Who in the package travel sector might lose out as easyJet holidays grows, asks Steve Endacott
During the recent Institute of Travel and Tourism (ITT) conference in Qatar, I posed a question to Garry Wilson, chief executive of easyJet holidays asking where he foresees taking market share.
I asked: “At present, 2% of easyJet’s 100 million seats are sold as holiday packages. To become the market leader, this volume would need to triple to 6%. Assuming the overall market does not expand this swiftly, from whom do you anticipate taking market share?”
Garry’s diplomatic response was that the growth would originate from converting more of easyJet’s flight-only customers into holiday packages.
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This straightforward remark underscores the significant strategic advantage easyJet holidays has over its competitors.
Over its lifespan, easyJet has cultivated extensive brand recognition. This, bolstered by prominent advertising, generates enormous visitor traffic to its website. Here, customers are automatically presented with a cross-sell option to purchase a holiday package in addition to a flight to their chosen destination.
Naturally, my understanding of easyJet’s intra-group financial allocations is limited.
However, it’s apparent this approach endows easyJet holidays with the industry’s most-competitive customer-acquisition costs. Consequently, it is positioned to offer the most-affordable pricing or to maintain superior profit margins, or to balance these considerations.
Converting another 4% of its 100 million flight passengers to holidays should be a straightforward task and would make easyJet Holidays the UK market leader. However, why would it stop there?
So, the questions facing many travel boardrooms are, “Who will lose share as easyJet Holidays expands?” and “How do we make sure it’s not us?”
The answers will be significantly influenced by the distribution channels on which easyJet holidays focuses its efforts.
Jet2Holidays has stolen the march in distribution via travel agents, flexibly allowing agents to decide their commission levels. However, if agents want price parity with the company’s online pricing, their earnings are limited to a low, 6% commission payment, potentially making them vulnerable to attack by easyJet.
Interestingly, Jet2holidays’ current success in transitioning its business into a tour operation-led group presents challenges to further growth.
Currently, 60% of Jet2’s flight seats are packaged as holidays and this rises to 80% for ‘beach holiday’ routes. Therefore, unlike easyJet, Jet2 must broaden its route network to expand its holiday business further, leading to the opening of new bases like Liverpool.
However, this expansion process is considerably slower than simply increasing the package-holiday share of flight capacity from 2%-6%.
Historically, Tui’s tour operating branch boasted a ‘differentiated’ offering through exclusive hotel contracts with some of the most ideally situated establishments.
However, the repercussions of Covid-19 and the substantial debt incurred by the Tui Group have significantly reduced its exclusive inventory, exposing it to vulnerability in locations within easyJet’s flight range.
Nevertheless, Tui’s fleet of 13 Dreamliner aircraft provides a distinctive advantage, enabling the holiday firm to provide long-haul beach vacations to destinations such as the Caribbean, US, Mexico and Goa, an offering that easyJet cannot match.
The top online travel agencies (OTAs) face the greatest threat from expanding low-cost carriers’ in-house tour operations, given they lack proprietary airlines and rely on access to third-party flight seats.
Paradoxically, their key strategic advantage is the access to low-cost seats of Ryanair, an airline that has publicly expressed disdain for them.
Featuring all the low-cost carriers equips the OTAs with a superior flight programme in terms of route diversity and scheduling. However, if they are burdened with easyJet API-booking fees amounting to £6 per individual per sector, leading to a £48 price disadvantage for a family of four, they evidently can’t compete on equal footing with easyJet in terms of price.
Nevertheless, by utilising Ryanair flights, they can often match or even surpass easyJet’s holiday prices on numerous routes, making access to Ryanair – the only low-cost airline without an in-house tour operation – a vital strategic defence.
Online holiday consumers typically browse 23 websites before finalising their booking, reflecting their considerable promiscuity when choosing a holiday brand to book with.
This tendency is frequently fuelled by Google pay-per-click advertising, a sector primarily dominated by LoveHolidays. Unlike its competitor On the Beach, Love has not invested in above-the-line brand-building advertising, potentially making it vulnerable as easyJet enters this space.
While it is currently unclear who stands to lose, logic dictates that easyJet Holidays is set for rapid expansion and will be the largest UK tour operator within five years.
Whether the future is bright or not, it’s likely to be Orange.
More: EasyJet holidays outlines ambition to make sustainable holidays ‘mainstream’