedicated and creative entrepreneurs, each with enough charisma to keep a stable of employees working their hearts out to make the thing happen.
Part of the diversity of that marketplace was based on the fact that there were more airlines to partner with then, too.
The example of the airlines
When we talk about competitive marketplaces we should remember that competition is the one principle element that makes the marketplace work, according to Adam Smith, the originator of free market economics. If free markets are worth fighting for – and they are – this is why, because of competition.
On the other end of the scale, monopolies are not good for free markets. Not to say ALG is a monopoly, I’m not sure. But it is axiomatic that competition is essential for a healthy, functioning market.
Somehow that principle seems to have gotten lost in America. Thank Teddy Roosevelt for taking strong initiatives to protect markets from too much consolidation, too few players to keep the market healthy and competitive. He started the antitrust regulations that helped make the American economy the envy of the world.
Today when the airline executives go before Congress to explain why practically the entire United States airline market should be controlled by four corporations, they redefine the word “competition” to suit their agendas, and Congresspeople, apparently awestruck by the presence of airline CEOs, just nod their heads in reverent silence.
They tell Congress: You let the other airlines merge and now they are bigger than us, so you have to be fair and let us merge so we can be bigger than them. Then we can be more competitive.
But dear airline execs, it’s not about whether YOU can be more competitive, it’s whether the marketplace is competitive. That means more players, not fewer. I don’t know very many flyers who think the U.S. is better off with fewer airlines. Airline shareholders may like it. I don’t know too many flyers who do.
How much is too much power?
So what happens when one company gets an inordinate share of a market? It just follows that when there is no competition, you do what you want. You set prices at “whatever the market will bear,” but if your customers don’t have an alternative, well…
Yes, you have to keep your customers happy, to an extent. But if it is a captive market, you only really have to give lip service to customer care, because your customers don’t have a competitor down the street they can go to. I refer you again to the airlines.
It takes the threat of congressional action to get them to take steps to improve customer relations.
Too big to fail?
So getting back to the vacation packaging market, which has lagged behind the airline industry in the move toward consolidation, it’s hard to imagine that the same principles will not apply in this market as in other markets.
When one company dominates a market, it can throw around a lot of weight and to a large extent control its market. Now we see ALG, which is the channel for the lion’s share of Mexico and Caribbean vacationers, has eliminated Playa from its roster of choices for all those consumers.
Some staunch supporters of Playa, brand loyalists, will blow off ALG and find a way to stick with Playa. But most will not go to the trouble. ALG can drive a huge amount of business away from Playa by making that single move.
Why would they do that? What is their strategy and motivation?
Whatever it is, the point is that they can do that. There is a point at which a company becomes too powerful for the good of a healthy, competitive marketplace. Have we reached that point in vacation packaging? I would be inclined to say no. But will we? The wheel is still in spin.
This evolution with ALG is not sitting still. The company is moving rapidly, growing, spreading out, consolidating markets. The company is proudly pursuing an aggressive global strategy of growth. Already the biggest, it is driven to be bigger yet. What will be the end result for its customers, travel agent partners and the travel industry?
A previous version of this story stated ALG was a public company, it has since been corrected.