On the Beach’s move into B2B distribution via independent travel agents, is a highly logical move for the UK’s leading OTA and reflects the changing regulatory environment.

Prior to June’s role out of the new European Package Directive, OTA’s operated under the much lighter touch “Flight Plus ATOL” arrangements and therefore avoided B2B trade distribution, because selling via third parties was not possible under flight plus and required a full ATOL licence. This required principal status and incurred higher operating costs in the form of higher Public liability insurance, duty office and compensatory framework.

However, under the new regulation Flight Plus has effectively been scrapped and full ATOL licence are required for both B2C and B2B distribution, so why not exploit high street distribution?

From OTB’s point of view, high street agents provide risk free distribution, with commission only being paid on booking, creating a known cost of customer acquisition (CPA). Contrast this with the greater risk from an ever increasing cost per click (CPC) Google advertising model and you can see the attraction, particularly when there is a clear argument that the high street attracts a different customer sector to those who book online.

Significantly, OTB has one of the highest online margins per booking, created by a slick booking process where customers are initially hooked by ultra-low flight prices, derived by mix and matching different low cost carrier flight option, before booking directly contracted “Recommended” hotels and integrated holiday extras such as transfers.

These high margins will allow OTB to pay attractive commission to the trade, whilst retaining a small element of profit to cover their administration and bonding costs. Trade distribution will never be a massive profit driver for OTB, but it could easily add a third more volume, boosting its buying power with hoteliers and potentially making it a more attractive channel for airline partners to reach high street agents.

From a agents perspective the key question is “Why would high street agents book OTB’s Classic Online packages, rather than packaging the same elements themselves?”

The answer probalby boils down to speed and risk. OTB’s booking interface is better than any B2B booking tool I have seen and is provided free of charge. It will also come with full financial protection and public liability insurance, so as long as commission are competitive, it provides a simple and fast booking platform with much reduced risk to the travel agent.

I am sure some travel agents will be worried about supporting a “Competitor”, but holidays will be sold via a separate B2B brand and I’m sure OTB will be providing guarantees about not using email address or mobile numbers, to remarket to these customers in the future.

Interestingly, it may be the low cost carriers themselves who object to OTB’s move. It is expected that Easyjet Holidays will be following Jet2 Holidays lead and launching their own trade tour operation for Summer 2019. How will they feel about competing with OTB for trade distribution, when OTB are often under cutting their prices by combing outbound Easyjet Flights with inbound Ryanair flights?

You can certainly imagine some friction occurring here, but conversely Easyjet may be perfectly happy to take the extra £30 a booking they earn from flight API fees on these trade sales without having any of the hassle of actually selling a holiday!

Adding Trade distribution is a logical step for On the Beach and could easily be a win:win for both them and trade partners, however I would not be surprised to hear some trade consortia saying “Not on my Watch”.

Fuel prices have risen by 50% since June 2017 and as airlines fuel hedges unwind, they will need to pass as much of this increased cost on to customers in the form of higher prices as possible.  However, to do this they will need to reduce supply relative  to demand, which will inevitably lead to capacity cuts.

As UK holiday makers know, airlines don’t price their product like most companies.

Rather than pricing each ticket based on how much it costs to fly to Majorca, with perhaps a built-in profit margin, airlines set fares based on supply and demand. It’s why a Saturday day flight is more expensive than on a Wednesday 6am departure, even though the operating cost is the same. It’s just a matter of increasing demand for less popular slots by reducing price, as long as the net result at least covers the operating cost.

Therefore, when fuel prices are low as they were in 2017, airlines look to drive the utilisation of their fixed aircraft assets by introducing more mid-week and early morning flights boosting capacity. Also, aggressively expanding airlines like Jet2 massively increased capacity with the introduction of new bases such as Stanstead.

However, when fuel prices reverse its obviously harder to remove this capacity, but if it’s not removed then its impossible for airlines to match supply and demand in order to pass on the cost increase on to a customers in the form of higher prices.

This is doubly true in a UK market place facing demand damping factors such as good UK weather, a weak pound and fears of political and business disruption because of Brexit.

The easiest solution is obviously for one or more airlines to be forced out of the market, but with the benefit of the removal of Monarch already banked, who is realistically at threat of collapse?

Ryanair are openly talking up the prospects of Norwegian Airways and Alitalia failing this winter, but neither of these would remove much short haul capacity from the UK market, although players like Rynair might switch capacity out of the UK to the Nordics to fill the massive gap created in the market there.

The logical step for UK low cost airlines is therefore to reduce capacity by scraping marginal routes or moving aircraft from short flight duration routes like Mainland Spain, to longer flight sectors such as Turkey and the Canaries. Adding one Turkey flight will utilise an aircraft for the same time as two Alicante flights, in effect halving the number of seats to be sold, assuming of course they can get enough yield from the Turkey flight to balance the books.

There is also an argument that airlines like Jet2 are effectively reducing the amount of flights seats in the market by selling more as package holidays. I’m not however convinced that this hold much water, as in my opinion Jet2 are just swapping capacity out of the OTA dynamic packaging market into their inhouse tour operation.

Ironically, the simplest route to boost demand may be for the low cost airlines to finally recognise the volume of seats filled on aircraft by the UK OTA’s and do deals to reduce their high API fees (£30 per booking) in exchange for preferential promotion within the OTA’s sites.

But I would suggest that wouldn’t I !!!

I personally applaud Thomas Cooks creative commercial thinking behind identifying sun beds as another chargeable optional extra in a package holiday.

Low cost airlines first brought this phycology to the market place, by first making luggage a chargeable extra and then pre-booked flight seats. They rightly pointed out that this allows them to charge a lower price for the basic flight seat and leaves customers to choose what they want to pay for.

For example, why should a customer who takes fewer clothes via hand luggage pay the same as a customer taking a 22kg suitcase, which requires airline staff to check it in, transport it to the plane and then load/unload it. In this case there is a clear cost saving that the airline can pass on to reward hand luggage only customers.

Pre-booked seats, when it was first introduced, was more controversial as there is minimal extra cost to implement this and most airlines already offered the service free of charge to its customers, who expected to be able to pre-book seats next to each other. Supposed “Full Service” airlines such as British Airways initially resisted such innovations, preferring to sell on the basis of “Differentiated Service”, but after a number of years of losing ground eventually followed suit.

Therefore, you can only applaud Thomas Cook for becoming the “Easyjet” of the package holiday world and evolving its product offering to give customers the option of paying to pre-book the best sun beds. Just like Easyjet’s “Speedy boarding” service, this not only is a valuable service to some customers, it also provides a degree of “show off ability” that they are smart enough to pre-book and can afford to do so. A few seasons of “sun bed” envy will soon see the uptake of this service soar.

The subtle down side of Thomas Cook launching this policy, is that it does allow its major competitor Tui to take the moral high ground over its “differentiated” holiday products, where I am sure it will claim sun beds are so plentiful that there is no need to pay extra to pre-book. However, for me this has echoes of British Airways stance and is unlikely to have any real impact in a world where customer choice, is just as “Customer Centric” as full service options that cost more.

As we sit recovering from one to many Christmas turkey dinners, it may be time to look at the year ahead and assess the role that Turkey as a destination is likely to play in the success of the UK Travel Industry this year.

The collapse of Monarch airlines gave a stark warning as to how nasty the “Spanish route” price war had got, with average yields having dropped by 30% over a 2-year period for most airlines.

As we all know, terrorism and political unrest has seen a massive concentration of demand into Spanish destinations, resulting in scarce last-minute hotel availability and large price hikes. Fortunately, for OTA’s whose flexible model allows them to be “parasites living off the misery of others”, these hotel price increases were offset by reduced last minute flight prices, as airlines struggled with excess last-minute capacity to fill their aircraft.

For virtually the first time, we saw how disastrous the low-cost model of discounting early can be, if high hotel price’s mean they cannot fill the last-minute seats and have to “double discount”.

The failed Turkish coup in July 2016 ensured that not only late demand for Turkey in 2016 was dramatically reduced, but also led to large swaths of capacity being redirected to Spain in 2017. Therefore, even though Turkey remained stable in 2017 and late demand surged back, there were few seats left to match with the plentiful and cheap hotel availability.

However, some airlines desperate to remove capacity from the Spanish blood bath, are flooding capacity back into Turkey for 2018.

Ironically, in these situations a high degree of “Exclusive”, but committed hotel product is working against TUI, who have increased capacity by 100k passengers, compared to the massive hike in capacity that Thomas Cook have put back into Turkey, with a virtual doubling of capacity to 600k passengers. Although, exclusive product is highly profitable, it cannot be moved around and does expose the owners to big swings in destination demand.

Also, the successful short duration, high frequency flying model of Ryanair combined with 5th freedom flight permissions issues, resulting from being an Irish rather than UK carrier, has kept them out of this potentially lucrative Turkey alternative. Easyjet on the other hand have no such limitations and having acquired profitable routes from GB Airways many years ago, know Turkey’s yield potential.

Easyjet’s biggest UK competition is likely to come from Thomas Cook being nervous of their large capacity increase and reducing perceived risk, by dumping flight only seats at low prices early to boost load factors.

A more left field threat is Turkey’s own low cost airlines like Turkish Airways, which have the benefit of being based downstream and so are able to move capacity around

Europe to exploit regional peaks in demand e.g. both Scottish and English school holidays with one flying program.

Turkey is one of the UK’s few major beach destinations outside of the Euro and with the pound having strengthened markedly against the Turkish Lira over the last 12 months (+20%), the price benefit of an All-Inclusive holiday to Turkey over its Spanish compatriots has never been higher.

Unfortunately, the same price advantage also applies to Germany, the other European beach power house, and capacity is also piling back in from that source market, so 2018 may be the one and only year for the British travel trade to gobble up as much Turkey as possible.

For most online player’s, mobile represents more than 50% of their traffic, but has a much lower conversion than its desktop cousin. It’s no surprise therefore, that a “Mobile First” approach has become the key focus for most OTA’s with literally 1,000’s of A/B tests constantly being applied to try to find the ultimate “User Interface” (UX) for mobile sites.

The original focus of the industry was on “Responsive” sites, that optimised the desktop journey to represent it better on mobile devices. Quickly, the UX guys realised that the “Friction points” on a hand-held device from “big finger “clumsiness issues, required different solutions to mouse driven desktop interfaces. However, the “Real Mobile” difference, is the very limited time customers view their mobile devices at one time and the development of what the marketers call “Mobile Moments”. This means that the mobile journey must be much faster and to achieve this simpler.

The latest movement in UX is focusing on “Removing friction” in the booking journey. In laymen’s terms, this means understanding the users’ intent and ensuring that the experience provided is exactly what the user wants providing clear actions, in some respect this could be perceived as “dumbing” down the booking journey by removing any possible distractions. Just have a look at how different the “Booking.com” desktop and mobile sites are. On the mobile site, filters are hidden and once a customer is in the booking funnel, any distraction from the key goal e.g. book a hotel, has been removed.

The result is that ancillary sales such as car hire, transfers and insurance, are being shunted to a post booking pitches via email or clever “Remarketing”, using cookies that allow highly targeted “post booking” advertising of ancillaries. This “two stage” approach is facilitated by getting customers to downloading the “mobile App”, as even though many customers forget they have the app on the phone, it allows much more effective push marketing and links to content rich post sale processes. What is dressed up as customer service by companies like booking.com and Airbnb, is highly profitable in-resort revenue, relating to local excursions, transport options or dinning out. These allow them to maximize revenues once a customer has been acquired, but in a two-stage booking process. They would never interrupt their mobile booking flows with these options, but once they have the app downloaded they can easily become the customers “pocket passport” and sale a whole range of “ancillary” products by using both geo location and time sensitive metrics.

Other companies have adopted similar processes, but may become unstuck due to their dependency on email as the secondary customer contract strategy. As GDPR comes into effect next

year, travel companies will be able to email customers about their booking as part of legitimate interests, however it’s still unclear whether these emails can provide a marketing up-sell message in addition. The line between allowable customer service follow up and the sale of new products, looks blurred and grey to me. For example, is it customer service to offer a transfer to customers who have brought a flight or hotel from you or a new sale they have not opted into? I would argue it’s fine, but I’m sure somebody may soon object.

Speed is also a key in a factor in a “mobile moments” environment and multiple layers of “caching” are a fundamental requirement of a mobile site. Slimed down content pages driven by AMP or price caching to drive the speed of results pages are now common. Again, compromise is required and here it is the absorption of price increases during the jump from cache to live, as not absorbing reduces conversion by up to 60%.

The ease of linking between mobile and desktop to allow a booking to be started in a “moment”, but to be completed at leisure on a desktop is key. Currently the only realistic method of doing this is to get the customer to login, which is tough in the travel environment where customers are promiscuous and on average visit 23 sites before booking. Easy login tools using Facebook etc. have helped, as do high levels of repeat booking customers, but this is a hard one to crack and will be a massive advantage to the travel company that gets this right.

OTA’s are also taking a good look at payment options and how these can be simplified, whilst at the same time pushing customers to the cheapest merchant clearing option. From January 2018, the industry will no longer be able to charge the global 2% surcharge for booking with a credit card, compared to a debit card. Logically, most customer will opt for the greater protection and better payment terms offered by booking via their credit cards. Many OTA’s already have plans centering around flexible deposits and payment terms only available for customers paying via debit card, but these tend to be complex and conflict with the requirement to simplify the mobile booking journey. Again, I think we may see a two-stage process with deposits being taken in the simplest way possible and any complexities being aimed at the balance payment process.

The key conclusion from this article is that Mobile is forcing not only a shift in booking flow but also a fundament review of booking process and the infrastructure supporting OTA’s, with caching and two staged booking process soon to become the norm. Well it would be boring if the rules didn’t keep changing in my view!

Travel Agents quickly adapted to the dynamic package (DP) revolution, developing their own systems or buying relatively cheap pre-built Dynamic packaging platforms, that allowed them to combine low cost carrier seats with multiple bed bank XML feeds.

The initial DP battle was all about “Price and Range”, with agents looking to have the biggest range of hotels and the most suppliers per hotel, to ensure they could always offer the cheapest price. Many smaller travel agents and OTA’s have never moved past this “Range” is everything model.

However, over time, bigger OTA’s like On the Beach have consolidated consumer demand into a much smaller range of “Recommended Hotels”, so that they have enough volume to justify contracting the hotels directly via an in house buying team. This in turn yields lower rates and/or higher margins, which has allowed them to advertise these hotels harder and create a virtuous circle of growth, with 65% of all sales going into directly contracted product and expanding sales over all.

The introduction of the European Package directive, which comes into force in June 2018, effectively bans “Flight Plus” ATOL’s and will force all UK Dynamic Packaging companies to move from their current status as “Agent” of the Hotel to full “Principal” status.

We are told by legal experts, that this will not affect the VAT status, keeping DP agents out of the extra £20 per passenger cost imposed by UK TOMS VAT, however there is no avoiding the extra-legal responsibilities that principal status gives.

As “Principals” each agent will be responsible for implementing their own Health and Safety checking procedure and have at least one person in the company trained and responsible for implementing their policy.

In reality, H&S is a relatively low cost issue as there are a number of independent industry experts, offering off the shelf “Self-Assessment” systems that can provide the required protection. In my experience, it is very difficult for DP agents with relatively scattered sales, across 1,000’s of hotels, to actually influence the H&S implementation of an individual hotel. However, it is vital to identify any high-risk properties and to drop them immediately. In a world where you have 100’s of alternatives to offer your customers, not doing so is reckless and potential commercial suicide. Agents should also be warned, that the worst possible outcome is to implement a H&S policy and not follow it 100%, as this ratchets up the criminal liabilities of the management of the business.

In my opinion the biggest issue facing agents when they become “Principals” is the cost of Public Liability Insurance.

Currently, either customers or more beneficially the ambulance Chasing” lawyers powering the wave of “Sickness” claims sweeping the industry, do not bother with DP Agents who are acting as the agent of the hotel, as they cannot effectively sue them in the UK and would have to take cases to the hotels home country.

However, from June 2018, DP agents will become UK principals allowing customer to sue them in the UK for any accidents or sickness issues, which is obviously a major concern for the insurance companies providing Public Liability quotes. Currently, most agents have just extended their current policies up the change of law date in June 2018, as Insurers simply will not quote yet or are asking for up to tenfold increases in premiums.

I personally expect that the cost of Public liability insurance will quickly stabilize and reduce as claims histories under the new Principal status are understood. However, the need to reduce Public liability cost may force agents to cut the number of bed bank suppliers based on the H&S policies and public liability indemnities that each supplier is willing to give. This is because these “pass on” indemnities will have a major influence on the agents own public liability costs.

Conversely, not having a bed bank provider to pass on Public liability costs may make the benefit of direct contracting less attractive where passenger volumes are lower in the major OTA’s, although I expect this impact to me minimal.

It is also likely that DP agents will ask the question “Why have 1,000’s of hotels on sale, that we have not sold in the last year? as doing so increases costs.

Chuck into the mix, the need to have a 24-hour duty office and emergency procedure training for all senior management and you quickly get a strong case for consolidation of product supply.

Therefore, within the next two years, I therefore expect all major consortia such as TTNG, Advantage, Global, Hays Travel etc. to be powering not just part of their agents DP operations, but 100% with there also being an increase in sales for Low cost carriers holiday operations.

Jet2 Holidays have lead the rush to replace the supply of “Standard” beach holidays to the independent travel agent sector, as both TUI and more recently Thomas Cook, abandoned the “Commodity” beach holiday market, in favor “Differentiated hotels”. However, the appointment of Johan Lundgren, the Ex Tui Boss, as Chief Executive of Easyjet must spell a major move by Easyjet into the Holiday sector.

I have previously been critical in articles of Easyjet insistence of finding outsourced partners to run their holiday division, but believe that given Johan’s vast experience in the holiday sector, he will quickly move the holiday operation in house and launch a major program to the UK Travel agent community in time for Summer 2019. I may be wrong but I willing to take some large wagers if anybody but Johan is willing to make them!!!