Will Easyjet Holidays “Paint” the lates market Orange

Gaining an accurate view of the volume of “late availability” holidays has become much more complex since the evolution of the holiday market away from the major integrated tour operators, whose ownership of charter airlines dictated a relatively fixed capacity of “pre-manufactured” holidays.

Traditional tour operators like Airtours would sell Holidays at “Brochure” prices, based on the customer choosing a specifically named hotel, before switching to heavily discounted unnamed “late Availability” deals graded by star rating. With budgeted load factors of 99.8%, we would discount these holidays to as low as £99 to fill seats at the last minute.

No tour operator entered the “lates” market, defined as holidays sold after April 1st within the Summer season, better than 54% loaded. It was, therefore, relatively easy to estimate the number of holidays left to be sold, and we also knew that 80% of these would be sold at a loss. Still, the size of this loss varied massively depending on the UK weather, the availability of cheap hotel beds and how the remaining capacity was balanced across the big four tour operators.

This yield model was also sub-optimal because it encouraged customers to wait for last-minute bargains rather than committing early, eroding early brochure sales and, as a quoted PLC, made it impossible to give the city any certainty about profitability ahead of the summer late market.

Not surprisingly, the city preferred the yield model of low-cost airlines, with their ultra-low initial prices that moved up in buckets of 4 seats based on historical yield curves and current sale rates. Low-cost carriers try to reward early bookers and do their discounting early, using “below costs” seats to create sufficient base load factors that then allow them to increase prices closer to departure.

However, this yield model works best when demand exceeds supply and can easily become unstuck if excess seats close to departure still need filling.

Overall flight capacity from the UK is forecast to remain at 98% of 2019 levels in 2024, primarily due to weaker demand for business travel post-COVID-19’s mass adoption of video conferencing as a feasible alternative to face-to-face meetings and a reduction in demand for city breaks.

Low-cost carriers have instead shifted large amounts of capacity onto leisure routes. Exactly how much capacity has been added is hard to estimate, but with bonded ATOL carryings having increased by 5.32M or 20% since 2019 to 31.6m in 2024, the overall increase will likely be more than 10m seats.

Fortunately, during the COVID-19 lockdown, the UK public experienced a “life” shock that made them appreciate more the time they spend with loved ones, and this has been reflected in a marked increase in holiday demand, with the average spend on holidays increasing by 30%.

The outbound holiday market continues to ride this wave of demand, with early sales for Summer 2024 remaining strong; however, with the UK set to enter a technical recession this week, inflation remaining stubbornly high and interest rates still at 5.25%, consumer spending power is weakening.

I have long talked about the “Have’s” and the “Have Nots”, with the latter group dominating the lates market. These customers are forced to book late based on financial circumstances and often use credit cards to fund holiday expenditures. It is this group of customers that will be hit hardest by the current financial squeeze, indicating that demand could be weakened in the late market when low-cost carriers have record seats still to sell on leisure routes.

Jet2 Holidays invented the game of disposing of “distressed” seats on routes not performing to their desired “price curve” by dumping them into “opaque” holiday packages, making them invisible to competitor airlines monitoring their prices or early booking flight customers.  But, with package holiday sales representing 80% of most leisure routes, Jet2 is now more of a tour operator than an airline and has limited access to this useful yield tool.

However, Easyjet Holidays’ passengers, at 1.9 million, are a small fraction of EasyJet’s 93 million seats, making it much easier for them to dispose of excess seats as opaque holiday packages.

Given the airline’s sophisticated yield management, this decision will be made well ahead of departure. As we approach the summer, these discounted prices are likely to give Easyjet Holidays a unique price advantage over both OTA competitors, who will be paying the full published seat price plus API booking fees and its biggest holiday competitor Jet2 Holidays.

The most interesting airline to watch is Ryanair, now that they have finally started cooperating with OTAs like Love Holidays.

I have been very critical of Ryanair, charging customers massive marks up’s of up to £50 per couple for the privilege of booking their flights as part of OTA’s holiday packages, but it’s interesting that since my last blog, these fees have started to drop by £5 on average as we come closure to departure.

It will be fascinating to see if Ryanair realises the benefit of this new sales channel and starts dumping excess seats with no markup or even negative markups.

This would be a very smart move, but I just can’t see Michael O’Leary eating humble pie just yet, and as such, it’s my prediction that it will be Easyjet Holiday that will turn the late market “Orange” this summer with the best late deals in the market.

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