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By Arturo Pallardó

“From a finance standpoint, technology gives us an advantage in the travel industry”

Published July 11, 2017

Olympia Viaggi was created in Italy at the beginning of the 80s, but in the last years, the company has changed dramatically –especially their wholesaler business. They started as an Outbound Tour Operator for FIT (Foreign Independent Travel) leger from Italy to European City Break. During the 80s and the 90s they experienced important growth, establishing offices in Vienna, Paris and London, and in 2001, they turned their business from an offline to an online tour operator.

But the turning point for Olympia has been the last financial crisis. At that difficult moment, especially in Italy where the selling of holiday packages had a huge impact, they decided to pivot their business. Driven by management’s decision, this translated into the restructuring of their London Office, which at the time was a Destination Management Company or DMC  (whose only client was basically Olympia Viaggi Tour Operator), building on top of that DMC a completely new wholesaler (Olympia Europe). This implied that from 2012, they started more or less from scratch in terms of turnover, growing double digit year after year, and going from 2 million EUR revenue in 2012 to 25 million EUR in 2016.

Today we talk with Olympia Viaggi’s CEO Pietro Deledda and Olympia Europe’s CFO Tino Pasetti about how finance is helping then to navigate in this complex and rapidly-evolving travel ecosystem.

Arturo: So, Pietro and Tino, how do you think technology is transforming the Travel industry?

Pietro: We are a mature travel company that has successfully transitioned from the offline to the online world. So, with our perspective, I would say that the Travel business is nowadays more about technology than travel. Obviously 8 years ago technology was already important, but now it is completely dominant. For instance, before, my conversations and meetings inside and outside the company revolved around things that had to do with specific destinations, new trends to follow, new proposals to customers, finding new geographical markets, find a new market niche, etc.

However, although this is still important, in the last 5 years the discussions have pivoted towards other issues like response time, mapping, error, system solutions, etc. In other words, before, technology was helping you to find new customers and attract new clients and it was one of the pillars of your company. Now if you don’t have a very good system, it is impossible to work.

Tino: Totally agree. And the fact that now the travel industry is virtually pushed by the digital age also pushes our boundaries as directors. So, from being basically commercially-minded people, we had to up our game in the technology department as well and get to know a lot of aspects that before were peripheral to the operations. This is key for the investment of the company to be directed towards more power on the service, in improving the software all the time, and in delivering our product to our customer in a quicker and a simple manner. So, it’s all about speed, functionally and simplicity.

Pietro: Let me put you another example of why technology has been key for us. Around three years ago, we arrived at a moment where we could not add one single client because the system was nearly exploding. So, in the last three years (and until 9 months ago) we’ve been working at Olympia Europe on simplification of processes and systems. For example, we went from 5 databases to 1; and from multiple xml connections between our companies to only one. So, right now,  having a state of the art xml or database, or overall system, has become a must.

A: What are the major trends in the travel industry in your opinion?

P: The global competition in the travel world has been changing dramatically, especially in the last months, and we are seeing two big trends. One is the big concentration between a few huge companies like Priceline Group, Expedia Group, and what we can call now HotelBeds Group. And the other trend is that the competition is more and more global. So, for example, what we are seeing is that in Europe we had 10 wholesalers that were doing the wholesaler for City Breaks (the sector where we are) and now this number has doubled since companies that used to sell seaside vacation or sea-side hotels have started to compete with us as well. Not to mention the wholesale competition from the Middle East, Asia, Latin America, the United States and so on, that are coming to Europe.

A: I guess that, as usual, new trends imply both a threat and an opportunity.

P: Of course, some other wholesalers are going to Europe, we are also going to other geographical areas (Latin America, Asia, the Middle East) as well, so the competition has become global, everywhere, in every corner.  And regarding tighter competition, this is, on the one hand, an obvious threat for small companies, since it is difficult for us to have the same buying and selling power. Obviously, when we go to a hotel chain, we have much less power than Hotel Beds or Booking.com’s contract managers; and the same thing with our clients.

But it is also an opportunity because every time these companies eat the big part of the cake, they leave a lot for the smaller ones to grow and grow (i.e. we can work better on details with clients or suppliers, we can talk to a client going in depth and understanding their needs and not make the client adapt to our way of work. The same thing happened with hotel and hotel chains). That’s why being as efficient and simplified as possible, especially from the finance standpoint, could give us an advantage regarding these players (for instance, we have to be smarter and more efficient in dealing with hotels, making them be happy with our payment system, etc.).

T: Besides, I would say that one of our biggest threat is the erosion of markups because we are seeing year after year that the markup that we can have on our product is smaller and smaller.

But more broadly speaking, the threat of the travel industry still remains terrorism, as we’ve seen with the latest events in London. If we see the graph of our production on certain destinations, it really takes severe hits when those kinds of events take place.

Moreover, and although it may be marginal at the moment, it is also worth mentioning the impact of the so-called sharing economies (i.e. the likes of AirBnB and so on). Thanks to technology, they are now able to reach a vast number of potential travelers that traditionally purchased products from a tour operator, or a travel agency, or directly from a hotel, etc. And not to mention the likes of Amazon, which potentially could well enter the market with such a large pool of clients and powerful tools and resources.

A: And what are the main challenges derived from these changes and trends (from a finance standpoint)?

T: There are many. For instance, driven by technology, the settlement of the bookings that we make with the hotels is changing quite rapidly, so we went from traditional credit agreements to settlement with  VCC (virtual credit cards). And while that has posed a big challenge for us, it has also opened a world of opportunities in terms of reach, since it allows us to reach hotels that are smaller (where before it would have made no sense to have a credit agreement).

The challenging part is that, although we are still able to book with them and settle directly, the credit that we get now from these VCC providers is very different from the credit that we have traditionally agreed with our long-time customers. So, we are always finding ourselves on the limit of the cash flow because of this situation (before, we used to work with hotels only on credit having 30 days of more at the receipt of the invoices to settle. The VCC credit is smaller and in the meantime, the credit we have given to clients have remained the same), which implies that we need to keep a very close eye on both the cash flows and the credit controls. How do we achieve that? There isn’t really an answer right now. The only way we all are working towards is trying to renegotiate our position with new and older clients. The older ones are a lot more difficult because they are used to that credit limit, and it is very difficult to move them from that position. And also, to negotiate some sort of new credit with the credit card providers (again, very difficult because they are very cautious in allowing credit, especially with the amounts we’re working with).

P: Another challenge we are facing is related to payments, especially derived from our decision to expand in different markets beyond Europe. Other regions like Latin America, Africa or Asia, have very different habits in payments and very different systems (e.g. a different banking system). So here in Europe, for instance, we are used to using Mastercard and Visa; or the European banking system, in which in one day you can make a payment from Italy to the UK and it settles directly. However, if you have payments from, for instance UAE, not to go too far, it means that you have to wait seven or ten days to receive a payment. This means that you don’t know until seven or ten days if your clients have actually made these payments (and again this has obvious implications from the credit control and cash flow standpoints). This means that there is also an ongoing battle on finding new ways to get paid, for instance, or finding a broker in the middle to help you to get paid by Chilean tour operator, or a Tunisian wholesaler.

A: I guess all these changes have direct implications for the structure of the finance department.

T: Indeed. So besides keeping an eye on everything, from the time-scale of payments that I have to receive from our customers, to the time-scale of the payments that we have to make to our suppliers etc., we have spent 4 years mostly on restructuring. And now we still are focused on strengthening that structure in all its components, from the software to the above-mentioned merging of databases (and the finance activities then goes along with that). So, what was basically an almost manual process, has been improved by tenfold.

And there’s still a lot of room for improvement, for instance, there are some platforms that we are using only marginally, and we would like to push forward and implement a lot more, like Babel. This is an example of a company that offers the possibility of electronic invoicing, from hotels to our system, completed in an electronic manner rather than us receiving the invoices from each hotel, reconciling them within our system, then loading them into our accounts department, etc.. They offer us a seamless experience all the way from the hotel to our accounting system, removing all the manual processes.

A: What are the main finance-related challenges regarding your international expansion at the moment?

P: A topic that has been important for us in the lasts months has been to find payments gateways and payments methods in the different markets we are entering, especially in Latin America.  For instance, we sent our highly experienced Director of Sales to Latin America for three weeks at the end of March, and he came back with a lot of interest from big, medium and small companies. However, out of the more than 40 clients we talked to, 75% of them said that their main issue was not product or technology, but the cost of payments. So, depending on the size, they may not work with us unless we take the costs of the bank transfer.

T: Another important problem to address is the exchange rate fluctuations of minor currencies, because we are buying more and more hotels in ‘strange’ currencies (from Saudi Arabia to Myanmar) while until two years ago we were mainly buying hotels in USD, GBP and EUR. We need to be very careful, since it could imply huge costs for us. So this is something we will need to address in the next 12 months, and we are already thinking about how to automate that.

And also related to currency exchange, we’ve been working on a system that allows us to get automatically updated exchange rates. Again, this is necessary for hotel payments around the world in very different currencies and systems, especially since we sell to our clients mainly in USD, EUR and GBP.

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