Opinion: A cap on prices is not the answer

Is the industry ripping people off, or is there an explanation for why prices are higher in the summer school holidays? Alan Bowen knows the answer

The recent prosecution of a Shropshire family highlighted a change in the law in 2013 that prevents headteachers granting permission for term-time holidays.

As a result, more parents look at the cost of high-season holidays and claim we as an industry are ‘ripping them off’. But are we?

And what if we were forced to make changes to holiday pricing?

E-petition hits a nerve

Almost 160,000 people had signed an e-petition entitled ‘Stop holiday companies charging extra in school holidays’ on a government website by the end of last week (100,000 is enough to be considered for Parliamentary time). And many consumers have shared examples of differences between peak and off-peak prices on a Facebook group called ‘Holiday price increase’.

Is the industry ripping people off or is there an explanation for why prices are higher at the end of July than at the beginning of June?

Most operators sign contracts for the full summer season from May to October. The price paid to suppliers is often fixed for the whole season and it costs an airline the same price to fly a passenger to Malaga on July 23 as it does on June 1, but the selling price will be different.

Reasons for the ‘rip-off’

There is the obvious issue of supply and demand: most people with school-age children want to travel in the school holidays.

However, the number of beds and air seats is fixed. When demand rises, so does the price, not least to encourage potential customers to choose a cheaper date to travel.

There is nothing unique about travel in this respect. With the weather we’ve been having in the UK, umbrella or sandbag manufacturers will be doing well, while snow-shovel sellers may be reducing their prices.

The industry tries to encourage low-season travel by selling at lower prices – in some cases, at virtually no profit – simply to keep aircraft flying and beds filled.

No operator makes money in the low season – they just hope to keep losses as low as possible. No operator makes a fortune either – the profit margins in travel are some of the lowest in any industry. The truth is, without the summer’s profits, there wouldn’t be traditional package operators in the first place. Those few weeks of peak prices have to make up for the losses during the rest of the year.

Capping would not work

Capping prices at peak season would mean prices would have to increase at other times when demand isn’t there. The consequence would be that demand would fall, profits would fall and businesses would fail.

Of course, those who take no risk, the dynamic packagers, would argue they are the future. But hotels with rooms left empty by operators no longer in the market and airlines with empty seats in early June and late September would have to increase high-season prices even more to make up for the loss of business. It would lead to less choice and higher prices for everyone.

If you don’t believe me, try selling a holiday while the World Cup is on and see how hard it is.