Can a luxury travel company survive another recession?
Andrew Dunn's luxury travel company, Scott Dunn, survived one recession by tempting would-be shareholders with free holidays. How is he preparing this time round?
Tuesday 03 February 2009
Andrew Dunn admits that the coming months are going to be challenging for his travel business. But he hopes that he is better prepared than during the last recession, in 1992: "Fuel went through the roof, the pound crashed and Simon Clarke [his brother-in-law and finance director] was sailing in the Southern Ocean. It was very tough."
Dunn's solution then was to bring in 12 shareholders, each of whom paid £5,000 for a 1 per cent stake in what was then Ski Scott Dunn, plus a free holiday each for the next five years. The input of cash helped stabilise the company that had only begun trading in 1986, and the business not only survived but soon expanded beyond its roots in the Swiss Alps to offer upmarket holidays around the world.
In 1996, it began offering non-skiing holidays, first in Africa, then in oceans and islands around the world, and then in the Mediterranean. By 1999, the worldwide offering was sufficiently strong that the company was rebranded as simply Scott Dunn. Skiing still represents 30 per cent of the business, with Mediterranean villas accounting for 10 per cent and tailor-made trips throughout the world the rest.
Buoyed by the economic boom and the growing wealth of its core market of middle-aged middle-class families, Scott Dunn has over the past decade seen turnover grow by 20 per cent a year, to the point that in the year to last June it hit £22m.
What the future will hold, Dunn does not know. The next few weeks will be critical since January and February are traditionally the most important selling months for holiday companies. But so far, things don't look too bad. He says that the ski business has proved "remarkably robust", with January sales the best ever. "It doesn't make an awful lot of sense," he adds, pointing out that the Alps have seen some excellent snow in recent years. He also believes that people who are still in work are maintaining their commitments to family holidays.
They are more likely to forego the short breaks that have become a feature of the travel industry in recent years. This, along with the declining value of sterling against the euro, have contributed to a falling off in bookings of its "European escapes" trips, he adds.
Dunn expects customers to do what they do in every walk of life and seek to renegotiate prices. In some areas this will be difficult because his costs are rising, too, because of the exchange rate. And he will be making his own effort to protect profits. "It's good for business to analyse and sensitise everything," he says, adding that he is asking all his staff to "think about everything we buy".
Having said that, he feels that the business model is "relatively robust" on all sides. As a privately owned company, Dunn and his colleagues (many of whom have worked together for several years) are free to make decisions without outside share holders "breathing down their necks". They are also free of debt. In addition, the company's portfolio of ski chalets and holiday villas gives it a strength in that customers cannot gain access to them anywhere else. "They have got to come to us," he says. And it is perhaps worth noting that with the drop in the value of the pound making the price of meals and drinks in the Alps ruinously expensive, the chalets in which Scott Dunn specialises could be a more attractive option than a hotel.
It is also Dunn's hope that the downturn and the inevitable shaking out of some of the supply in the industry will benefit an operation that has always prided itself on the quality of its service. Indeed, Dunn got into the business because he was convinced it could all be done so much better.
That was back in the mid-Eighties. When he skied for the first time he'd been a poor student visiting his sister, who was working as a chalet host in Verbier in the Swiss Alps. He fell in love with the sport. Fired up with the idea of starting his own ski company, he spent a year doing research in the Alps before offering his first holidays in Champery, Switzerland, in the winter of 1987 with the help of a £5,000 bank loan and a lot of family support.
For this first season, he and several friends, including his future wife and two people who are still with the company, set themselves up in little more than a tin hut and set about looking after their first guests. Dunn himself did everything, from ferrying people from the airport through to looking after the accounts, and acting as a ski guide despite his limited time on skis. It was a classic learning experience, he says: the business managed to lose £7,000.
Nevertheless, the team felt it was on to something and the following year sales reached £67,000. The company offered more properties in Champery and then branched out to such resorts as Zermatt in Switzerland and Courchevel and Val d'Isère in France.
Providing the level of service Dunn demands is not easy. In the early days, he would ensure that British skiers could have the bacon they craved for breakfast by driving a load of it out at the start of each season, while the company claims to have been the first to offer chalet guests tea in bed, and to replace sheets and blankets with duvets. The same approach has been applied to the holidays it offers elsewhere.
"What I was always interested in was ensuring that everybody had a fabulous holiday. I didn't want there to be penny-pinching," says Dunn.
To make this a reality, Scott Dunn obviously puts a lot of effort into planning. But it can also react to events, as with the tsunami of Boxing Day 2004. As soon as he heard about it, Dunn marshalled a team in the company's office in South-west London and got all Scott Dunn guests on flights home.
It all helps the company's reputation, but Dunn is taking nothing for granted, particularly in the current economic climate. What used to be "a lovely lifestyle business" has now grown up, to the point where it has systems in place to track trends, and has learned to be more careful about such things as whether to accept more properties. The coming months are likely to put them to the test.
At the same time, though, Dunn is hoping that those people who still have jobs will feel sufficiently well-off to continue to go on holiday. With repeat business at the company historically at about 60 per cent, there is a good chance that all that attention to detail will pay off with continued bookings for breaks away from the gloom.
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