Voodo Prices!

Voodo Prices!

Safari travelers are getting taken for a ride!

The price of a new car is way down, as is the price of butter. But safaris are getting more expensive! Consumers beware and Fair Trading be damned!

I remain astoundingly dumbfounded at how ridiculously high safari prices are being kept in this economic downturn. The problem is two-fold, one which effects companies like EWT, and one that only effects big companies like Abercrombie & Kent.

I’ve written before about the foolish strategies employed by local East African companies in response to an economic downturn:
they raise prices.

The altoKeysenian theory is that reduced demand shouldn’t lead to reducing prices, but rather increasing them! In an environment where there’s no unemployment insurance or hiring/firing codes, and where contracts are adjudicated in bars rather than on them (in courtrooms), this protects the owners and investors while killing the employees.

EWT’s survey of local price increases in East Africa shows about 15% for 2009 over 2008! Remarkable! This effects everyone who ends up buying an East African safari, whether they walk into a store in Nairobi, buy from EWT or buy from Abercrombie & Kent.

But that’s just half the story.

The weirdo economics has now infected even U.S. markets. America’s three largest tour companies selling East Africa have announced price increases for 2009 that were more than 20% higher than 2008!

I ran their tour programs through EWT’s price database to figure out their real costs. Here’s the astounding outcome:

(Timeout: make sure you read the fine print. All these companies publish a certain safari cost, and then hit you with “internal air fare” costs, so make sure you do the addition… Second timeout: all these companies are offering some kinds of specials, and I haven’t incorporated them into the analysis. It’s usually less than a 10% discount on the cost… Third timeout: prices from all of them fluctuate throughout the year, so I’ve used June 1 as the first day on safari.)

The cost to selling price ranges from 108% to 185%! Yes, that’s right. At the very least the cost price is doubled, and in some cases, nearly tripled!

Abercrombie & Kent
Wings over the Migration
Retail Price (with internal air fare) : $15,595
True Cost : $6057
Markup from Cost: 157%

Micato Safaris
The Micato Grand Safari
Retail Price (with internal air fare) : $21,150
True Cost : $7,414
Markup from Cost: 185%

Big Five
Tanzania Explorer
Retail Price (with internal air fare) : $16,550
True Cost : $7,940
Markup from Cost: 108%

These are three very good companies: reliable, long in business, with pretty impeccable credentials. At least as far as pleasing customers, but do these customers realize how they’re being taken for a ride and not just a safari?

What bothers me most of all is how terrible all of this is to the employees and local businesses in East Africa. One of the few local companies that has an American selling presence, Thompson’s Safaris, just laid off almost half its work force. There’s no insurance for these good folks; no government paycheck, no retraining programs, nothing. They’re being laid off, so that the handful of owners and resellers — who do nothing ultimately to provide guests with a good safari on the road – maintain their situation in life at the expense of dozens of local employees who find themselves at the edge of collapse.

The three companies described above are not local companies, despite sharing names with local companies over in East Africa. These are American companies, and their despicable prices and markups from the cost they give the local companies is kept here, in America. That means for every $10 that a safari customer gives Micato Safaris in New York, $6.50 stays in America, and $3.50 goes to East Africa. That’s outlandish.

Fourth timeout: all these companies have foundations, do some good work locally in East Africa, support charities and basically because of their volume are essential to East African tourism. So let’s say that I’ve overestimated by HALF (which I haven’t). Even if I exaggerated that much, it would still mean that more than half of everything a consumer in America pays for a safari, stays in America.

That’s outlandish.

“Fair Trading” which I’ve also written about before and which is being broadly adopted by tourism companies worldwide, insists that at least $6 of every $10 goes to the source, and that’s a minimum. Many companies like EWT operate with a minimum of $8 of every $10 going to the source.

Fifth timeout: but small companies like EWT do not have the huge marketing costs of the big giants.

A-ha! And that’s the explanation, and least a big part of it.

Much of East African tourism in America is still sold in anachronistic ways: through what in the rest of the world is ancient distribution systems. The safari that a customer might buy from Big Five is likely to come through a travel agent, a wholesaler, and then a global wholesaler, and then through an inbound operator, before it finally reaches the hotels and transport owners that provide the safari services.

Smaller companies like EWT leapfrog all the middle men. All those necessary markups don’t exist. Does this explain everything?

Not quite, but it goes a big way. I think the final analysis also has to do with the infectious weirdo economics of local East African company owners as it seeps through an anachronistic distribution system to America. I think these American companies are also using voodoo economics.

Consumer to East Africa, beware!