Jeff Karnes, is executive vice president of New World Travel, one of the largest receptive tour operators in North America, and where he’s just begun his 25th year with the company. Headquartered in New York, New World Travel is wholly owned by DER Touristik, one of the three largest tour operators in Germany. Karnes has been in the receptive business for more than 30 years. Jake Steinman, NAJ’s CEO and editor-in-chief of NAJ’s INBOUND Report, talked recently with Karnes about the state of the receptive tour operator industry and some related matters. Following are excerpts from that conversation.
“Back in those days, you did everything …”
JS: How did you get your start in the travel industry and what was your first position as a Receptive and how did you arrive at New World Travel?
JK: I was a student at UCLA and graduated with a degree in German and business administration. So, it was either banking or travel, and the first job opportunity I had was as a group coordinator with ATI (AmericanTours International) in 1986. Back in those days with ATI, which was dealing with the entire country and a worldwide clientele you did everything. There was group business, there was FIT, there as MICE, they were all sort of wrapped up into one.
JS: That was, like, the beginning of the industry.
JK: ATI, like New World Travel, both started in the late 1970s. Back in the day, you know, (inbound) travel was a small player, but we had a lot of the German market. And there was Allied Tours, ATI and New World Travel. As some juncture T Pro was born, and so was FTI… it was a very, very different time back then.
JS: Were you guys as competitive, as you turned out to be now, with one another?
JK: I don’t think so. There were fewer operators to handle the business. And no clients worked directly. Everyone was looking for a partner … Back then, I don’t think we had to be as competitive because there was a lot of business to go around and the customers were pretty loyal. You would find one receptive to work with and you felt comfortable and you got to know them, and you would give them all your business. You weren’t segmenting it between fly-drive and FIT and groups: you had one partner who basically did everything. Needless to say, we all romanticize the past but it is nice to look back and (realize): you really developed relationships and partnerships
Consolidation Overseas in Past 10 Years “Has Been Massive”
JS: From your perspective, how has it evolved over, like, the past 10 years –with the technology and the FIT business—technology-driven as it always was, but now it’s a commodity.
JK: I think the difference is, if you look at the FIT business, certainly, there are a lot of different sources for product. There are different sources for the consumer as well as the tour operator. I think what’s happening nowadays is that the tour operators get so many rate feeds, or access to portals where they can get FIT business. They’re constructing fly-drive programs, for example, for clients that can be made up of product from five or six different operators. Where that may be a way to source the least expensive product for your client, it’s certainly not the best way to package a product and provide the best customer service. If there’s an issue, the passengers don’t necessarily know who to call. I think that, in general, is a reflection of the lack of interest in quality. Everyone is keen to have the best rates out there, and it seems like that technology has sped everything up. It’s given people a lot of different choices. But it’s taken the focus away from having a partner in the U.S. that you can rely on…if there are issues that arise where they need one point of contact. The other, of course, is consolidation. From the tour operator side, we’ve seen massive consolidation. I see that with my own company—with DER’s purchase of Kuoni and, over the years with Meiers (Meier’s Weltreisen, a well-known DER Touristik brand) and others. We’re probably seeing less consolidation on this side, but consolidation in Europe and South America and the UK has been massive in the last 10 years.
JS: The receptive industry is, as I have described it, robust and fragile at the same time. By “fragile” I mean there are so many different vulnerabilities to contend with: currency exchange rates, politics—there are all sorts of other issues that can arise—not only politics in the U.S., but whatever countries you are selling in, and then there’s the Internet: people can book outside the tour and travel channel. And then there are a host of new operators who have come on board. They’re not at your scale, but people who have left your company or other companies who have built relationships with tour operators overseas who may have worked with you when they were with you guys and now are competitors.
JK: Yes, it’s like regulation-deregulation. When consolidation happens, at some point in time, it gives way to niche partners filling a void and providing a service that the big guys can’t, or don’t at a high-quality level. They can provide something Inbound wrote about a phenomenon that has given rise to the specialist. You’ll go through times where the pendulum swings really wide in one direction and everyone is consolidating, and then no one’s providing that specific level of service that once existed and they become more generalists. And then, all of a sudden, the specialists and regional players come out of the woodwork and grow their business—like Tourmappers. They’re a very large, successful company who really have not been around that long.
JS: Yes, they’re a strong mid-size company, but they’re not as large as you.
JK: I agree. But if you look at how they were created, when Tourco closed their shop, all of a sudden you had this niche of unique destinations in New England which a lot of the big players were not good at contracting—or with whom they had not built specific relationships. Tourmappers went in and they leveraged the relationships that they had and they filled that void and have been successful.
“If we have been anything, it’s customer service oriented.”
JS: Let’s talk a little bit about the importance of relationships now. How are the relationships you had in the past different from those that you have now?
JK: I think that, from a sales point of view, if we have been anything, it’s customer service oriented and consistent over the years. We haven’t had a lot of change. We haven’t had acquisitions that have changed our focus or changed the principles within the company. So, we’ve been really able to enjoy partnerships, from the client side for a very long time.
JS: Is there anything that’s kept you from growing?
JK: If there’s anything that’s kept us from growing our business and expanding relationships more quickly, it’s been the fact that we are owned by DER, and a lot of people in the German speaking world, which is of course our focus, are hesitant to partner with us for fear that they won’t be getting the same deal DER will, or that we’re only worried about looking after DER’s business. That’s been an area that’s taken a while to change perceptions. Typically, it takes a while to win clients and develop those relationships but once we we’ve won the client, we seem to retain them for the long run—as opposed to a lot of organizations in the market who are constantly going through new suppliers, new clients, new employees. We’ve really had the opposite: old fashioned, long-term relationship-vision approach. You had asked how relationships help us now and how they’ve changed. Maybe I’m jumping the gun a little bit to one of your advance questions on accessing FIT hotels in a time of moving to dynamic partnerships. While big hotel chains have gone to dynamic, they’ve have given us extra time with static FIT until we have our dynamic connections in place due to on our long-term, very strong and positive relationships. We’ve always been a super-solid payer. We’ve been a well-organized company. We’ve always valued the long-term nature of those relationships.
JS: At one point you were dealing with sales directors in all these hotels, now channel decisions goes through revenue directors, GM’s and in some cases even asset managers. Will the sales directors basically right for you in order to maintain those static FIT rates?
JK: That has happened, and I think that as the decision-making process moved from the on-property sales person to either a more regional role or to an outside sales person who’s basically representing us to the general manager and revenue manager at the hotel—they have put us in touch with the right people and have vouched for us to help us to maintain a static relationship until such time as we’re able to finalize our dynamic. The relationship on property? That has definitely changed. It has been one that we have missed—as we are dealing more regionally or not having it go through an on-property contact.
“2018? At the end of the day, it was basically a flat year.”
JS: Let’s talk about 2018. How was it, from a sales perspective and how are advance bookings for 2019 season?
JK: You know what? I think we had great hopes that 2018, after a couple of slower years, we thought it would really come back. At the end of the day, it was a flat year. We’ve seen certain aspects of our business slowing down and, certainly, I think for most receptives, the pure FIT component is slower as there are more and varied options to access FIT product. But there was growth in our package business, so, consequently, as fewer people were spending the time to package, we tried to make that our commodity. Our growth in fly-drive business, our growth in ad hoc group business and in any kind of a packaged product, is something that people look to us for. As companies like American Ring decided to stop doing Fly-Drive and FIT business—that has really given us some good opportunities to acquire clients and continue to package product.
JS: Yes, they were very heavily invested into the German-speaking market.
JK: Very much so. When you think back to Werner Schmidt in the early days of American Ring, he was the pioneer for Fly-Drive for a lot of West Coast-based receptives, back in the 70s and 80s. He kind of had the vision at that point in time, to package things and make the road book or some kind of an itinerary package the linchpin of buying that product. Otherwise, without that linchpin, everyone these days is going to buy one hotel from supplier A and another hotel from supplier B. But if they want to get that complete product with a roadbook, they need to buy from one supplier.
Bookings for 2019 “look really good.”
JS: So, what do your feelings say about 2019?
JK: Early bookings look really strong. In the recent past, we’ve had more growth on the West Coast than on the East Coast. Right now, 2019 seems to be strengthening for New York. For all three of our locations—Miami, New York and L.A.—advance bookings look really good. We’ve had a couple of banner years, the best years in our history, in the group sector. Our MICE business has really expanded. Our client series business has expanded. We still do a lot of specialty group work. So, our group markets are great. But right now, New York is certainly looking very strong for 2019. I think that, with some of the strategic Kuoni acquisitions that our parent company has made, a lot of work was done in the back office that first year to get everything set to grow and I think we’re going to see the benefit of that investment in 2019 from Switzerland, from the UK as well as from France.
JS: Kuoni had a lot of ambition, but they were terrible at execution and terrible at technology. They made some really bad, expensive decisions. When Kuoni had originally bought those companies, other operators were reluctant to buy from them, because it was like supporting a competitor.
JK: If you look at Switzerland, for example, Kuoni was a major player for many years. Then, you had Hotelplan and Knecht Reisen and a few others, over the course of years, really snip away at their market share—and doing it a lot better than Kuoni was doing it. So, Kuoni had this venerable name and a lot of lovely storefront shops, but they—as you rightly put it—were not executing well. I think that when the Rewe Group (the owner of DER Touristik, it is better known in Europe as owner of a supermarket conglomerate) went in and bought Kuoni, they saw great value in the name and they saw an opportunity to provide that back-office structure and a lot of synergy that they already had in Frankfurt and in Cologne, and leverage those with a brand that was very well known and really turn them around, and I can’t help but think that they got a great return on their investment, because when they did buy Kuoni, they got quite a deal.
DER Touristik and Diversification
JS: I know you’ve diversified into Brazil and the UK and some other markets. How has that turned out?
JK: Yes. Ten to fifteen years ago, we went into Brazil. I think the timing was great. We really rode the wave during the great years. We were a new and different player in the Brazilian market and that was embraced. We weren’t the solution for everybody, but we had representation in market, we were dedicated to the market, and we were able to do some really great and unique business for a number of years. We also knew when to be cautious, and when to get out. And while we’re not out of Brazil—it’s not an active market for us—we will be certainly be there if opportunities present themselves and the Brazilian market comes back. We went into Australia for MICE business, which has worked out really well for us. Right now, our main outreach outside of the German-Austrian-Swiss market, are: France, which is growing double-digit for us; we have moved into Scandinavia pretty heavily—we’ve merged with ETS Travel Solutions at the beginning of 2018, and they were basically Scandinavian Group Specialists. We’re growing quite solidly in Scandinavia which is a market that works very similar to the German market, in terms of organization and loyalty.
JS: Is DER still the long hall leader among the big three—TUI, Thomas Cook and DER—in Germany?
JK: They are not. DER lost the market leader position for North American business to TUI, and that was in 2017. They’re working hard to regain that, but they are no longer the market leader to North America. If you look at the GfK rankings (GfK is Nuremberg-based market research company), they showed TUI as the market leader in 2017.
JS: For a traditional receptive, you’ve grown into a big operation.
JK: You know what? We’ve always been, sort of, the “quiet” receptive. We’ve been a good silent partner where we did not start like our competitors, as a market driven company. We started as a customer service and fulfillment company. We come from a very different place in the market, but it’s one that’s taught us the benefit of long-term relationships and customer service. And at the end of the day—the pendulum swings wide, but it always seems to come back to the center—customers who were lured by a better rate or a faster turnover always seem to eventually come back to a comfort level of knowing their customers are going to be well taken care of.
Receptives and the Importance of Travel Attractions & Experiences
JS: You were talking earlier about relationships with suppliers, mainly hotels. Attractions have sort of been an afterthought in promoting to receptives because there isn’t as much money to be made. I wanted to ask you because my sense now is that attractions have become experiences and experiences has become more important.
JK: I think you hit the nail on the head; people are looking for experiences. No one is going and saying “I can’t wait to go on my vacation to the Holiday Inn.” They want to go on vacation to take advantage of the attractions and the things that a destination offers. We have always focused on services. Now, it is a challenge to contract and re-sell a lot of them, especially if they’re like a CityPASS, who’s only going to do it through a connected portal, as opposed to a static transaction. That’s one of big challenges now—freeing up our bandwidth and the bandwidth of our tech company to spend time connecting to, and building channels to, our attractions. And where it may, in any invoice, represent the smallest component, it is still probably the reason that these people travel. People don’t really want to see. People want to do more and more. Through the growth of food- oriented programs and bike programs and very active tours have increased. And we are doing our best to take advantage of that.
JS: You mean companies like Central Park Bike Tours are actually more than activities now they’re attractions. Is that the next-generation of attraction supplier you are looking for?
JK: The whole family can bike together. It’s attractive across generations. It’s active. The price point? When you’re looking at ski tickets at $150 a pop, or Disney or Universal, upwards of $140 a ticket, the ability to have a family experience or bike through San Francisco across the Golden Bridge and come back on a ferry—and when you’re able get that for half the price—I think that is extremely attractive to a lot of our passengers and the younger generation as well … to have an active experience as opposed to a passive viewing experience.
JS: Let’s go back to our earlier discussion about the shift from pre-made group tours to creating group tours for independent travelers. If this shift continues, what is the receptive’s value proposition? I was just speaking with Destination America who’s doing this now. They’re becoming more like Abercrombie & Kent, where they source unique options some of which are completely exclusive to them.
This involves a different kind of relationship with the DMOs because, where you had relationships in the major cities, it was more difficult for them to connect you with locals you need. But there are plenty of smaller DMOs outside the major cities. For example, DMO’s like Chicago’s North Side, or DuPage could conceivably find a find a cooking school willing to teach a group the secrets of making Chicago style pizza, especially if the DMO can get room nights out of it. So, I see the smaller destination relationships really emerging because they’re part of a tighter community and it may be easier to help you find those unique local partners.
“Everyone is looking for something authentic.”
JK: Consequently, shows like NAJ’s RTO Series and Go West become for us, increasingly more important, because it gives us and our group operators an opportunity to meet some of the smaller partners who have a unique and authentic product to sell. I think, in certain markets—we find that everyone is looking for something authentic and it’s harder to find authentic in the big cities. But you do find it in smaller cities. The ones that are just outside or are a little smaller who don’t have the big budgets or the infrastructure do have authenticity. These are the places where many of our clients want to discover America.
JS: Are you doing some of this now, already?
JK: We are. I think it also gives these smaller destinations great opportunities to be featured and still be in the game by moving away from static (tour operator) brochures that have a certain cost where you need to get a certain amount of ROI per page. The little guys get squeezed out because they don’t have the budget to participate. But as more and more people are putting their offerings online and are constantly introducing new product and where the wholesale market—the tour operators—are able to pick up on this an re-sell it, it gives all these smaller destinations and experiences much more opportunity to get play.
JS: How are your tours changing?
JK: Our standard tours are changing. The ones that traditionally had every minute accounted for and were selling to a public who wanted a full experience, an older traveler who wanted that time filled—that is changing. We’re reconstructing the programs a little bit. The younger generation wants transportation. They want connectivity. And they want spontaneous choice. And if we’re able to provide them with those three things, we’re going to capture a younger traveler on that group tour. We still are working on our seat-and-coach program that we sell to a number of different clients. For 2019, we have products on the East Coast as well as the West Coast which are much more geared to that unstructured nature, which allow for a lot of different program options.
JS: Did you have them themed out?
JK: I found that theming has a tendency to pigeonhole you. Someone who comes to the West Coast—they don’t just want to see national parks, they don’t want just to see the club scene in L.A. They want to do it all. I think that theming tends to make the tour one directional. We just call it sort of a revamped classic program. Everyone has the opportunity to do just like they’ve done it in the past, but by unstructuring it and by offering a lot of different options, people kind of make it what they want it to be.
The Importance of Optional Tours
JS: So, it’s really how you make money. I guess you make money on the hotels, anyway, because you’re booking the hotels for them, but now part of is part of it making money by reducing the hassle factor.
JK: With coach tours, we would make money on the general margin on everything that’s included. But operators make a lot of money on their optional tours. Because they’ve got the coach and they’ve got the guide and they’re creating new experiences with products that are already paid for. And that’s our challenge with offering a lot of different things where, basically, you’re selling on the spot and you’re turning your tour guides more into sales people who are facilitating a lot of different options. The challenge that we find is that it is not as lucrative for the tour guide. The work that they’re having to do for what they’re going to get out of it is something we’re still trying to address. Because, at the end of the day, it’s got to work for the tour guide or they’re not selling these programs.
JS: Once the tour guide starts to sell optional programs, it’s a different relationship with the customer. “Now I’m the fun guy that’s showing you all these things,” and suddenly, the fun guy is selling things. How do you train tour guides to be relationship managers in that kind of scenario? It’s hard, especially when they get commissions.
JK: That’s probably one of our biggest challenges—to take these resources that we’ve used successfully for so many years, components of our overall product, and really retrain them and re-address the changes coming on these tours. It’s hard for us. It’s hard for them. And it’s hard to translate this all to our clients into a neat well-organized package that’s understandable and conveys the differences of the way we’re constructing these programs now to how they were constructed for many, many years.
JS: With all that’s happened to the bedbanks—following the merger of Hotelbeds, GTA and Tourico—is that there are more bedbanks who’ve come in to compete with them under the premise that no one wants to work with a monopoly. How does that affect traditional receptives like New World?
JK: I’d like to think that they’re buying complete packages or experiences from us, and what the bed banks are selling is individual hotel components that has become a commodity. Everything’s available. Nothing is really preferred. And it’s just not the kind of business that we’ve done. As long as we’re still able to get product, I have no doubt that we will be able to partner with clients who really want someone in the destination, and who has the customer service experience, who has the linguistic capacity to help these clients, who has a 24/7 customer service line that they can utilize and feel really good about. If our partners haven’t learned the value of that, in light of all the fires and hurricanes and volcanoes—their passengers can be stranded without that level of service or communication. When I travel, I book my products with Expedia or with Booking.com if I am going to Europe. But if I ever have a customer service issue or I need to get involved and kind of know who I’m dealing with, it’s not the easiest experience. So, we still feel really good about having a back office that’s able to help. And as long as we have clients who value that and whose passengers really need that, I think we’re going to be fine.
What’s with the Stative FIT?
JS: What do you think is happening with the static FITs.
JK: I think that if you look at American Ring, here’s a great example of a company was faced with a huge technological investment, and their scope probably did not allow them to do that with the slim return they were getting these days. The margins are getting more and more depressed. And you have to make a decision: you’re going to have to sell a lot of room night units at a very small margin to make sense.
JS: The static contract, as I understand it, you would commit to a specified number of rooms per day that you contract for over the course of a season or over a year. Is that correct?
JK: That used to be the model. We would have a certain amount of rooms and we would have a certain cutoff and if it was blacked out, we’d have a certain amount of time to let our partners know and turn in our reservations before we closed them out. Nowadays, all of the FIT contracting is done on a free-sale basis. So, we don’t actually own or control inventory.
JS: So, it’s a lot of data inputting—staff manually inputting this stuff.
JK: Tremendous amount.
JS: Is the challenge you’re facing now how to automate that process.
JK: Right. We’ve selected a lot of our hotel partners to connect with where the data management was just a little overwhelming. So, a lot of our Las Vegas product we have automated through an excellent connection with IBS software, and we’re dynamically connected; we’ve got a number of partners we’re working with. It’s a slow process. It’s a long-term investment. You have to identify the right products to integrate with and realize which ones you can probably live without or even live with longer on a static basis.
What Should DMOs Do to Work Better with Receptives?
JS: What advice would you have for DMOs and suppliers to work better with you?
JK: This might seem old school, but I am still a firm believer in doing Fam tours, and we do a number of Fams for different markets. And we work really closely with DMOs and with suppliers to create programs that really give people an authentic, first-hand experience—whether it’s really a high-end unique MICE fam, or whether it’s a larger brush stroke program that DER does. DER used to do the Reise Academy; now they do what is call Campus, and they do a number of smaller, but more varied events. I think we’ve done three in North America in 2018. Reise Academy was DER’s signature event for the travel industry. They would wine and dine and educate the travel agents from their top accounts. They would get hundreds of supplier partners set up to do workshops and underwrite the program. They worked very closely with the destinations to do signature events. They’ve realized, and rightly so, that they were simply not going to get the ROI with such large groups, that they were no longer getting the airline partners to subsidize flights. So, they had to go to a smaller format. And they’ve decided to do smaller numbers in more locations per year, which probably makes a lot of sense. They have one now coming to San Diego in May of 2019. This is the first time San Diego has participated in such an event for them, no doubt due to the new direct flights from Frankfurt to San Diego on Lufthansa.
JS: Which destination do you think is doing a good job?
JK: Visit Portland is, for me—of course, I’m West Coast based and all of my product is west of the Mississippi—and Visit Oregon seem to set the standard for us. Maybe’s it more manageable because they’re the right size. They’re not overwhelming large and, in some cases, when a destination gets larger and larger, they end up, basically, selling conventions and worrying more about their hotel partners than they are about their smaller vendors. Portland’s claim to fame, you know, is its “niche, small weirdness,” and its authenticity whether it’s a craft beer movement or a distillery movement, they seem to set the standard for us.
Natural Disasters and National Parks
JS: How do the natural disasters like the fires, hurricanes etc. impact the product?
JK: When the 141 fire hit Yosemite we had close to a thousand bookings that had to be re-routed and adjusted. Let’s face it, if you’re staying in El Portal, or Mariposa or Oakhurst, the only reason you’re there is to visit Yosemite National Park. And if you can’t access it, you’d rather be someplace else. It was an exercise in diplomacy for us to work with our partners who were open for business and didn’t have to do free cancellations, but people were not going to get into the park—that was a challenge for us. With the national parks, a huge issue for us is that the new fee structure that goes into effect as of October 2019. For me, it’s completely counter to any kind of an appropriate decision. When you’re charging the same amount per person for car or a motorcoach, you’re not weighing the reduced impact on parking and other things and you’re really penalize the international groups who have been supporting the parks for years. And it’s made these products extremely expensive. If you’ve got a five-park trip where you’re now charging $20 a person that’s now $100/per person; or 10% of a modest 10-day over-the-road group is now in National Park fees. Whereas, before, when it was $300 per bus per park, and you’re coming in with 45 people, at six dollars a person, you’ve really more than tripled that cost component, and that’s really going to be detrimental to a lot of over-the-road coach programs in National Parks.
JS: So, you think that pricing will really affect people?
JK: It won’t affect everyone, but we have a growing number of high-volume, lower-margin programs where that becomes a large component of the price, and they’re already feeling the effects of fuel surcharges and airfare increases. That will definitely add to the challenge of bringing more people to the parks.