Until Love Holidays and On the Beach reached a groundbreaking deal to secure free access to Ryanair flights, the value of their business was heavily discounted as investors worried about access to the flight seats that fuel their “Dynamic Packaging” holiday machines.

The resurgence in their value can be seen from the 88.7% year-on-year increase in the On the Beach publicly quoted share price. However, Love Holidays which is privately owned by venture capital firms and therefore does not have a public-facing value, has seen its worth has increase even faster as its passenger volumes grow 92% from 2.6m to 5m over the last three years, compared to a moderate 11% for On the Beach to a much smaller 2m passengers.

However, Love’s growth rate since the Ryanair deal is the most striking aspect, with a 25% or 1 million passengers increase in the year leading to March 2025, bringing the total bonded holidays to a record high of 34.2 million.

An obvious question is, when does supply exceed the demand for holidays and requiring heavy discounting, eroding profits as it always did in the age of the Virtually Integrated tour operators?

Interestingly, I believe the answer is “Never” as the entire Package Holiday model has been reinvented.

The Vertically Integrated tour operators had internal airlines that primarily carried their passengers and only sold “Seat Only” to dump 10-15% of unwanted flight seats to customers who owned time shares or wanted to visit friends and family. They also guaranteed, on average, 65% of their hotel stock, meaning that empty seats often created a double jeopardy of empty hotel beds.

Their yield model was also suboptimal, with packages being discounted aggressively at the last minute in a much less controlled manner than today’s low-cost airlines, which offer the cheapest seats first and increase prices closer to departure.

The net result was that 35% of holidays were always sold withing the holiday season, often at heavily discounted prices, meaning that an excess of supply of holiday really hurt prices and tour operators’ profits.

However, Easyjet Holidays uses less than 5% of its parent airline’s seats, with the remaining 95% occupied by flight-only passengers.  Of course, an excess of flight seats over demand leads to lower yields per seat and more empty seats, but it has zero impact on the holiday division, as they can take whatever capacity they can sell. Hence, they never have to sell holidays at a loss, making Easyjet Holidays far more profitable than a traditional tour operator.

This profit is further boosted because 80% plus of its traffic is “Free” cross-referral traffic from its much larger airline brand and website. Therefore, the rapid expansion of the holiday division is inevitable, as it offers a much higher profit per seat than selling flights only to customers.

Interestingly, this risk-free tour operating model also applies to Love Holidays. The only difference is that they are growing rapidly on the back of Ryanair’s massive route and seat capacity. Their “Just in time” dynamic packaging model means they only buy seats at the exact moment a customer buys one of their holidays, again meaning they never sell holidays at a loss.

The only expansion restriction Love Holiday faces is how cost-effectively it can attract customers. Still, as long as these costs remain below or equal to its profit per booking, it will continue to expand rapidly.

A potential threat Love Holidays faces is not being price competitive with the rapidly expanding Easyjet Holidays, because its parent airline charges them a massive £12 per passenger per flight API fee to book Easyjet Flights.

On the Beach has introduced a “Book and Save” scheme to avoid these fees. It offers the customer a discount equal to the fee if they agree to receive an OTB Virtual Credit card and make the flight booking themselves via a deep link to the Easyjet site. This makes Easyjet-based holidays on OTB’s site price competitive, but it is a relatively clunky experience for the customer.

Love Holiday has maintained simplicity by only quoting “package” prices and allowing natural competition between Ryanair, which has no API fees, and Easyjet, whose higher flight costs include API fees, to determine their relative airline volumes.

There are no publicly quoted stats about Love’s mix of airlines, but insiders have told me that Ryanair’s share is double that of Easyjet, which it primarily uses when mixing carriers, as this means only one £12 API fee comes into play.

Although Easyjet may be losing capacity by charging API fees, the benefit of substantially higher yield per seat due to these fees outweighs this. With a rapidly expanding holiday division of its own, we are unlikely to see a change in strategy unless the much-threatened legal action by On the Beach against them for “Abuse of a dominant position” is taken seriously by the Monopolies and Merger Commission.

The one thing that is clear, however, is that the volume of ATOL-bonded holidays is set to reach 40 million passengers and beyond in the next five years, with Easyjet likely to surpass Love Holidays in the race to become the UK’s largest tour operator, simply because of their significantly lower advertising costs.

I have not forgotten TUI and Jet2 Holidays; by the way, it’s just that, as explained in other blogs, their capacity growth appears to have already hit its peak.

So, here’s to a continued expansion of an industry I love.