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Tellmeclub’s bankruptcy grounds discount travel services

by Philip Brasor and Masako Tsubuku

Special To The Japan Times

On March 27, discount travel company Tellmeclub filed for bankruptcy while a number of its Japanese customers were still overseas on package tours.

Owing to the way its trips are paid for, these tourists still had valid return plane tickets but would have to pay out of pocket for accommodations that were originally included in the package. As for those customers who had already paid for tours that hadn’t commenced yet, they were completely out of luck, since in most cases Tellmeclub had not covered them.

One 71-year-old woman, quoted by the Mainichi Shimbun on April 13, said she had already shelled out ¥121,500 for five nights in Thailand with her husband, but Tellmeclub called her the day before their March 28 departure to say the tour was canceled. It gave her a phone number to call to find out about a refund but no one answered when she followed up.

Tellmeclub’s failure was not unexpected or unusual. As of April last year, there were about 700 class 1 travel agents in Japan, meaning travel companies who can sell “merchandise” such as package tours.

According to Tokyo Soko Research, 27 travel companies went bankrupt during 2016 due to competition, which is fierce among discount travel agents such as Tellmeclub. What’s notable about Tellmeclub’s failure is that it was buying full-page ads in major national newspapers right up until the day it went out of business. It had also hired 50 new people who were set to start work April 1. As the company was filing its bankruptcy papers, it was still taking orders.

The Mainichi Shimbun says that the warning signs appeared several years ago. In 2014, Tellmeclub was accused of improper accounting practices for reporting it was in the black when it was actually in the red. It’s assumed that it had been doing this for years.

Starting about a year ago, there were other, more ominous signs of trouble, when the company launched a campaign for “paying early and in cash” (genkin ikkatsu nyūkin). The idea was that if customers booked a tour early and paid the full amount in cash, they would receive a big discount.

At first the lead time was a week, but that was soon reduced to three days, meaning you had to pay the full amount within three days of making the reservation. In the last few weeks of Tellmeclub’s existence, customers had to pay at the time of making the reservation in order to receive a discount, and in cash, which means going to the bank or post office and making a remittance to Tellmeclub. Many Tellmeclub customers who were looking forward to trips this spring had paid for them as far back as September.

Tellmeclub needed cash because it had to pay for tours that were either just about to start or which had already started. Discount travel agents typically don’t pay for air tickets until several days before departure, when airlines are desperate to fill any empty seats and offer big discounts to tour companies. Tellmeclub had already received payments weeks or months in advance for these seats.

According to travel writer Kotaro Toriumi during an interview on TBS Radio, however, this practice has become more difficult in recent years owing to a couple of significant developments: There are now more foreign tourists coming to Japan, which means there are fewer empty seats going out of Japan on return flights; and airlines are continually downsizing aircraft in order to make booking more efficient. Tellmeclub had fewer and fewer discount seats to choose from on outbound flights and thus had to pay more for seats its customers had already bought.

As for accommodations, tour companies usually don’t pay for rooms until after the stay is over. One of the last straws that led to Tellmeclub’s failure was all the hotel bills that came due for tours that took place during the New Year’s break, one of the heaviest travel periods of the year.

Tellmeclub was established in 1998 and in the beginning all its business was done over the internet. It simply bought discount tickets in bulk from airlines and resold them at a markup online, which saved them a lot of money in overheads.

Over the years, more discount travel companies emerged and did the same thing, and then airlines themselves started selling their own tickets over the internet at cheaper prices. It used to be that if a customer wanted lower airfares they had to go through travel agents, but now they could buy cheaper tickets directly from the carriers as long as they did it online, thus making many conventional travel agents obsolete.

Tellmeclub’s solution was to change its target demographic. When it was solely an internet company, it sold tickets to young people but, over the past few years, it started targeting older people, who prefer value-added package tours.

Tellmeclub quickly earned a reputation as the cheapest company with the widest variety of package tours. Since its business model depended completely on airlines that were guaranteed to give them discounts, its tours tended to be to regions serviced by those airlines. As a result, Tellmeclub conducted a lot of business with Southeast Asia, Taiwan, Hawaii, Saipan, Guam and Europe. It offered few tours to North America and Australia.

And since older people don’t use the internet with as much facility, about two years ago Tellmeclub started buying ads in newspapers, which seniors still read. These ads were famous for their density: a dozen or so package tours to places such as the Baltic nations, the fjords of Norway and Scotland all squeezed onto full pages, which are very expensive. Advertising rates in the Yomiuri Shimbun or Asahi Shimbun start at about ¥10 million, and Tellmeclub would often place one in each of the national newspapers on the same day.

With this huge increase in overhead, Tellmeclub had to work on a volume basis, and so it would just buy up all the tickets it could. It worked for a while, and the company relied on large numbers of elderly repeaters who would take advantage of the rock bottom prices and bring their whole families to places like Hong Kong or Bangkok for five-day excursions.

Another thing Tellmeclub learned about older customers is that they didn’t really care about the destination, only the price, so it was easy to sell any destination as long as it was cheap. This volume strategy could work during the post-2007 recession but in recent years the company just couldn’t get ahead of its debts.

According to an expert interviewed by the Mainichi Shimbun, Tellmeclub customers who have paid for trips they haven’t taken may not be able to get their money back. The Japan Association of Travel Agents refunds customers when a contributing member goes bankrupt, but the amount of refunds available depends on the size of the company.

Tellmeclub was relatively small in terms of capitalization, so its upper limit for refunds is ¥120 million, which represents less than 1 percent of the total amount of money already spent on tours not yet taken.

The association told the Mainichi Shinbum that Tellmeclub’s case is “extremely exceptional.” Nevertheless, the expert interviewed by the newspaper thinks the government should scrutinize discount travel agents more thoroughly, although consumers can help themselves by exercising discernment.

If you buy a package for six nights in a foreign capital with hotel room, round trip airfare and tour guide for only ¥60,000, don’t be surprised if you later find yourself stranded.

Notice: Yen for Living will be published on the second Saturday of the month from May.