The contrasting fortunes of Jet2Holidays and easyJet Holidays are down to focus, argues Steve Endacott, Teletext Holidays chairman
At a recent Travel Weekly lunch briefing, outgoing easyJet chief executive Carolyn McCall admitted that easyJet Holidays tended to get lost in the priorities of an airline carrying 58 million customers and needed a separate management team to focus on it.
Having provided the technology powering easyJet holidays for the last three years and the launch platform for Jet2Holidays, I feel reasonably well-positioned to contrast both companies’ approaches.
Philip Meeson, executive chairman of Jet2 parent group Dart, has relentlessly driven the growth of both the low-cost airline Jet2.com and Jet2Holidays.
He quickly realised that having a tour operation to complement his low-cost airline distribution offered some major strategic opportunities.
Low-cost airlines use a yield model which moves prices up from launch as buckets of seats are sold depending on how computerised algorithms estimate the required rate of sale, based on historical sales patterns by destination.
However, the yield programme also looks at the comparative price of other low-cost airlines, since this obviously impacts the rate of sale.
As a consequence, price competition between airlines based on highly transparent flight-only fares often supresses yield.
Jet2 quickly realised that package holiday sales not only gave it another distribution channel, but also gave it the ability – because the flight prices are opaque – to dump the prices of seats on slow-moving routes in a hidden way without impacting the higher volume flight-only prices.
Low-cost carriers tend to achieve higher average sales prices the earlier the sales pattern on a route, as early sales allow it to raise seat-only prices faster and still achieve the targeted load factor.
Package holidays have an earlier booking pattern than flight only and thus have been credited with allowing Jet2.com to achieve higher average yields than some of its competitors.
Initially, Jet2.com saw its holiday programme as a volume top-up on traditional flight-only routes, but as volumes have grown it now deploys aircraft based on its holiday company’s requirements and tops up sales with flight only.
These factors only work if you have a ‘one company view’ of profitability, with one yield team making the crucial seat-pricing decisions and flowing these prices to both airline and operator equally or with hidden discounts to the tour operations.
For example, agents often sell Jet2Holidays simply because the tour operation has access to lower-priced seats than the agents can package up themselves using Jet2.com.
However, the most-significant decision Jet2.com made was to recognise that the management of a tour operation is a very different skillset to managing an airline.
Therefore they recruited experienced operators like Steve Heapy, who in turn picked up a lot of staff whom Thomas Cook made redundant when it closed the Airtours operation in Rochdale.
The proof is shown in the results, with Jet2 Holidays on the way to taking the number-two tour operator spot in the UK away from Thomas Cook, with holiday carryings of more than two million passengers while easyJet’s collaboration with HotelBeds has generated a much lower number.
The deal with HotelBeds comes to an end in September this year and it will be interesting to see what easyJet decides to do next.
At the end of the day, easyJet still has the most customer-focused brand in the low-cost sector and in my opinion could easily become one of the top three UK tour operators – but only if it achieves the focus that Carolyn McCall has now recognised is required.