News

Comment: Is capacity out of control?

Too many holidays are on offer this summer, argues Steve Endacott

The merger of MyTravel with Thomas Cook in February 2007 was credited with triggering a wider market consolidation, being shortly followed in September 2007 by the merger of Tui Travel and First Choice.

As well as obvious synergies from cutting duplicated overheads much was made of the mergers allowing the volume of holidays in the market to be reduced, bringing capacity back in line with demand.

‘Beach boredom’ had shortened the average holiday length to 7.2 days as we saw the growth of city breaks and long-haul alternatives.

The impact is clearly shown in the Atol returns between 2007 and 2011, when the annual total of Atol-protected holidays shrank from 26.7 million to 18.5 million.

This allowed the big-two tour operators. Tui Travel (as it then was) and Thomas Cook, to control capacity in the marketplace and, most important, during the key late-booking period when losses from selling distressed late-availability holidays were markedly reduced.

However, a quick review of the 2019 Atol figures shows capacity has shot back up to 27.2 million.

The emergence of players like Jet2holidays (3.8 million), On the Beach (1.6 million), loveholidays (1.2 million) and easyJet Holidays (0.7 million) has replaced the capacity that was cut.

It should not be a surprise that the increased capacity has combined with the hangover from Brexit and last year’s hot summer to leave the beach holiday market awash with cheap, late deals.

The yield-management systems of low-cost carriers may also be causing downward pressure on prices.

These systems move the price of a flight up in ‘buckets’ of four seats depending on how the load factor is improving against a forecast booking graph.

In normal a year, prices should rise sharply towards the departure date as carriers approach a target load factor and seek to maximise the returns from remaining seats.

However, in a poor year when the demand curve is not being met prices remain low or can even reduce 12 to eight weeks before departure, just at a time when the major tour operators bring on sale their own late-availability stock.

This glut of low prices is now highly visible to customers on their laptops and phones, reducing any pressure to get holidays plans sorted as there are clearly plenty of holidays left for sale.

As I have argued previously, a glut of capacity suits a late-availability specialist like my own Teletext Holidays. But as for most online travel agents, it’s only the recent poor UK weather that has driven sufficient demand for us to benefit from the distress of tour operators and low-cost carriers.

With the expansion of easyJet Holidays in 2020 under the guidance of its ‘TUI mark II’ management team, it’s hard to see the rapid increase in holiday capacity reversing.

In my opinion, capacity in the UK beach-holiday market is spiraling out of control.

Steve Endacott is a non-executive director and travel entrepreneur, and non-executive chairman of Teletext Holidays

Share article

View Comments

Jacobs Media is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

The highest official awards for UK businesses since being established by royal warrant in 1965. Read more.