During the recent ITT conference in Qatar, I posed a direct question to Garry Wilson, CEO of Easyjet Holidays. I asked, “At present, 2% of EasyJet’s 100 million seats are sold as holiday packages. To become the market leader, this volume would need to triple to 6%. However, presuming the overall market does not expand this swiftly, from whom do you anticipate taking market share?”

Garry’s diplomatic response was that the growth would originate from converting more of EasyJet’s flight-only customers into holiday packages.

This straightforward remark underscores the significant strategic advantage of EasyJet Holidays over its competitors.

Over its lifespan, EasyJet has cultivated extensive brand recognition. This, bolstered by prominent advertising, generates enormous visitor traffic to its website. Here, customers are automatically presented with a cross-sell option to purchase a holiday package in addition to the flight to their chosen destination.

Naturally, my understanding of Easyjet’s intra-group financial allocations is limited. However, it is apparent that this approach endows Easyjet Holidays with the industry’s most competitive customer acquisition costs. Consequently, they are positioned to either offer the most affordable pricing, maintain superior profit margins, or effectively balance these considerations.

Converting another 4% of their 100m flight passengers to holidays is a straightforward task and itself would make Easyjet Holidays the UK market leader. However, why would they stop here?

Consequently, the question facing many travel boardrooms is, “Who will lose share as EasyJet Holidays expands?” and “How do we make sure it’s not us?”

The answer will be significantly influenced by the distribution channels EasyJet Holidays focuses its efforts on.

Jet2 Holidays have stolen the march in distribution via travel agents, flexibly allowing agents to decide their commission levels. However, if agents want price parity with the company’s online pricing, their earnings are limited to a low 6% commission payment, potentially making them vulnerable to attack by Easyjet.

Interestingly, Jet2 Holidays’ current success in transitioning its business into a tour operation-led group presents challenges to further growth. Currently, 60% of Jet2’s flight seats are packaged as holidays, and this proportion rises to 80% for “beach holiday” routes. Therefore, unlike Easyjet, they must broaden their route network to expand their holiday business further, leading to the initiation of new bases, like Liverpool. However, this expansion process is considerably slower than simply increasing the share from 2-6% of flight capacity.

Historically, Tui’s tour operating branch boasted a “differentiated” offering through exclusive hotel contracts with some of the most ideally situated establishments. However, the repercussions of Covid-19 and the substantial debt incurred by the Tui group have significantly reduced its exclusive inventory, exposing it to vulnerability in short-haul locations within Easyjet’s flight range. Nevertheless, Tui’s fleet of 13 Dream Liners provides a distinctive advantage, enabling the holiday firm to provide long-haul beach vacations to destinations such as the Caribbean, USA, Mexico, and Goa, an offering that Easyjet cannot match.

The top online travel agencies (OTAs) face the greatest threat from expanding low-cost carriers’ in-house tour operations, given that they lack proprietary airlines and rely on access to third-party flight seats. Paradoxically, their key strategic advantage is the access to low-cost seats of Ryanair, an airline that has publicly expressed disdain for them.

Featuring all the low-cost carriers equips the OTAs with a superior flight program in terms of route diversity and scheduling. However, if they are burdened with Easyjet’s API booking fees amounting to £6 per individual per sector, leading to a substantial £48 price disadvantage for a family of four, they evidently cannot compete on equal footing in terms of price with Easyjet. Nevertheless, by utilising Ryanair flights, they often can match or even surpass EasyJet’s holiday prices on numerous routes, making access to Ryanair, the only low-cost airline without an in-house tour operation, a vital strategic defence.

Online holiday consumers typically browse 23 websites before finalising their booking, reflecting their considerable promiscuity when choosing the holiday brand to book with. This tendency is frequently fuelled by Google PPC advertising, a sector primarily dominated by Love Holidays. Unlike its major competitor, On the Beach, Love has not invested in above-the-line brand-building advertising, potentially making them vulnerable as Easyjet enter this space.

While it is currently unclear who stands to lose, logic dictates that Easyjet Holidays is set for rapid expansion and will be the largest UK tour operator within 5 years.

So, whether the future is bright or not, it’s likely to be Orange.

Given the prolonged phase of low interest rates over the past decade, the profitability of cash flow seems to have faded from the memory of many travel enterprises.

Nonetheless, with present interest rates surpassing 5% on long-term deposit accounts, the way customer cash reserves are managed has become exceedingly vital.

An enterprise yielding £120m per annum and retaining customer balance payments for 8-10 weeks before departure would amass £23m annually. This permits the company to generate £1.15m exclusively from interest. For numerous businesses, this could represent 25% or more of their net earnings, thus making the optimisation of interest a strategic priority in the current economic climate.

Regrettably, numerous travel businesses that function as part of consortia are not benefitting from interest on funds held by the consortia on their behalf, thereby missing out on a substantial potential revenue source.

Some might contend that the Civil Aviation Authority (CAA) Trust regulations prohibit them from depositing customers’ funds into interest-bearing accounts, but this is a misconception.

Provided that transaction records for each booking are maintained, a transparent payment line for all components of the package is established. This ensures that the “excess” cash can be allocated to long-term interest-bearing accounts, as the continuous cash flow guarantees a foundational level always accessible for investment.

Therefore, travel businesses should be renegotiating to ensure that they can earn interest and look at their business models to make tweaks that maximise this profit stream.

Here are my top five suggestions:

1. Implement monthly payment schemes. Customers appreciate low deposits and many are open to paying for their holidays monthly. This approach aligns expenditure with income by evenly distributing the final balance payment and consequently enhances cash flow, maximising interest.
2. Amplify the proportion of Dynamic Packaging. As we transition out of the Covid disruption phase, Dynamic Packaging is regaining its appeal due to its higher margin opportunities and enhanced cash flows. ATOL bonded tour operators typically permit agents to hold customers’ funds for a few weeks, whereas bed banks or hotels rarely receive payments before departure.
3. Re-evaluate low deposits. The pressure to compete with low-cost carriers’ tour operations often drives the implementation of low deposits. However, even with a low deposit, it’s advisable to introduce a monthly payment scheme or secondary deposit 30 days after the initial payment.
4. Introduce “payment in full” discounts. Offer dual pricing, with the lowest price contingent on full upfront payment. If the customer opts out, charge them a 5% premium to compensate for lost interest. Remember, customers often focus on the headline price when comparing holiday options.
5. Understand your cash flow. A detailed analysis of cash flows on a per-booking basis allows for a comprehensive understanding of your cash flows. This enables you to maximise higher interest long-term deposits without ever being short of cash to pay suppliers.

Interest might currently be an overlooked profit driver in the travel industry, but given the present interest rate levels, it won’t be long before it takes centre stage in the business strategies of most enterprises.