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.

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 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.

Will OTAs ever own shop networks?

High Google acquisition costs have forced all major OTAs to invest heavily in Above The Line advertising mediums such as TV, in order to generate brand awareness. This has resulted in more customers visiting sites directly, or searching using brand terms, which could help bring down the cost of brand traffic from Google searches.

Few OTAs now make money from advertising on generic travel terms because of the highly competitive nature of PPC. High click costs and sub 1% conversion levels are making more OTAs encourage the phoning to book or online chat session methods. Not only are they saving on cost, but the human contact dramatically increases conversion levels. Hence, we are seeing the merging of online booking and call centre fulfilment, with relatively seamless interchange between the two media.

We are also seeing high street retailers like Hays Travel successfully supporting their shops network with websites, which pass phone call leads back to their shops for completion on bookings. It is therefore a surprise to me, that major OTAs like Travel Republic and On the Beach have not acquired a network of retail shops.

These shops would dramatically improve their brand visibility and provide physical shop locations, to add to their online brand presence. Logically, by offering a shop, click or call booking models would also make their TV campaigns more cost-effective and increase customer convenience.

However, the UK DNATA group which already owns the required assets (high street shop Global Travel, the OTA Travel Republic and the Sunmaster call centre business) has not yet made any moves to introduce common branding. I suspect a major reason is that their retail network is a franchised model, rather than an owned shop network. The key problem here is how do you motivate all the parties to work together and share bookings?

Online marketing progressed when sophisticated attribution models were introduced. These allocate the commission from a booking across its online “route”, rather than a last click model, and recognise early stage marketing activities. In the future we may need to adopt similar attribution models to allocate benefit to shop networks, not just for the customer leads that start via a shop, then concluded online, but also for the brand benefit they provide.

The implementation of the European Travel Directive in 2017, assuming the UK does not vote for BREXIT on the 23rd of June, may also provide a motivator for a combined online and shop network. There are clear financial benefits in basing a dynamic packaging tour operation outside of European boundaries (avoiding the threat of an estimated £20 per passenger TOMS VAT charge for one). This may tempt many retailers to stop dynamically packaging holidays within their shops and use a central offshore tour operation. Logically, these tour operations should also have an online presence, supported by an offshore call centre, to complete customer choice.

I still believe the most sustainable distribution models, are homeworker networks like Travel Counsellors, who have built a localised community brand recognition through exceptionally high customer service levels. High repeat customer levels, combined with minimal marketing costs, make this a highly profitable and sustainable model.

To me the ultimate distribution network is a shop network staffed by homeworkers, working in the shop on a rotational basis and using it as an office to support their own localised customer networks. Boost this with a centralised call centre, online bookable web site and offshore centralised tour operation in order to create a future-proofed, highly profitable travel model fit for the 21st Century.

However, unless somebody is willing to write some very large cheques, this ultimate distribution platform is likely to remain a work of fiction in blogs like these.

The Great Escape

Once glance at the latest financials from TUI and Thomas Cook tells you how tough 2012 looks, with substantial capacity and reduced sales.

Never before has the lates market been so crucial, but also so tough to predict, as multiple influences such as Euro 2012, the Olympics and not least the recession impact on customer demand.

However, the good old UK weather may still provide the increased demand required for the Great Escape.

The early weather patterns could not have been more favourable to the trade. Bright sunshine before Easter, followed by pouring rain as soon as the kids broke up for school holidays, repeated again over the half term holiday. Genius!!

This created a small surge in peak season bookings as families decided not to risk the UK weather, leaving operators with more manageable peak season load factors.

Combine this with the late appointment of an England football manager and little hype about the team’s chance in Euro 2012, and early season sales have remained remarkably strong. Given that the Olympics do not start in earnest until August and how few people have got tickets, I think we can also discount this as a major threat to peak season sales, leaving July as a the make or break month for the trade.The key issue for tour operators is hedging their costs this year has worked against them, locking in an average £10 cost increase per late holiday, when current exchange rates and fuel prices are more favourable.

This, combined with the need to clear their more expensive ‘differentiated’ stock in the lates market, means operators need a marked increase in late deal prices in July despite the recession.

Will it happen? I guess it depends on how much it rains, but the Great Escape looks like it might be on…

Filling the Commodity Gap?

Thomas Cook’s recent £1.4 Billion refinancing clearly shows that their banks remain confident in Cooks ability to turn their international business around and implement the strategic review presented by the management team.

In the UK market, Cooks have decided to follow the lead of their biggest competitor TUI and focus on differentiated tour operating product. Since it is virtually impossible to differentiate short haul flights compared to the excellent service provided by the likes of easyJet, this differentiation is focused on the hotel element of the holiday.

First Choice and latterly TUI via their merger, has been focused on differentiation for nearly 10 years via their Holiday Villages, Sensatori and Thomson Gold brands. In doing so they have developed a higher price, higher margin proposition that is in demand and can only be purchased  from them. Thomas Cook clearly has a lot of ground to catch up, but given their determination and new financial backing will make rapid progress.

So who is going to fill the “Commodity Gap”?

The birth of Flight Plus ATOL, may also signal the age of “Travel Agent Packages” (TAP’s). For many years we have seen the rapid growth of Online Travel Agents using Dynamic Packaging technology, but high street agents have been slower to adapt. However, as the majors shrink their capacities to focus on differentiated product, they will need less third party agency distribution, which may force evolution.

It is clear that independent agents have a gap to fill and the new Hays Travel packaging site is unlikely to be the only attempt to fill this space. It is likely most agents will use their own Flight Plus ATOL to package holidays using low cost carriers and bed banks like On Holiday Group’s “Holiday Brokers” brand.

The key driver of the “commodity” holiday market is the flight capacity on leisure routes provided by low cost carriers. This summer season has demonstrated that for every seat the traditional tour operators take out, the low cost carriers appear to be adding two!!

Years ago on joining MyTravel from Ryanair, Tim Jeans sat me down and explained how he could fly three Paris routes in the ten hours it took a charter flight to fly to and from Tenerife, creating 20% more revenue. However, as the recession has hit demand for city flights, the reverse argument has set in, with Low Cost Carriers switching aircraft to the Canaries in order to only have to fill one seat, instead of 3 to make the same revenue.

Although Low Cost Carriers would prefer to run their own direct sale tour operations e.g. Easyjet holidays, these have not enjoyed the massive success they expected. Similarly, although Ryanair may not like agents using their flights to package, it is virtually impossible for them to stop it and one day they may even wake up to the benefits.

The “Commodity Gap” is likely to be filled by the rapid expansion of online companies like On The Beach and Travel Republic. However, the advent of Flight Plus ATOL’s should give high street agents and homeworkers the confidence to build their own ATOL bonded holidays to fill the “Commodity Gap” created by the withdrawal of the major tour operators, so don’t write them off just yet.

Has the rain dance saved the lates market?

Who needs a downpour in a drought? Well you won’t find many tour operators or bed banks complaining as the recent weather has caused sales to sore by 40% year on year.

For once the weather gods have smiled on the industry with the perfect combination of sunshine while families where at work or school, followed by a wet Easter and a constant barrage of grey skies and pouring rain ever since. Even I’m sitting here planning a trip to get away from it!

More importantly however, is the impact it may have on the peak summer school holiday period. Although the Government may be pushing the “Staycation”, customers want relaxing sunshine as part of their holiday and the recent weather has rammed home how unreliable the UK weather is, which is likely to have strengthened demand for overseas holidays.

Another more obscure factor going in the industries favour is the lack of an England football manager! We are only 6 weeks away from England’s opening game against France on June 11th and have you heard a mention of it? The complete lack of hype this time around is a marked contrast to previous football tournaments and particularly compared to Euro 2008 in Germany when so many English fans jumped in cars, plans and trains to head out to watch first hand. Many fewer will be travelling to the less inviting Ukraine, so logically the impact on the nations holiday budgets will be less and even in the unlikely event England get to the final it will all be over by the 1st July.

The most difficult part of managing lates yield is getting prices up from the £149 price points that dominate early season to £399 plus required post 22nd July for school holidays. The points above should help early season prices and don’t forget that the Olympics do not start till after the schools have already broken up. Hence although I do expect them to dampen demand neither the Euro’s nor the Olympics will directly impact the crucial month of July when prices need to be wound up quickly.

However, please don’t think I am saying this year’s lates period is going to be easy. It looks like we are in the midst of a double dip recession and the year on year increase in fuel prices, whilst currency hedging has negated an benefit of the strengthening pound, means operators need to get £15 higher late holiday prices even to make the same losses as last year.

They say that every cloud has a “Silver lining” and as we look up at the depressing cloud cover over the next few weeks, think of the job security they may be delivering to some elements of our industry.