Beware of the bad reputation

As the constant rain poured, so did the bankruptcy of FTI Touristik. Alongside the rising levels of the Danube and Isar rivers, FTI Touristik in Munich found itself neck-deep in financial troubles. The travel group was already known to be struggling with a significant financial deficit. However, the investor solution from the USA, presented in April, had initially offered a glimmer of hope. It seemed as though the Munich-based company had managed to turn a corner. Unfortunately, the anticipated debt cancellation from the Ministry of Finance never materialized, sealing the company's fate.

Now the insolvency administrator has taken over. The future of the company, including its Swiss subsidiary, FTI Touristik AG, remains highly uncertain. Shortly before the summer holidays, thousands of FTI guests who wanted to start their journey soon are looking down the drain. At least the financial loss is likely to be limited, except for direct bookers and booked individual services.

However, rebooking summer holidays with a different tour operator will incur additional costs. FTI arrangements, known for their very low prices, are unlikely to be matched 1:1 elsewhere. Additionally, customers will have to wait for refunds from the security funds.

Unstoppable loss of confidence

Now the eye rubbing begins - from a Swiss perspective, it's déja-vu all over again. As with the too-big-to-fail bank Credit Suisse in this country, the unstoppable slide at FTI Touristik began with a loss of confidence. While other tour operators were able to rake in big bookings in the first three months of the year, FTI suffered from fragile financing and an uncertain future.

Many travel agencies have reduced FTI bookings for safety reasons, shifting them to other operators. Additionally, hoteliers and probably also airlines have increased FTI's payment terms. To make matters worse, FTI traditionally scored points with travel agents for its accommodating payment procedures, with the money being collected relatively late. However, if hoteliers demand advance payment and while the money has not yet been received from the travel agencies, the financial risk for the tour operator increases rapidly.

Regaining the lost trust with a supposedly ready investor may have seemed like a breakthrough on 15 April. However, nothing was sealed at the time, and hopes of a favourable outcome from the Ministry of Finance, which only wanted to recover half of the 595 million euros, were dashed.

The role of competitors

According to the German media, the Ministry of Finance seemed willing to help FTI and save a total of 11,000 jobs. However, competitors were understandably displeased by the prospect of debt relief for FTI. They had to repay their pandemic debts in full or on significantly harsher terms and thus intervened with the federal government. What's going on here? Why should FTI, already seen unfavorably as a perpetual price driver, receive special assistance? The intervention of FTI's competitors seems to have forced the Ministry of Finance to rethink, which is now likely to lead to the end of the FTI Group.

Seen in this light, it is of course slightly offensive that a number of tour operators are making offers under the label «Support for FTI customers». These «offers of help» are probably not primarily motivated by altruism.

However, it is understandable that FTI's competitors want to boost their own incoming bookings in the current situation, especially considering that summer business is not at the same level as last year. As a result, they are likely to breathe a sigh of relief. Fittingly, the share price of Europe's industry leader TUI jumped by 7.3 per cent on Monday.

The learnings

The demise of FTI should now teach the travel industry a few lessons. The trust earned with partners such as travel agencies, hotel chains and airlines is the most valuable asset for tour operators, which must be maintained with continued reliability. Delayed payments, unfulfilled promises and cancelled trips erode trust, fuel uncertainty and can trigger a downward spiral.

Unfortunately, from the travel industry's point of view, the damage to customers' image is likely to be greater than expected. Numerous articles and images are already making the rounds in the international media, showing FTI guests standing in the hotel lobby looking unsettled or being asked to pay again for their stay. The images from 2019 of Thomas Cook customers who were physically prevented from leaving the hotel grounds are still present.

SRV President Martin Wittwer's call for the travel industry to convincingly demonstrate even more strongly its ability to resolve such cases and reassure customers about the safety of booking with a travel agency must be pursued with vigor.