Yield! Don’t give margin away unnecessarily.

Travel companies are reporting surging demand and a 30% increase in average prices for Summer 22 sales. The dam of pent-up holiday demand has clearly broken and its vital that travel companies hold these higher prices, rather than chase volume and compete them away.

 Customers are clearly upgrading their holidays using “Covid Savings” and spending more after a long absence of holidays from their lives.

 Fortunately, this results in better quality hotels and “safer” destinations being selected, with Spain bouncing back much faster than value destinations like Turkey. This is good news as I expect much higher complaint levels, from the “cheaper” end of the hotel market, which has seen zero investment over the last 2 years and will be even more tired.

 Covid-19 disruption could reappear from nowhere as we saw with the Omicron Variant, so expectation as to what is an acceptable margin needs to increase for both retailers and tour operators alike.

 The best insurance policy a holidaymaker can take is using the expertise of travel agents to find suppliers with flexible covid terms and/or booking an Atol bonded package where the operator is taking responsibility for all disruption. This has value and must come at a cost, so agents just need to look the customer in the eye and say, “No discount”.

 OTA’s may not be able to look the customer in the eye, but customer “intent” can still be read from how they progress through a site and used to yield prices to maximise returns.

 Travel does not have “Magic Circle” rules banning its members from revealing its yield tricks, so here are my top 10 favourites.

 1. Price by source of traffic.

Customers naively believe that the price they see on a website is the price everybody sees. This is not the case with modern websites, which cache basic prices and then overlay different markup levels depending on the source of traffic. The OTA then cookies the individual computer to maintain these prices if the customer then returns from a different source to make these games invisible to the individual unless they change device.

o  Price comparison sites. A few pence make a difference in the display order here and so OTA’s apply their lowest markups. However, as soon as customers move away from the selected hotel they have clicked through to, margins jump back up on alternate hotels. If the customer adds flights these also carry a higher-than-normal margin as the OTA seeks to regain the reduced margin needed to attract clients from price comparison sites.

o  Hotel name on google. Less competitive than price comparisons, but margins are lower than if the customers enter the site at a destination level, as they are deemed to be closer to booking and more price-sensitive having done extensive research.

o  Destination level. Here the OTA boosts margins via “Merchandising” best-selling hotels to the top of the search results, controlling what is sold to a greater degree.

 2. Lead Flight prices.

Flight prices are much easier for customers to cross-check than 100’s of individual hotels. Lead flight prices set customers impression of price competitiveness and carry the lowest markup, however, these flights tend to have the worst flight times and customers often chose better flight times, so monitoring clicks and applying higher margins to these popular flights is vital.

 3. 60% off messages.

UK trading standards rules state that prices must have been valid for 30 days ahead of the start of any discounts and must apply to a “reasonable” volume of holidays. To create headline discount messages OTA’s simply raised prices on hotels they don’t often sell by 60% for 30 days and then discount them, allowing headline-grabbing messages, that drive the sales of better selling hotels where the price has never moved.

 4. Split flights.

Combining an outbound flight from one airline with an inbound from another is key in keeping OTA’s competitive against low-cost carriers in house tour operations like Jet2. It gives the OTA a better range of flight times and allows them to break the yield management of airlines, who know that 80% plus of customers choose 7night durations and apply a higher flight markup to these combinations via higher inbound flight pricing.

 5. Buying inbound flights in Euros.

UK based low-cost carriers’ price in sterling and convert to Euros, apply 2-3% currency buffer. It is often £3-4 cheaper per flight for OTA’s to buy seats on the airline’s euro site and combine them with sterling outbounds.

 6. Admin fees on deferred payment schemes.

Most OTA’s prices are based on paying a deposit and balance 4 weeks before departure on booking. However, many now offer monthly payment options that attract “admin fees” of £2.50 per payment, that are cleverly hidden and often remain unnoticed by customers but boost booking markings by £15.00 per booking. The key here is that this extra £15 never appears in the lead advertised price on the site and it sometimes allows OTA’s to cut margins even further based on the percentage of customers taking these schemes.

 7. Repeat visits/booking.

Ryanair over 10 years ago started dropping cookies on customers computers that added £10 to flight prices if the customer repeated a search within 24 hours, as this indicated strong purchasing intent. Few customers ever noticed, but even today I still search on a laptop but book on a phone to stop airlines playing this game.

Insurance companies have been banned by “treating customers fairly” FSA rules, from charging loyal customers more than new customers. Interestingly these rules do not apply to travel yet and many OTA’s apply higher margins if customers are entering their site from email marketing to previous customers, as these are deemed more likely to book having booked previously with the brand.

  8. Misleading competitor price checks.

Bed banks and hotel only OTA’s, deploy considerable resources to scanning competitor prices to adjust their own margins to fractionally undercut them, in a penny matters XML supply marketplace.

Historically, these price checks tended to be overnight scans and could be “cheated” by reducing price for the peak evening booking period between 6 pm-9 pm and then reverting to higher prices at night when scanning occurred. Monitoring usage activity by account login to look for tell-tale signs of scanning, also allowed competitors scanners to be “fed” false higher prices, but these needed to be randomised by hotel to avoid detection by manual checks.

Both have now been stopped by countermeasures, but it remains a game of chess, but with big volume gains if you can successfully fool competitors’ price scanners.

 9.  Ignoring competitor prices

The most profitable UK OTA completely ignores competitor pricing and focuses purely on its own conversion levels.

When the conversion levels drop for a destination below the site’s historical average, this is deemed to indicate that its prices are uncompetitive, and margins overall are reduced. This sounds extremely simple but is operated at a micro-level, with adjustments by flight route, destination, resort, hotel, and date range being constantly made. Pricing your customer pipe “live” using click intent is the closest any OTA has got to looking a customer in the eye and knowing what they will pay.

 10. Ancillary sales.

It amazes me and frustrates me as an investor in the CannyApp FX product how little focus travel agents or OTA’s put on upselling their customers with ancillaries such as Foreign Exchange, where they can earn an Extra £35 per customer or other lower margin extras such as car parking, car hire, lounges, or fast pass security/customers vouchers. Having, already covered their marketing costs with the core holiday sale the profit, from sales of these items falls straight to the bottom line and in a marketplace where margins are always under pressure, they must be the future.

 As an industry, we have a once in a lifetime chance to reset the bar or what is acceptable margin for our labour, so let’s please take it.

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