At the recent Travel Weekly lunch briefing, Easyjet CEO Carolyn Macal admitted that EasyJet Holidays tended to get lost in the priorities of an airline carrying 58m customers and needed a separate management team to focus on it.
Having provided the technology powering Easyjet holidays for the last three years and the launch platform for Jet2 Holidays, I feel reasonably well positioned to contrast both company’s approaches.
Philip Meeson has relentlessly driven the growth of both the low-cost airline Jet2.com and Jet2Holidays on a very personal basis. Philip quickly realised that having a tour operation to complement his low-cost airline distribution, offered some major strategic opportunities.
Low cost airlines use a yield model where they move prices up from launch, as buckets of seats are sold, depending on how its computerized algorithms estimate the required rate of sale, based on historical sales patterns by destination. However, the yield program also looks at the comparative price of other low cost airlines, since this obviously impacts the rate of sale. Price competition between airlines based on highly transparent flight only prices often suppresses yield.
Jet2 quickly realized that “package holiday” sales not only gave it another distribution channel, but because prices are “opaque”, gave it the ability to dump the prices of seats on slow moving routes, in a hidden way without impacting the higher volume flight only prices.
Low cost carriers tend to achieve higher average sales prices, the earlier the sales pattern is on a route, as early sales allow it to move seat only prices up faster and still achieve the targeted load factor.
Package holidays have an earlier booking pattern than flight only and thus have been credited with allowing Jet2.com to achieve higher average yields than some of its competitors.
Initially Jet2.com saw its holiday program as a volume top up on its traditional flight only routes, but as volumes have grown, it now deploys aircraft based on its holiday company’s requirements and tops up sales with flight only.
The above points only work if you have a “One Company View” of profitability, with one yield team making the crucial seat pricing decisions and flowing those prices into both companies equally or with hidden discounts to the tour operations. For example, agents are often forced to sell Jet2 Holidays simply because the tour operation has access to lower priced seats than they can package up themselves using Jet2.com.
However, in my opinion the most significant decision Jet2.com made was in recognizing that the management of a tour operation is a very different skill set to managing an airline. They therefore recruited experienced operators like Steve Heapy,
who in turn picked up a lot of the staff Thomas Cook made redundant when they closed the Air tours operation in Rochdale.
The proof is very much shown in the results with Jet2 Holidays on the way to taking the number 2 spot in the UK away from Thomas Cook, with holiday carrying of over 2m passengers, whilst Easyjet collaboration with Hotel Beds has generated a much lower number.
In September 2017 the deal with Hotel Beds comes to an end and it will be very interesting to see what Easyjet decide to do next. At the end of the day, they still have the most customer focused brand in the low-cost sector and in my opinion could easily become one of the top 3 UK tour operators. But, only if they achieve the focus that Carolyn has now recognized is required.