What shape will Easyjet loyalty scheme take.

Traditionally, low cost carriers like Easyjet have relied primarily on low prices to keep their customers loyal, but as they attract more business travellers to complement their leisure travellers base, they are increasingly over lapping with traditional carriers It is therefore not surprising to hear that new CEO Johan Lundgren’ will be taking their “Loyalty” scheme much more seriously moving forward and investing into it.

Currently, Easyjet say 46 percent of its passengers fly once per year and that returning customers book twice as many flights a year as new customers. This obviously reduces marketing acquisition costs and is as also likely to driver higher ancillary conversion, as returning customers tend to trust the brand more to deliver ancillaries such as transfers and hotel accommodation.

Legacy carriers base their loyalty programs around lounge access, free pre-booked seating and points based access to free flights anywhere on their networks. This allows them to incentivise and inspire business travellers based on free upgrades and seats for leisure travel on both its short haul and longhaul networks.

EasyJets low fair mentality and sophisticated yield model, make the provision of discounted fares based on mileage points unlikely. Similarly, Easyjet are unlikely to want to operate expensive airport lounges, which are primarily required by business travellers needing to work whilst travelling and less attractive to its core leisure customers.

Easyjet could get radical and create a low cost version of airport lounges. For example why not do a deal with common airport locations such as Starbuck’s to offer free coffee and dedicated Easyjet phone charging ports?

It might also decide to offer free or discounted in resort or home to airport transfer services via its existing partnership with Holiday Taxis (I wish!!).

Ironically, the biggest problem Easyjet face is the success of its paid for “Easyjet Plus”  Booking Card. This costs £199 a year, but for frequently travellers flying more than 5 times a year, this still provides great value as it provides an extra carry-on bag, pre-booked seats, priority security clearance and speedy boarding.

It’s hard to see what else Easyjet could cost effectively offer frequent travellers and as such I would expect Easyjet to launch a points based system to reduce the cost of this card for its frequent flyers. This would appeal to both business and leisure travellers alike and would be relatively simple to administer as an add on to its existing “Manage my booking” section which already records all previous and upcoming flights.

The only “Extra” I’d like to see added is some free hold luggage, but given how much revenue low cost carriers make from luggage, now they are yielding prices by flight, I think this may be to “heavy” a cost for them to bare.

The old adage is that “loyalty” comes at a cost, but in today’s google dominate world, this cost is often lower than the acquisition costs of recruiting disloyal customers each time via ppc or price comparison sites.

So for me “Low cost loyalty” is a must and not just a tradition carrier concept.


The Evolution that saved Travel Agents

I recently came across a presentation I gave 18 ago to a group of financial analysts, to explain the various role’s played in the holiday booking process

It talked about three stages of booking a holiday, “Dream, Research and book” and looked at the roles travel agents, call centres and online players played in the booking process.

At the time I was fairly dismissive of Travel agents, who I described as “Inconvenient Brochure Warehouses” that acted as intermediaries for either there in-house tour operator owners or where “Independent” selling a range of pre-built from multiple  holiday companies.

I wrongly predicted a rapid decline of high street agencies, as more customers migrated from “Walking”, to “Talking” to a call centre or “Clicking” to book unemotive travel online.

To be fair this “CWT” migration circle did occur, but ironically the biggest shift in the longer term has been from talking to a call centre to booking online via intuitive and content rich OTA sites that are delivered via high speed broadband connectivity. Although the overall number of High Street Travel agents has sharply declined, Independent agents have survived or even thrived once you include the home working sector.

To me the reason why is simple.

Travel Agents have evolved from being intermediaries, to become “Travel Advisors” who offer a massive range of “Dynamically packaged” holidays or specialist tour operators whom offer differentiated and complex product that is not easily booked online.I personally think the key element is not the product sold, but the word “Advisor”.

In an internet enabled world where online sites offer millions of holiday options, “Personalisation” and “Recommendation” are key online buzz words and the primary focus of most IT development teams.

Online players struggle with the above, because most customers search their sites without ever revealing who they are and have to know what they want before the can search, severely restricting the data required for personalisation.

Contrast this to a shop environment, where the customer is sat in front of the “Advisor”, who with experience can often identify the right products by just looking at them and can ask them much more complex questions about what types of holidays and destinations they are willing to consider and flexibility over departure dates to get the right holiday.

Good travel agents can also influence the “Dream” stage by recommending destination customers may want to visit and as all online players know, the earlier you capture a customer in their holiday booking process, the more loyal they become. That’s not to say some customers won’t just walk out of the shop and simple holidays online with an OTA or directly with supplier.

However, “Advise” does have value, particularly when applied to more complex or higher spend holidays, where customers still want the reassurance of advice from a travel “Expert” before booking.

Lastly and probably most importantly, online advertising costs continue to rise and are now so high that the average “success only” commission paid to travel agents, mean that agents are again the preferred distribution for many cruise lines, most touring and adventure operators, not to mention new entrants like the OTA On the Beach.

The mantra of “If you can’t beat them, state using them again, has never been more true”



Is the new European Package Regulation a protective shield for UK OTA’s?

The hotel only sector in the UK is inevitably becoming commoditised as its easy for customers to compare prices by visiting multiple sites via Google or price comparison sites such as Trivago and Tripadvisor.

The same can be said for the flight only market, as I can’t remember the last time, Skyscanner was not my first point of choice, when looking for flights.

However, the same cannot be said when looking for holidays, although players like Kayak and Travel Supermarket are trying to establish a position.

Dynamic Packaging has exponentially increased customers holiday choices with thousands of both flight and hotel options, which when multiplied together yield around 100 million holiday options that each OTA can offer on their sites.

Putting an aggregation and comparison layer above this is very hard, with current sites only comparing offers on the cheapest flight option and passing customers onto the OTA to modify their flight choices. Given that most OTA’s have access to the same flight and hotel suppliers, the savings available from comparison are low compared to the total holiday price and often customers simply use the comparison sites as a listing of OTA’s to look at before booking.

The biggest comparison threat therefore comes from Google, who could combine their already successful flight and hotel search’s to allow customers to Dynamically Package their own holiday options in the same way the OTA’s do.

However, the new European Package Directive puts a massive regulatory block on this, as it clearly states that facilitating the booking of flights and hotels requires the provider be a “Principal”, provide bonding and taking responsibility for the delivery of the product.

This is completely alien to the Google media model and unless they enter the process via a partnership with a global player, willing to take on these responsibilities, its simply not going to happen.

You then look at the Global market place and quickly realise that the major players such as Booking.com and Tripadvisor only really operate in the hotel only market and currently not packages, leaving only Expedia is a likely option for the European market partner.

Although, Expedia worldwide are a major player, they have never fully got their heads around the European package market, leaving players like On the Beach, Love Holidays and Teletext to dominate the UK dynamic packaging sector. Combine this with the large element of the holiday market still accounted for by the traditional holiday giants of Tui, Thomas Cook/Jet2 holidays and you can quickly see that even Expedia could not provide an effective comparison tool for Google

So my simplistic conclusion is that although Google and Booking.com are set to dominate the hotel only sector, the Package Travel Regulations provide a substantial barrier against entry into the European package holiday sector, allowing further growth for the UK’s leading OTA’s not only in the UK market, but increasing in other fertile markets like Holland, Poland and potentially the highly competitive German market place.

This growth however is likely to come via acquisition, as the cost of establishing a brand in other European markets, is often greater than the cost of buying an established player and improving its performance by utilising shared technology and bed buying synergies in the background.

Cross European consolidation of the dynamic packaging sector is definatly coming, but it’s just as likely to be driven by UK OTA’s as international giants like Priceline, Tripadvisor and Expedia. However, don’t rule out China’s C-Trip buying one of the UK’s major OTA’s as the first building block to establish a European strong hold.

Are On the Beach creating the next Evolution of Dynamic Packaging?

On the Beach’s move into B2B distribution via independent travel agents, is a highly logical move for the UK’s leading OTA and reflects the changing regulatory environment.


Prior to June’s role out of the new European Package Directive, OTA’s operated under the much lighter touch “Flight Plus ATOL” arrangements and therefore avoided B2B trade distribution, because selling via third parties was not possible under flight plus and required a full ATOL licence. This required principal status and incurred higher operating costs in the form of higher Public liability insurance, duty office and compensatory framework.


However, under the new regulation Flight Plus has effectively been scrapped and full ATOL licence are required for both B2C and B2B distribution, so why not exploit high street distribution?


From OTB’s point of view, high street agents provide risk free distribution, with commission only being paid on booking, creating a known cost of customer acquisition (CPA). Contrast this with the greater risk from an ever increasing cost per click (CPC) Google advertising model and you can see the attraction, particularly when there is a clear argument that the high street attracts a different customer sector to those who book online.


Significantly, OTB has one of the highest online margins per booking, created by a slick booking process where customers are initially hooked by ultra-low flight prices, derived by mix and matching different low cost carrier flight option, before booking directly contracted “Recommended” hotels and integrated holiday extras such as transfers.


These high margins will allow OTB to pay attractive commission to the trade, whilst retaining a small element of profit to cover their administration and bonding costs. Trade distribution will never be a massive profit driver for OTB, but it could easily add a third more volume, boosting its buying power with hoteliers and potentially making it a more attractive channel for airline partners to reach high street agents.


From a agents perspective the key question is “Why would high street agents book OTB’s Classic Online packages, rather than packaging the same elements themselves?”


The answer probalby boils down to speed and risk. OTB’s booking interface is better than any B2B booking tool I have seen and is provided free of charge. It will also come with full financial protection and public liability insurance, so as long as commission are competitive, it provides a simple and fast booking platform with much reduced risk to the travel agent.


I am sure some travel agents will be worried about supporting a “Competitor”, but holidays will be sold via a separate B2B brand and I’m sure OTB will be providing guarantees about not using email address or mobile numbers, to remarket to these customers in the future.


Interestingly, it may be the low cost carriers themselves who object to OTB’s move. It is expected that Easyjet Holidays will be following Jet2 Holidays lead and launching their own trade tour operation for Summer 2019. How will they feel about competing with OTB for trade distribution, when OTB are often under cutting their prices by combing outbound Easyjet Flights with inbound Ryanair flights?


You can certainly imagine some friction occurring here, but conversely Easyjet may be perfectly happy to take the extra £30 a booking they earn from flight API fees on these trade sales without having any of the hassle of actually selling a holiday!


Adding Trade distribution is a logical step for On the Beach and could easily be a win:win for both them and trade partners, however I would not be surprised to hear some trade consortia saying “Not on my Watch”.

The Trump effect on holiday prices!

The main drivers of change in year on year holiday prices are Fuel prices, dollar aircraft leasing costs and individual destinations exchange rates. The impact of these changes is also effected by when and how much tour operators or airlines, hedge fuel price and currency costs.

Historically, tour operators printed brochures with fixed prices and hedged enough fuel and currency to cover the first print run up until December. The aim was always to hedge at the same time as your major competitors, to remove any fluctuations within the competitive landscape. However, as brochures have become less relevant in the internet age and fluid pricing has become prevalent, the period and dates tour operators hedge have aligned themselves more to those of low cost carriers, who tend to hedge as they put the next seasons programs on sale in October.

As I explained in my last blog, rising fuel costs are likely to reduce flight capacity in the market place as airlines cut back the amount of marginal early morning and mid-week flights they operate. Unfortunately, for airlines the dollar to pound exchange rate, although it soared as high at 1.48 is now level with the start of the year at 1.28 to the pound, meaning that there is no reduction in aircraft leasing costs to dampen the rising fuel costs.

At the moment it seems Donald Trump’s announcements can have a major impact on  currencies relevant to beach holidays.

With Brexit looming it seems inevitable that the Sterling/Euro exchange rate will become more volatile over the next year as we appear to be staggering towards a hard Brexit. We have already seen what impact a Trump announcement about Brexit and a quick trade deal with the UK can have on the value of the pound.

Less expected was a doubling of steel trade tariffs against Turkey. This combined with a fragile Turkish economy has led to a 20% reduction in the value of the Turkish Lira in the last week and a year on year devaluation of over 40% versus the pound.

You would naturally expect that this devaluation would feed directly into lower holiday prices and make Turkish holidays better value against Euro beach destinations, however in reality it’s not as simple as that.

For a long time Turkish hoteliers have contracted with UK tour operators and bed banks primarily in pounds sterling or to a lesser extent dollars. Therefore, Turkey has seen a benefit as the Sterling to Euro exchange rate has deteriorated over the last few years, but most of this is already backed into holiday prices as the fall in the last year has only been from 1.17 to 1.12.

Obviously, customers in resort spending power has been dramatically increased and the average cost of a beer down to £1.60. However, again this is mitigated by a 65% plus mix of All Inclusive sales, which where contracted in sterling and the customer rarely wonders away from their Free bar!

Here it is the hotelier who is getting the short term benefit of being able to buy more Lira with their sterling receipts, which in turn reduces their costs of operating.  Unfortunately, with an inflation rate of 17% this benefit will be eroded quickly and is not likely to be passed on in lower hotel prices next year.

With self-catering properties being available from £1 per night in Turkey during  October, there is likely to be a strong late demand for self-catering in the next few months, but with Google advertising costs relatively fixed, OTA’s need to make sure there are not selling this product at a loss given the low average booking values!!

Love him or hate him, the Trump factor is likely to impact into next year’s market. The problem is that it’s virtually impossible to predict how!


Will the escalating fuel cost drive capacity cuts for Summer 2019?

Fuel prices have risen by 50% since June 2017 and as airlines fuel hedges unwind, they will need to pass as much of this increased cost on to customers in the form of higher prices as possible.  However, to do this they will need to reduce supply relative  to demand, which will inevitably lead to capacity cuts.


As UK holiday makers know, airlines don’t price their product like most companies.

Rather than pricing each ticket based on how much it costs to fly to Majorca, with perhaps a built-in profit margin, airlines set fares based on supply and demand. It’s why a Saturday day flight is more expensive than on a Wednesday 6am departure, even though the operating cost is the same. It’s just a matter of increasing demand for less popular slots by reducing price, as long as the net result at least covers the operating cost.

Therefore, when fuel prices are low as they were in 2017, airlines look to drive the utilisation of their fixed aircraft assets by introducing more mid-week and early morning flights boosting capacity. Also, aggressively expanding airlines like Jet2 massively increased capacity with the introduction of new bases such as Stanstead.

However, when fuel prices reverse its obviously harder to remove this capacity, but if it’s not removed then its impossible for airlines to match supply and demand in order to pass on the cost increase on to a customers in the form of higher prices.

This is doubly true in a UK market place facing demand damping factors such as good UK weather, a weak pound and fears of political and business disruption because of Brexit.

The easiest solution is obviously for one or more airlines to be forced out of the market, but with the benefit of the removal of Monarch already banked, who is realistically at threat of collapse?


Ryanair are openly talking up the prospects of Norwegian Airways and Alitalia failing this winter, but neither of these would remove much short haul capacity from the UK market, although players like Rynair might switch capacity out of the UK to the Nordics to fill the massive gap created in the market there.


The logical step for UK low cost airlines is therefore to reduce capacity by scraping marginal routes or moving aircraft from short flight duration routes like Mainland Spain, to longer flight sectors such as Turkey and the Canaries. Adding one Turkey flight will utilise an aircraft for the same time as two Alicante flights, in effect halving the number of seats to be sold, assuming of course they can get enough yield from the Turkey flight to balance the books.


There is also an argument that airlines like Jet2 are effectively reducing the amount of flights seats in the market by selling more as package holidays. I’m not however convinced that this hold much water, as in my opinion Jet2 are just swapping capacity out of the OTA dynamic packaging market into their inhouse tour operation.


Ironically, the simplest route to boost demand may be for the low cost airlines to finally recognise the volume of seats filled on aircraft by the UK OTA’s and do deals to reduce their high API fees (£30 per booking) in exchange for preferential promotion within the OTA’s sites.


But I would suggest that wouldn’t I !!!


Will good UK weather impact this year lates market?

Having managed Airtours yield team for many years, I’m more than aware of the impact good UK weather can have on holiday sales in the lates market.


With historically 45% of all package holidays sold within 3 months of departure, minimising losses whilst achieving 99% load factors, was a crucial element of the financial performance for the year. That’s why we often looked out of the window and prayed for rain!


A pattern of good mid-week weather, followed by rain at weekends maximises customer frustration and boosted sales the most, but it was good weather in May and June period that we feared the most. This often lead to a slowdown in sales and a build-up of excess capacity as we approached the peak summer period. With four major tour operators in those days, competitive pressure was also a key influence in driving rapidly decreasing prices and holidays being sold for £99 at the last minute.


Structural changes to our industry, with the consolidation of four to two major UK tour operators and a switch to “differentiated product” to drive early sales, has massively reduced the “excess” package stock in the market place. Similarly, the low cost yield models of Easyjet, Jet2 and Ryanair all seek to do their yielding early, leaving less stock available in the latest market, which in turn has led to a much more controllable lates market in recent years.


However, I think this has masked the impact of the “Connected” Internet world, which in my opinion has made the overseas lates holiday market more vulnerable to good weather in the UK.


When the pre-millennial generation were growing up, mothers dreaded the 6 weeks summer holidays, as kids quickly became bored at home. An overseas holiday was a welcome break and theoretically, an opportunity for Dad to step up to the mark and share the work load, by splashing with the kids in the pool or building sand castles.


But today’s kids have been brought up in a world with 1,000s of satellite TV channels, on demand TV and PlayStation’s that allow them to play games with a wide range of friends, without even stepping out of the house. One of my kids wouldn’t even come on beach holidays, as he did not see the point and did not like the sun. I’m sure these days he may not be alone!


If the kids are happy at home, it’s not surprising that if the weather in the UK is good over the summer, more mums and dads are opting for a few days in the garden gathered with friends around a barbeque, supplemented with a few days trips.


This is less of an issue for the asset light dynamic packing OTA’s as not holding perishable assets means its normally flight and hotel prices that take the pain required to get prices low enough to tempt customers, so the day jobs probably safe.


However, I personally think “UK Staycationers” are missing out on other key aspects of an overseas holiday. Namely, the experiencing of different cultures, sites, languages, food and even swimming in the sea. Not to mention the detox that the entire family experience by unplugging from the “Constantly on” internet world and enjoying meals out where the whole family engage in conversation. I know, a rarity in my house hold as well!

Does the OTA community need a new Monarch?

Easyjet’s appointment of Johan Lundgren as CEO, was bound to herald an increased focus on their holiday division and the poaching of Tui’s highly experienced product and contracting director Gary Wilson clearly heralds the start of a big push.


Given the introduction of the new Package Travel reforms and the increased costs imposed upon “Dynamic Packaging” retailers, the launch of a Easyjet Holidays B2B trade proposition for high-street travel agents looks inevitable. Why would Easyjet Holidays leave the trade Jet2holidays?


It may even be possible that Easyjet Holiday’s launch’s their first summer brochure to the trade in January 2019, but it’s a tight timeline to increase its direct buying to build a competitive product and a launch for Summer 2020 may be more realistic.


The high-street will welcome the move back to a “big four” tour operators, with the new boys of Jet2 and Easyjet servicing the “commodity” beach market, that both Tui and Thomas Cook have deserted in their quest for “Differentiated” product.


More competition normally means more commission for a high street distribution channel that only charges for results, unlike Google or Meta sites which primarily operate relatively high risk cost per click (CPC) models.


The news is more worrying for the OTA community, which historically has relied upon access to low cost carrier seats to fuel their packages. Until recently, OTA’s actively welcomed the shift away from charter flights on routes, where they only had access to 25% of seats, to low cost carriers where they had free access to 100% of seats.


However, the launch of low cost carrier tour operations has begun to change the rules of this access.


Jet2’s yield team, use “opaque” packages to boost its yield curve on routes, by pushing heavily discounted seats into its package holidays. These are invisible to its competitors pricing teams and allows them to maintain a stable flight only market price. This quite legitimate yield tool, also guarantees it’s in house tour operation has package prices that cannot be matched by DIY customers or OTA’s.


Easyjet take a different approach and make their seats freely available via an XML feed, but charge a substantial premium for the service at £6.00 per passenger per sector, which on average is £30 per booking over its standard flight prices. This has been in operation for a number of years and clearly works for all parties, however OTA’s will now be concerned that they may be competing with an inhouse tour operation, where such a charge is a mere “wooden dollar” internal transfer, that’s unlikely to effect the final holiday price.


Ironically, OTA’s key commercial advantage, remains the fact that they are NOT the asset holder and are free to sell the widest range of flights with the best flight times. They can also often generate substantial savings for customers via “Split Flying” where they combine outbound seats with Easyjet with cheap inbound seats from Ryanair or even Thomas Cook on routes like Turkey which is suffering excess capacity. Therefore, OTA’s will remain a key part of the holiday ecosystem providing competition for the new “Big four” in the B2C market and potentially moving forward via B2B products sold via the trade.


However, strategically the OTA community would welcome a new airline partner without its own tour operation and collaboration with airlines such as Emirates, Etihad, Turkish Airways or Norwegian to establish a new short haul network is not beyond the realms of possibility.


As ever cost effective customer acquisition and retention is likely to be the key decider between the winners and losers in the holiday battle and I would argue that OTA’s independence gives them a strong counter balance to the new big four “airline owning” tour operators.