This week Paul Evans (Low Cost Holidays), one of the co-founders of the Association of Travel Agents (ATA) resigned with a simple message: “Sorry, solved the problem by moving to Spain. We are out”.
This location move out of the UK by a major OTA is, ironically, one of the outcomes the ATA had predicted to regulators and has been lobbying to prevent.
The combination of the impending reforms to the European Package Travel Regulations (PDT’s) and ever increasing regulatory costs of operating on the UK, compared to other European member states or so called “off shore” solutions outside of the EU, make such moves virtually inevitable.
Whilst operating based in the UK, Low Cost Holidays (LCH) incurred ATOL charges of £2.50 per pax, which on its approximate 1m passengers, would cost a whopping £2.5m. Compare this to Spanish Tour Operating bonds which start as low as €60k. It will literally save LCH millions by moving to Spain via this lower cost alone.
Add to this the much lighter regulatory touch, where balance sheet inspections and requirements are not as arduous as those imposed by the CAA, and you have reason enough to make the move to Spain, right now as Low Cost have.
However, these costs shrink into insignificance when compared to the cost of TOMS VAT, which could be imposed on every travel agent selling holidays by the revised European PTD.
ABTA has taken the view that even thought the revised PTD’s will impose “Principal” status on UK travel agents selling holidays, that this does not necessarily mean they will become liable to pay TOMS. However, the ATA believes this is highly naïve position.
Why would the major UK tour operators stomach a position where they have to pay TOMS, but other Principals selling dynamic packages do not?
I can guarantee they will be lobbying hard for HMRC to impose TOMS VAT on dynamically packaging agents, and in an environment where the UK Government is desperately seeking increased tax revenues, why would this not occur? The TOMS VAT charge has been estimated as £20 per passenger and therefore in Low Cost’s case alone would equate to £20m extra cost.
Spain has demonstrated how their “Bed Bank” sector has been treated by Spanish tax regulators recognising the “Agent of the Hotel” approach – expecting their locally based hotels to pay IVA (Spanish form of VAT) rather than their agency distribution partners.

When applied to packages sold under a Spanish licence, it in effect dramatically reduces the IVA on any holiday package and makes it highly attractive to be based in Spain. Hence, even though the majority of Low Cost’s passenger volume still originates from the UK, they can deliver at a lower cost by being based in Spain. In a price sensitive market is likely to grow their market share, at the expense of UK based business.
So in one neat and highly legal move, Low Cost have torn a gaping loop-hole on the UK regulatory framework, which the CAA are now running around looking for ways to close.
Andy Cohen of the CAA could not have put out a more strongly worded condemnation of the Low Cost move, but in reality European Law makes the CAA powerless to stop Low Cost continuing to sell holidays in the UK, completely out of the their control.
The UK Industry may like to think that without the ability to show either an ATOL or ABTA logo that Low Cost’s booking levels will drop. Unfortunately, the evidence to support this hope does not exist, as demonstrated by the fact that less than 5% of holiday makers decided to cancel their holidays when notified of the change of bonding by Low Cost.
I can only recommend therefore that the CAA continue with its current sensible approach; of commercial negotiation with the major OTA’s and airline holiday companies to get them to join the ATOL environment on a voluntary basis at a sensible cost. Remove the short term cost advantage and few players will disrupt their business models by moving to Spain unless the saving is substantial.
However, the TOMS VAT threat imposed by the revised European PTD’s as they stand will make the cost advantage of moving so great it may not be resistible.
This is why the ATA will continue to work closely with the CAA to push the continuation of the current Flight Plus regime with both UK and European regulators. This recognises the need for Travel agents to trade as agents and not principals and as such avoids the imposition of TOMS VAT.
If Flight Plus is not retained and principal status is imposed it will create an uneven playing field against the unregulated giants of bookimg.com and low cost carriers sourced by a few Google clicks. If this occurs the commodity holiday sector, currently serviced by OTA’s and UK high street agents, will either be destroyed or forced to move out of the UK reducing both tax and bonding revenues.
Personally, I regard Paul Evans and his Low Cost Holidays group as smart players, who were able to adjust their trading model to save millions, and have done so.
However, abandoning the ATA cause is something I hope to persuade Paul was a premature and short-term decision that he should not have made. If not, some of the other ATA members may end up buying Paul a beer in Palma every Friday night come 2016!

This summer’s heat wave put the topic of “Connected Kids” and the evolution of their holiday requirements at the forefront of my planning for Summer ‘14.  For as long as I can remember, mum’s have dreaded the 6 week summer school holidays because of their kid’s need for intensive interaction, play dates or days out, to offset their inevitable boredom.

However, the Internet, game consuls and Sky TV have brought massive changes in our children’s behaviour, with the new challenge being how to get them out of their bedrooms and outside.  Over the last 10 years beach destinations have embraced Sky TV, with football games, Coronation Street etc. being available in bars in virtually every major destination. Owners simply consider it a cost of doing business – if they do not offer this service their revenues decline rapidly.

Oddly, most hotels regard Digital TV and Internet access as revenue opportunities via paid for services, rather than being willing to invest in them as service differentiators. This might be acceptable if the service they provided was actually effective. I have lost count how many times I had to sit in a hotel reception to use the Wi-Fi or gone to connect in the room only to realise my iPhone, iPad or Mac cannot be plugged into the out-dated Internet cable provided.

To be fair, a key problem is the sheer size of most hotels. It is relatively simple for a bar or coffee shop to provide a free Wi-Fi service, since their maximum concurrent capacity is likely to be 10-20 people trying to use the service. Also customers are less likely to want to use streaming services for watching Netflick’s etc. and more likely to just be downloading emails or accessing Facebook.

Conversely, most beach hotels will have 200 plus rooms on multiple floors over a wide expanse of space. Hence, whilst most provide Internet access often it simply cannot cope with the demand and this results in a poor impression for hotel. Soon, a key search criterion for beach hotels, driven my kid’s requirements, will not just be “Does it have Wi-Fi”, but what broadband speed does it offer! Believe me this is coming.

At next month’s World Travel Market event in London, I have organised a session with key industry players to discuss this exact topic and try to raise the awareness of the importance of the issue with our hotel partners.  Personally, I want to take a radical look at the whole in-resort entertainment experience for kids and will be suggesting some of the following

Þ      My DJ set. Keep some of the traditional cheese of the nightly kids discos, but allow the slightly older kids to create play lists on their iPhones so they can have their own DJ sets during the evening.

Þ      International electro Olympics. Most online games support multi player action. So allow kids to create national teams and compete against each other. You never know we might finally be able to beat the Germans at a penalty shoot out on FIFA ‘14.

Þ      Game Hardware. As online gaming has developed, the equipment for playing games on has become incredibly cheap relative to the Game discs themselves. In my opinion hotels should put space aside and invest in 10-20 game consul and TV combinations, whilst leaving the kids to bring their own game discs or renting game disc’s in order to generate a revenue stream to pay for the initial £5-10k investment required. However, more progressive hotels will follow the bar owners approach to this and just see it for what it is; a basic cost of doing business.

Þ      FREE WiFi per Floor. Make the investment and put in a broadband connection in per floor and Wi-Fi routers labelled with the floor number. This will make it incredibly simple for customers to know which one to connect to. Wi-Fi cannot continue to be a revenue opportunity in the future since it is going to be a basic hotel service.

Þ      Capturing customers email address. Make customers access passwords to the Wi-Fi their email address. This will open up a new world of cost effective CRM, where hotels can encourage customers to leave online reviews and pass on discount codes, which can turn customers in to hotel advocates that bring in other customers.

 Even this approach will have to evolve over the next 5 years, as the EU finally move to banish outrageous and completely unjustifiable “roaming” charges that customers are currently ripped off by, when using their mobile phones overseas.

Realistic roaming fees will see individual mobile phones becoming the access point for all customers computing devices via tethering. However speed may remain a big restrictor in some beach countries where 3 or 4G networks have not been rolled out.

The bottom line is that if hotels do not evolve their offering it will be harder to get kids to go on the traditional beach holidays and if they do not experience them as kids, don’t assume they will prefer them over other holiday option when they become adults themselves. We really are talking about an investment in to the future of beach holidays here.

 

The Association of Travel Agents (ATA) initial reading of the draft Package Travel Directive (PTD) was positive. It appeared that the European authorities had listened to our key argument, that agents must be allowed to continue to act as agents when selling “Dynamically Packaged” holidays using low cost carriers and hotel suppliers.

The concept of “Assisted Travel” seemed to be added specifically to allow travel agents to sell holiday elements in the same way customers book them online, which would have been a key concession. Online, customers book and pay for a flights e.g. Easyjet in one transaction and then immediately follow this with the booking and payment for a hotel from a different provider e.g. Booking.com. The “Assisted Travel” provision excludes a holiday booking from being a package as long as each element is booked and paid for separately. However, clauses elsewhere regarding making multiple bookings within one visit, will make it virtually impossible for most high street agents and OTA’s to come within the definition of “Assisted Travel” and these bookings instead will be classed as packages. Ironically, “Assisted Travel” will cover all bookings made via Google for holiday components and will therefore give Google compiled unprotected holidays a major cost advantage over travel agents, the very thing the ATA have been arguing against.

“Assisted Travel” seemed to try to allow agents to continue to “Manually” create “Dynamically Packaged” holidays by putting holiday elements together, but arbitrarily insists they take payment separately for each element of the holiday, one component at a time. Unfortunately this ignores the practicality that customers want to know that they have secured their chosen holiday accommodation, before booking a flight or visa versa.

Under the current drafting however, if these same components are offered in a basket approach by an OTA, these elements need to be treated as a full package and financially protected. To be fair this is actually very similar to the “Flight Plus” model introduced by the UK Government in 2011 and if the draft PTD’s only applied financial protection in the same way this does, then few OTA’s would complain.

The draft PTD goes considerably further by imposing all the full liabilities of a standard package. The problem is that this does not recognise the differences between a traditional tour operation, which the original PTD was designed to cover and the modern internet world of dynamically packaging OTA’s.

The major tour operators own their own airlines and work with a narrow range of hotels, with representatives in resort and local ground handing partners. This gives them a great deal of control over their product offering and the ability to deliver the Health and Safety requirement, as well as the quality of the product in resort.

On the other hand, the online travel agency model has hardly any control, since they do not own the airline, work with a massive range of hotels and do not have a presence in resort. In my opinion the rapid growth of this sector proves that customers understand this model. They are happy to book more “independent” holidays without the hand holding of the traditional operators, because they are much cheaper, even though they offer a lower level of protection. The European bureaucrats have not presented any research showing customers are unhappy or unaware of this reduced protection.  However, the current drafting will make it very hard for OTA’s to continue to deliver these holidays and creates an anti competitive environment, which could dramatically restrict customer choice.

OTA’s often sell more than 50,000 hotels either via direct relationships or “bed banks”.  Is it really reasonable to expect an OTA to accept responsibility for the health and safety standards of such a range of hotels, whilst sites selling “hotel only” like Booking.com, can sell exactly the same hotels to customers with no such liabilities?

In the modern internet world Google is actually the largest “Travel Agent”, since with one click customers can move between booking flights with Easyjet and hotels with Booking.com. The fact that they make two separate payments seems a strange thing to define whether they need the protection provided by the PTD. This has been imposed simply because the European regulators drafting the revised PTD, recognise that it will be virtually impossible to track such transaction over the internet or decide which party should provide protection under their current definitions.

Most players would agree that the travel market is evolving into a spectrum with the major tour operators “Differentiated” product at one end of the spectrum and the giant Booking.com at the other selling virtually every hotel available. The major tour operators have been vocal about how they are positioning themselves out of the commodity market, which is the lifeblood of Dynamic packaging and are focusing on differentiated product that only they can offer. Obviously from their perspective dragging the OTA community in to the full package regulations is a positive move. It will push up the prices of the holidays offered by OTA’s making, their own products look more attractive. Not surprising they have been using both their strong influence within ABTA and direct lobbying to push for just such an outcome.

The OTA community provide consumers a lot of convenience and financial security by offering a basket approach to booking a holiday. However, the imposition of further regulatory burdens threatens OTA’s ability to be cost effective, compared to a customer using Google to book their own components individually. For example my own company, On Holiday Group has to pay a massive £200k a year plus, for public liability insurance because the market for this product is so limited. Therefore, the extra cost of liability insurance, increased compensation payment and further regulatory cost could easily push up holiday prices by £10-15 per person even before we consider the application of TOMS VAT.

The key flaw with the proposed revised PTD’s as they stand, is that they will create an uneven playing field. In a commodity market, even a few pounds can make the difference to a holidaymaker, who is simply not focused on the potential down sides when booking. In my opinion, they are likely to vote with their fingers and build holidays using Google to find flights, hotels and transfers, which they can book individually a lower cost, without the extra £10-£15 per person OTA’s will now have to charge them.

The net result could therefore be that the new regulations push more customers away from booking via OTA’s, who offer financial protection under Flight Plus, to un-regulated and unprotected holidays. The biggest winners under this legislation will be companies like Google and Booking.com, which as we all know pay little tax in the UK, whilst UK based jobs will be destroyed as many OTA’s will be forced to consider relocating to countries that do not impose these burdens or simply shutting down.

For many years the UK industry lead by ABTA and supported by the CAA have been calling for an “All Flights Levy”, where it would be the airlines responsibility to provide financial protection for their failure. Combine this with the obvious move of making individual hotels responsible for their own Health and Safety via a centralised accreditation scheme and you have the right solution. This would cover the whole of the booking spectrum including customer’s component bookings using Google and provide the level playing field the ATA continues to fight for. However, unfortunately this would appear to be a pipe dream and the ATA will continue to focus on amending the current drafted regulations.

The good news is that the European regulators so far have been willing to listen to common sense and have already moved substantially in their drafting. Therefore, it’s a time to just work harder and explain the issues clearly and forthrightly. The ATA will certainly not be giving up the fight to get a fair and balanced solution, but does need the support of the entire agency community who are all going to be adversely impacted if the draft legislation is not changed.

 

During the ash cloud crisis of 2010, holiday sales suddenly dropped by 25% whilst customers sat back and assessed how long it would be before planes could fly again i.e. a major event.

So it’s a bit of a shock that a simple heat wave over the last week has had the same level of impact on sales, with most major OTA’s reporting sales down by more than 20%. To be honest few of us saw this coming, having expected a decent lates market without the distractions of Euro Football tournaments, the London Olympics or Royal Weddings.
Like most business owners in travel I have been desperately looking around for an explanation and an idea of how long this weak demand may last.
Unfortunately my personal conclusion is that it will probably last as long as the heat wave does, and rather than delaying the booking decision, it may be simply removing customers from the market.

A combination of recession and electronic evolution would seem to have increased the vulnerability of the commodity sector of the UK travel market to good weather.
As per my previous blogs, I like to categorise the holiday market between the “Haves” and the “Have nots”. The “Haves” with their jobs and low mortgages have never been better off and are happy to trade up to the “Differentiated” holidays offered by the major tour operators. The “Have nots” who traditionally book late using credit cards, have been impacted more by the recession and hence when a heat wave hits, it’s very tempting to shelve the overseas holiday and just sit in the garden.

We also need to take into account the “Electronic Evolution” that has occurred over the last 5 years. Like many parents I used to dread the long summer holidays and the difficulty of keeping kids entertained at home. However, these days with the advent of high speed internet, X-Box, play station, video on demand and Sky TV, kids have never been happier sitting at home enjoying the electronic world.

As an industry I think we should recognise this threat and push our hotel and tourist board partners on the importance of investing in FREE high speed Internet in all holiday hotels. If we cannot provide the connectivity our kids demand in life, don’t be surprised if they start refusing to go on holiday with their parents to destinations that only offer a beach and a pool. It may have been good enough for us as kids, but it’s clearly no longer good enough for this generation.

So when the kids are happy at home and the parents can get a free tan in the back garden, I suppose a 20% drop in relatively expensive school holiday sales should not actually be a big shock, it felt this week.

However, before we all get too depressed I think we should remember that summers like this statistically only occur every 13 years and for the majority of the time UK summers are complete rubbish. So let’s all do a rain dance and hope things get back to normal – sooner rather than later!

Amadeus recently commissioned a Phocuswright study into Online Search habits, across both developed and developing nations, in order to create the framework for a set of round table debates, which I have been moderating.

The report highlighted that 50% of customers do not know which destination they want to go to at the beginning of their holiday search and are frustrated by both tour operators and OTA’s search tools. The vast majority of these require the customer to know what they want before they have even searched e.g. what departure airport, destination or dates.

In the old days customers popped into a Travel Agency and picked up holiday brochures, which allowed them to flick through a wide range of destinations and gain inspiration about where to go on holiday.

In the move to online booking we seem to have lost sight of this initial requirement and although I am sure many companies will respond to this blog claiming that their “Special offer sections” or regular email shots serve to inspire their customers, I remain unconvinced.

In my opinion, the online community is doing a poor job at “inspiring” customers or allowing them to search across destination boundaries and it’s certainly a focus I will be trying to apply to my own sites moving forward.

The channels best placed to service the need for inspiration or destination recommendation are undoubtedly the retail shop and homeworking communities. However, these channels often face the prospect of customers using their services free of charge and then proceeding to book online, either to take advantage of the lower prices for the same holiday or the extra convenience offered by online channels.

It’s a perennial problem, which explains the continued focus of companies like Thomas Cook on delivering a multi-channel approach to travel retailing, in order to service the customers with the appropriate tools at each stage of their holiday booking journey.

However, the fundamental problem is the requirement to offer competitive prices online, whilst carrying the extra overhead of the service delivered in the shop network.

Sooner or later, all multichannel retailers, we will need to have the same price’s offline as online and charge customers a service fee, if they want the expert advice travel agents can provide.

During the round table debate on luxury this week the words “Trusted Advisors” came to the fore. Experts in the luxury field felt that the key to success, was gaining the trust of clients to rely on their recommendation and expertise in pulling together a portfolio of “Luxury” product for them. All players saw the web as little more than a lead generator and call qualifier for their expert staff, based either in call centres or high street shops.

Although I understand and support this approach, I do agree with criticism made by Distributes Giles Parnell, that it’s actually very hard to research “Luxury” holidays online. Giles also criticised luxury players for not engaging with comparison sites or creating a “Luxury” portal to allow customers to shop across destinations or operators.

At the moment I think it’s the often-criticised “Flash Sale” sites such as Travelzoo and Secret Escapes, which are doing the best job of inspiring customers by offering a wide range of luxury holidays at affordable prices. I know I have booked a few trips via them that would otherwise not have occurred to me.

Anyway, a big thank you to WTM and Amadeus for giving me free access to some great experts, who certainly left me inspired and with a few ideas on how to tackle the luxury sector.

This week’s Thomas Cook interim results looked very impressive with the company identifying £390m ­of savings, forecasting a return to profitability for the full year and most importantly laying out a robust solution to its debt mountain.

So clearly Harriet Green has quickly got to grips with the financial issues and has laid the foundation for a healthier future. However, there are still a large number of fundamental issues that need addressing if Thomas Cook is really going to be able to take on TUI head to head.

To understand these issues, its probably worth reviewing the consolidation that created these two travel giants. Thomas Cook’s tour operation was originally formed by the amalgamation of Sunworld, Flying Colours and Inspiration in the late 1990’s. Sunworld and Flying Colours where relatively new start ups, which were acquired and merged together over a 6 months period and immediately added to by the acquisition of Inspirations/Caledonian Airways. So you can imagine the pain of trying to put all three together in a very short period of time.

Further growth by acquisition occurred 7 years later with the purchase of the highly distressed MyTravel Group of companies, which was rapidly relocated to Peterborough, with a 95% redundancy level. To complete the melting pot 400 Coop Shops where acquired just before Thomas Cook started to implode.

Thomas Cook’s tour operating, retail and airline infrastructures have all been created by acquisition and offer relatively weak foundations, compared to its main rival’s TUI.

Most commentators viewed the merger of the strongest brand in terms of quality e.g. Thomson’s, with the industries best management team lead by Peter Long at First Choice, as the dream ticket.

Firstchoice started the process of creating differentiated Hotel product with the launch of Firstchoice Holiday Villages and Sensatori hotels over 10 years ago. They planned and ordered the Dream Liner aircraft that are only now coming into service with TUI, 8 year ago.

These decisions were key in creating the “differentiated” product that is proving so profitable for TUI and driving their current strong financial performance.

Harriet Green has not yet put a foot wrong, however she does not have a “Magic wand” that can short cut 10 years of planning and financing required in order to create large volumes of differentiated product.

I must admit to concerns about the process of driving overhead savings by abandoning the old brand silo structure and moving to centralised buying, commercial and finance functions. This is likely to rip the heart out of most of Thomas Cook’s secondary brands like Airtours, Hotels4U and Club 18-30. Although this may be a sacrifice which has to be made, there are numerous examples in travel where 2 plus 2 can quickly amount to only 2 e.g. lose the brand and lose the volume/profit.

So although I understand the logic of what Thomas Cook are tying to do and cannot fail to be impressed by the share price rise, I think I will continue to invest my money in TUI. For me its still a gamble that the “Re-iced” Thomas Cook cake, will not start crumbling in the next few years as it has to cover the hard yards required to take it back to substantial profits.

 

At the recent WTM round table on Mobile, the latest buss word was “Mobile First”. This is where companies put mobile at the heart of their development program by developing for Mobile First, rather than retro fitting development on to mobile platforms.
Soon 75% of the UK population will own a Smart phone and the 20% growth Google has seen in search volumes in 2013, has all come from mobile. So how could you possible ignore this?

Simplistically, mobile just makes the internet much more accessible to customers, allowing them to fill “Dead time” interacting with their phones 150 times a day or sitting on the couch at home using tablets.

However, the advent of mobile presents travel companies with masses of complexity and problems beyond even the non-trivial requirement to introduce web sites that scale depending on screen size, offer different search process based on device recognition and move to a “Recommendation basis” offering 2-3 offers rather than hundreds of search results.

Online search has always been a highly track-able advertising method, using “Cookies” or “Mookies” (Mobile version of Cookies). These allow attribution so that advertisers can track customer’s through the entire booking process, giving credit to early stage search’s that do not result in a booking, but crucially introduce customers to advertisers brand in the first place. But mobile breaks this flow, because it has introduced multiple platforms.

Customers often complete complex holiday bookings on the desktop which is a lean forward technology suited to data input, that may have originated on a phone or more likely in my opinion tablets, which I regard as a lean back technology more suited to researching holidays whilst sitting on the couch. So unless you’re a major brand who can afford to take the gamble that mobile phone advertising builds brand awareness and early stage interaction, its very hard to justify it. At the moment Mobile does not deliver an effective return on investment (ROI) and I hence am not convinced OTA’s should adopt a Mobile Phone first approach.

Tablets are a completely different story. Their simplicity of use and always-open mode has lead a surge in house wives and silver surfers bypassing desktop and using these as their platform of choice to access the Internet. Unlike phones, the screen real estate makes it relatively simple to adapt existing travel sites, with a few minor tweaks to get over “clumsy finger” syndrome and gives direct access to the core holiday decision makers in the family e.g. women.

Currently high roaming charges mean that 60% of customers travelling on holiday turn off data roaming and the ability to access the Internet. However, the massive increase in WIFI access in hotels, restaurants and coffee shops, along with impending European legislation aimed at reducing roaming charges should soon remove this barrier.

Once the issue of roaming charges have been solved, mobile provides a great opportunity for OTA’s to extend their holiday offering with in-resort services via the phone. At the moment OTA’s suffer from the “Tarmac wave” where they send customers on holiday and just have to hope that they have a good time. They have no real ability to interact customers while they are on holiday, unlike the traditional tour operators who have in-resort infra structures and Reps. Moving forward OTA’s will be able to offer phone based support tools. These may be as simple as restaurant recommendations, local taxi numbers or maps marking all local attractions, delivered on their phones either on a cached basis or via live streaming.

So in summary I believe mobile represents another major evolutions of how people access and use the Internet. But in terms of driving holiday bookings I do not see the ROI on mobile phone advertising at present and will be avoiding it.
In many ways Mobile reminds me of the explosion of Social media. We all know it’s an opportunity, but so far nobody has found a way to commercially use it to sell holidays, irrespective of the marketing hype it receives.

TUI’s recent move to harmonise its approach to Flight pricing by making baggage an extra charge on its trade ATOL to ATOL flights shows how ingrained this particular “Bait and Hook” strategy has become in the travel sector, with every airline now playing the baggage game.
The moment I saw Flybe’s move in 2005 to start charging £2.00 per checked baggage, I just knew that this little game would catch on. However, I did not imagine the lengths that commercially focused airlines like Ryanair would take this to.
Looking at the Ryanair site, I can fly to Tenerife for a very reasonable £152 in August, but then I get hit with a £90 charge to check in a 20kg bag later in the booking process.
The average weight of a European suitcase is 70.8 kg – so how many bags equal a person? The answer is 3.5. If airlines simply charged by weight carried, the £90 bag charge equates to a seat charge of £316. So the maths cannot simply be justified, unless of course Ryanair are factoring in that they give a better customer service experience to the bags!!!
I admire many things about Ryanair’s commerciality and could just about live with the checked baggage charge, it if was not combined with a brutal approach to hand luggage. I don’t want to be made to feel like a petty criminal or smuggler when boarding. Do they really have to measure every bag with a cardboard slider, to see if it meets their ever-changing dimensions, and make you stand to one side if they don’t? The answer is clearly yes, when maximising short-term profits, but if it damages customer retention then in the longer term it has to be questioned.
Ironically, the very structure of the standard Dynamic Packaging site rewards Ryanair’s baggage pricing policy. The CAA vs. Travel Republic legal case enshrined the basket approach, where customers choose a flight based on price and flight times, before adding a hotel. However, it’s only after these choices are made that customers are hit with highly varying baggage charges depending on the airline selected. Hence, although the total price of a Ryanair Flight including baggage can be higher than that of a competitor, it is listed as cheaper and hence in effect the OTA’s are pushing customers to Ryanair. Combine this with the fact that Ryanair are actually often the cheapest airline and you start to explain the Dynamic Packaging sectors high level of Ryanair sales, even if Ryanair does hate us.
Baggage costs are so high, that I recently came close to investing in a new start up company called “Fetch my Luggage”. It’s actually cheaper for this company to pick up luggage from customers homes and deliver it to their hotel rooms using DHL’s land based services. I loved the idea of marketing the concept of “Speedy Travel” and cutting 3 hours off the average holiday journey time, since customers can whizz through both departure and arrival airports as they avoid baggage drop off and pick up.
However, a fatal flaw is that DHL do not allow flammable item such as deodorant and perfumes to be transported and how many of our lovely wives would agree to leave them behind! So it works, but not for the mass market in my opinion. However, if you want to send your golf clubs, Ski gear or promotional gear ahead, check them out.
More radically how long will it be before airlines start poaching each other’s customers’ luggage? Flights with Easyjet, but drop your baggage at the Jet2 counter who will deliver it to your hotel? Whacky, but an interesting idea!

It would appear that the major tour operators slowed the growth of Dynamic Packaging in January through to March by using two key early booking advantages.

Differentiated product (which is in demand and can only be bought from TUI or Thomas Cook), usually sells well in the early booking period boosting early sales. Given the big expansion of this product you would therefore expect the major’s early sales to be stronger, which they have duly delivered.
However, unless high load factors are achieved early on this differentiated product, it can quickly become a burden in the price sensitive lates market, since its high cost can cause heavy losses when sold as a perishable product close to departure.
The major’s ownership of in-house airlines, gives them the ability to offer customers a low deposit of £50, which for a family of 4 equates to £200 deposit per booking. Compare this to the £500 required for most Dynamic Packaging bookings and you can see why early booking customers may be willing to pay more or upgrade to a differentiated holiday, since the immediate cash outlay is a lot less.
In the current well-documented recession and reduced access to credit, it should not be surprising that the rampant growth of Dynamic Packaging has slowed a bit. However, the majors should not be complacent, since we have now entered the late booking market, where full balances are required on booking and traditionally customers become more price sensitive and willing to shop around for the best deals.
This year’s early Easter also means that we have 7 low demand weeks before we get to the May half term week, which will drive lates prices low and benefit the Dynamic Packaging retailers who love distressed flight seats to package up. Given the DP’s non-risk model, a tough lates market is not such a bad thing since input costs e.g. flights and hotels go through the floor with little damage to their margins.
Ironically the problem faced by most DP retailers is increased marketing costs as customers are finding it easier to shop around and are increasingly using mobile platforms, which due to the current poor user experience have an even lower conversion rate.
Online Travel Agents selling holidays will soon be faced with a stark choice.
Ignore mobile completely due to the cost of site modification and the low conversion levels, which obviously reduces traffic and risks becoming less relevant to the customer during all stages of their booking journey.
Or spending lots of money to acquire customers in the short term on a less cost effective basis, but secure your long-term market position when mobile matures.
It would appear that even in the OTA world, the majors are set to become bigger as the middle ground is squeezed hard.
!

Nice of LinkedIn to tell me I have “One of the top 1% LinkedIn profiles for 2012.” Since they now have over 200 million members this feels like quite an achievement! Did anyone else get this?!