Can Thomas Cook make longhaul work when Norwegian Airways can’t?

Norwegian Airways woes are well documented, with a lack of fuel hedging this year further undermining a business model, that is simply not working financially.

 Last year Norwegian where ranked second to last in financial results when compared to 75 other global low cost carriers, with an operating profit of -8%.

 The short haul low cost formula operated successfully by the likes of Rynair, is to have stage length of 5 hours or less and to operate at airports which allow it to turn its aircraft around very quickly in order to maximise flying hours and its aircraft utilisation.

 They also try to operate as few different aircraft types as possible, as this reduces the cost of carrying spares and allows higher utilisation of its pilots and crew, due to the interchangeability a single aircraft fleets delivers.

 These unit cost efficiencies, allow low cost carriers to offer lower prices than traditional carriers like British Airways and drive higher average load factors, which in turn yield higher profits.

 However, when we move into the Longhaul sector different aircraft types are required and the benefits of turnaround times are mitigated, simply because the aircraft land less frequently.

 Secondly, traditional carrier have a major average revenue advantage because of the high yields delivered by their business class passengers. These passengers tend to be locked into the traditional carriers via loyalty schemes, business lounges and the connectivity delivered by their hub networks.

 Traditional carriers can therefore more easily fight off competition from supposed “long haul low cost carriers”, by simply discounting seats at the back of the aircraft to similar or lower prices, whilst using the premium cabins to subsidise the average revenues per flight.

 Hence, we have seen many long haul low cost carriers go bust since the days of Freddie Laker’s Sky Train and most pundits seem to think Norwegian may be heading the same way.

 So given Norwegians struggles, why are Thomas Cook continuing to increase its long haul flying program with new city routes such as New York, San Francisco and Seattle.

 The answer appears to be that these routes are just icing on its longhaul cake, with its core destinations remaining beach destinations such as Mexico, Florida and the Caribbean.

 Within these destinations Thomas Cook combines their flight seats with holiday hotels, to sell packages on a convenient point to point flying basis, utilising high density aircraft configurations and via a distinctive leisure distribution network.

 Beach routes have allowed Thomas Cook to become Manchester’s largest longhaul carrier and to then add city routes such as San Francisco, where it faces no direct competition from traditional scheduled carriers.

 Hence, in Thomas Cooks case, if you can’t beat them, simply avoid them and extra profits should come flying in!

Meta on Meta. How can it make sense?

Initially, when Google launched its “Hotel Finder” product, it fan faired how the product would allow more hotels to advertise their own direct web sites, delivering providing lower prices to customers and lower commission payments for hotels as they cut out layers of the distribution chain.

Today however, Google hotel finder continues to be dominated not only by the big OTA’s, and Expedia, but more surprisingly by other Meta price comparison sites such as Tripadvisor and Kayak.

 So what’s with the Meta on Meta game?

 Google initially resisted allowing other meta sites to advertise on its services, as it felt that the customer friction from a “Russian Doll” booking process, where customers clicked from one site to another to another, would be highly unsatisfactory. However, as deep linking of hotel and date details improved, this friction was reduced and the benefits of offering the lowest price outweighed these concerns.

 But what’s in it for the other meta’s? The simple answer is a combination of bid arbitrage and brand halo.

 The aim is obviously to charge the meta’s own advertiser more than the meta pays Google and amazingly at times this is clearly possible. However, the longer term game clearly revolves around “Brand Halo”.

 All hotel meta’s such as Tripadvisor, Trivago and Kayak are investing millions into “above the line” TV advertising. Within this media they are generally advertising to a relatively unqualified audience, who may or may not be looking to book hotels in the near future. However, it is done not for the immediate ROI, but to build brand awareness and to introduce new bookers to the brand that then can be retained to book time and again.

 Advertising on another Meta such as Google Hotel finder, delivers 100% qualified audience of potential bookers and even if the arbitrage is negative and the initial booking is acquired at a loss, it is often a less expensive acquisition tool than above the line advertising.

 Hence, the key is customer retention and what drives this.

 For hotel meta’s its clearly the utility delivered by price comparison and the belief that one visit to the site delivers the best price for a hotel. 

 They also have the advantage over Hotel direct sites, of offering a massive range of both beach and city hotels, increasing the likelihood of a repeat purchase, which in turn gives it deeper advertising pockets, with an initially negative ROI’s being acceptable when hotel direct sites will rarely advertise this aggressively.

 The intersecting question however is which Meta site does the customer go to next year? Google hotel finder or the end Meta?

 The same dilemma applies to all Hotel OTA’s advertising on Meta’s and hence the push from beach hotel OTA’s to add extra utility by offering flights, transfers and holiday insurance during the hotel booking process. The more of these products customers buy from OTA’s, the greater the chance of building “Utility” and stickiness, over pure Meta sites that just provide hotel only price comparison.

 So at the end of the day Google is likely to be dominated by those with the highest customer retentions levels and subsequently deepest advertising pockets as it’s a deeply capitalist bidding market place.

 However, the depth of the pockets depends on both customer retention and potential upsell revenues, so don’t expect the same results across beach and city destinations as the specialist beach OTA’s have a number of advantages over their more generic hotel competitors.

 I think it will remain a fascinating battle ground over the next few years!