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Comment: Dynamic packaging has reached its zenith

Covid has impacted both agents and customers’ appetite for the model, says Steve Endacott

For the first time since Covid-19 arrived in March 2020, I’m confident about the future of the travel sector and think the worst is behind us, with a strong summer 2022 ahead.

However, Covid-19 has changed many facets of our industry and may reshape how customers book their holidays in the short term.

Over the past 15 years, travel agents, either on the high street or online, replaced retail sales of big tour operators with dynamic packages created by combining low-cost carriers’ flight seats with hotels from bed banks.

This, combined with the rapid growth of low-cost carriers’ inhouse tour operations, such as Jet2holidays, dramatically reshaped our industry and led to the reduction of the ‘big four’ tour operators of Airtours, First Choice, Thomas Cook and Thomson to just one, in the shape of the debt-laden Tui Group.

This erosion was further exacerbated by customers ‘self’ dynamically packaging using Skyscanner, Booking.com and, increasingly, Google’s travel tools.

However, Covid-19 has impacted customers and agents’ appetite for dynamic packaging.

Customers have now realised that booking with faceless internet organisations, which are hard to contact by phone, is fine when things operate smoothly but becomes a nightmare when Covid-19 travel restrictions require refunds to be chased or multiple companies to be contacted to shift holidays to a later date.

The result will undoubtedly be a move back to face-to-face holiday booking via high street agents or, at least, to fully-bonded Atol holidays provided by online travel agents (OTAs) such as Jet2holidays or On the Beach, both of which have come out of Covid-19 with enhanced reputations after providing flexible customer service and quick refunds.

Agents who dynamically packaged Covid-19-impacted holidays have faced a nightmare of double or triple administration, with no further payment and angry customers demanding refunds they were unable to make due to slow refunds from third-party airlines. Covid-19 highlighted the risks of dynamic packaging to agents, and many will have decided the risk is just not worth it.

Demand for fully-bonded Atol holidays is therefore likely to increase markedly. Yet at the same time, the CAA has reported that 20% of companies have not applied to renew their Atol licences [a week before the deadline] and many others – Jet2holidays is an exception – are reducing the size of their Atols.

For some companies, this is because their balance sheets have been devastated by Covid-19 and they are struggling even to pass ‘going concern’ tests, let alone the increasingly stringent requirements imposed by the CAA. Bluntly, these companies need to fail now and close while volumes are low, to avoid further customer disruption and bad publicity for the sector.

Large airline ‘debt mountains’, and the continued disruption of international travel, have also spooked the insurance sector, which has withdrawn virtually all airline failure insurance capacity. This insurance is a mandatory requirement to allow ‘flight costs’ to be released from CAA-approved trust funds – and without this agents cannot legally dynamically-package holidays.

Many agents will revert to a low-risk agency model selling bonded holidays from the major operators of Jet2holidays, easyJet holidays and Tui, or increasingly use dynamic packaging platforms like On the Beach’s trade arm Classic Package Holidays.

Margins may be impacted, but reduced admin hassle and risk counterbalance this. And the increased volume boost to On the Beach’s buying power with its suppliers will allow prices to be driven down further.

I would expect dnata Travel to follow suit in chasing trade distribution, using its Travel Republic platform, and for the reborn Thomas Cook OTA to consider this option once it establishes its own consumer direct operations.

An equally big question for the travel sector is how to get families to book early again?

Although Europe and the US have moved to open for double-jabbed adults, there remains uncertainty about the testing required to allow unvaccinated children, who are often asymptomatic carriers of Covid-19. This may lead families to take a wait-and-see approach in January.

So instead of discount messages in January, the trade needs to continue to push booking flexibility, and offering low deposits and free Covid-19 testing.

Low-deposit schemes need to be supplier-funded, as travel agents’ cashflows will be at all-time lows this winter.

Sensible agents will boost cashflows by focusing as much effort on promoting winter-sun holidays to the Canaries and newly open long-haul destinations, as cash will be king this winter.

Pent-up demand is driving interest in the marketplace, but it has come too late for summer 2021, with many customers having already holidayed in the UK or having decided to wait until next summer. This is evidenced by ultra-low seat prices in October, such as £22 to Majorca, which will not help airlines trying to restart programmes and get aircraft back in the air.

However, prospects for summer 2022 look good even if the traditional January booking window is replaced by a more spread-out booking pattern across January to April.

The dynamic packaging revolution may have reached its zenith, and Covid-19 may feel like the ‘meteor’ that signalled the end of the dinosaurs, but it’s more likely that it has just opened the door to the agency market for the big OTA players and sifted who does the dynamic packaging.

We may all be going on a summer holiday this summer, but whom we book it with is set to change.

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