Package sales are reported ahead of dynamic packaging for this summer. But the market isn’t over, says Steve Endacott
It would appear the major tour operators slowed the growth of dynamic packaging in January to March by using two key early booking advantages.
Differentiated product, which is in demand and can only be bought from Tui Travel 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 majors’ early sales to be strong, which they have duly delivered.
However, unless high load factors are achieved early on this differentiated product can quickly become a burden in the price-sensitive lates market. Its high cost can cause heavy losses when sold as a perishable product close to departure.
The majors’ ownership of in-house airlines gives them the ability to offer customers a low deposit of £50, which for a family of four 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 recession and [given] 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 seven low-demand weeks before we get to the May half-term week, which will drive late prices low and benefit the dynamic packaging retailers who love distressed flight seats to package up.
Given the dynamic packagers’ 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 dynamic-package 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 (OTAs) selling holidays will soon be faced with a stark choice.
They can ignore mobile completely due to the cost of site modification and the low conversion levels, which obviously reduces traffic and risks them becoming less relevant to the customer during all stages of the booking journey.
Or they can spend lots of money to acquire customers in the short term on a less cost-effective basis, but secure their long-term market position when mobile matures.
It would appear that even in the OTA world, the big are set to become bigger as the middle ground is squeezed hard.
Steve Endacott is chief executive of On Holiday Group. This post is taken from his blog http://www.steveendacott.co.uk/