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You are here: Home > Educators > BTEC Travel and Tourism > Package holidays, dynamic pricing and the credit crunch. |
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Package holidays, dynamic pricing and the credit crunch.In recent years, the increase in 'book your own' trips has led to the decline of package holidays - where families are herded through airports, onto transfer coaches, allowed into their accommodation and told to get out again, all at times to suit the travel industry. In 2006, package holiday companies had one of their worst years on record, leading to millions of unsold seats during the peak holiday season. Rather than being arranged to suit suppliers, increasingly the travel and tourism industry is led by the consumer. Go online and you can choose from thousands of holiday options. Research into the region you want to go to, book a flight, train or ferry, hire a car, book hotel or other accommodation, plan routes - it's all possible at the click of a mouse. 
Image: Choosing from thousands of holiday options. Copyright: PhotoLibrary All this market power has provided a major challenge to travel agents. They have increasingly been stuck between three forces:
and
So what can the retail sector do about this? Is the 'closed' sign going to be a permanent fixture on travel agents' doors on the UK high street and elsewhere? The answer is likely to be, 'no'. However, adapting to the changes in the travel and tourism industry will mean rethinking the way they do business. The key drivers in travel retailing:
Consumers are able to book direct from a bewildering array of travel and tourism products due to one major factor. Information and Communications Technology (ICT) has revolutionised the industry, led by the budget airlines, offering real-time booking at dynamic prices. As the technology has become more widespread, more travel firms have seen the possibilities on offer. Hotels, train companies, ferry operators, car hire firms - they have all become web savvy. 
Image: We have all had to become more web savvy in order to get the best travel bargains. Copyright: PhotoLibrary In the last few years ICT has developed further, with Web 2.0 technology allowing user participation online. As consumers have rapidly taken up broadband Internet connections, new technology has allowed them to share views, ideas and images. Web 2.0 offers travel firms the chance to enhance their services as well.
A bewildering array of options greets even the most casual enquiry into the travel world. Flexibility over destinations, activities, transport types and routes, time of travel - almost every aspect of a holiday appears to be customisable. 
Images: Fancy a weekend break to a famous European city? You may well want to customise your trip. Copyright: PhotoLibrary While the reality may not always fit in with this perception, the holiday industry will not return to how it was before. Customers simply will not allow this to happen. Tour operators and travel suppliers all know it, so they have changed what they offer and the ways in which they reach the consumer.
As we have highlighted in a presentation(http://www.bized.co.uk/educators/16-19/tourism/working/presentation/reps1.ppt), elsewhere on Biz/ed, the major tour operators have merged to produce a market dominated by two firms, not four. In a similar way, the retail travel sector is going through structural change. The merger agreed between Worldchoice and Travel Trade Association (TTA) in February 2008, created a large independent force in travel retailing. Worldchoice is a consortium of more than 400 independent agents. TTA have around 200 member agents. The deal means that Worldchoice/TTA members, will be part of two trade associations: Triton Travel Group and TTA. As a result, the distinction between these two organisations will be come blurred. 
Image: You could book this through a traditional travel agent, but increasingly, you might book it direct from the supplier. Copyright: iStock The key drivers in travel retailing:So, how are travel agents dealing with the changes to their industry? One way is to embrace what is known as 'dynamic packaging'. Dynamic packaging is travel industry jargon for a cheaper and more flexible way of booking a holiday. Travel suppliers use technology to package up their own holidays and offer them to consumers at a higher profit margin than they might have received in the past. Consumers get the feeling of independence while using a website to put together their own travel plans. Sites offering dynamic packaging holiday solutions describe the technology in simple-to-understand phrases such as:
or
As this suggests, dynamic packaging is technology-driven. But it requires consumer demand and travel agents' enterprise skills and know-how to make it work for agents. While it is clear that customers demand the freedom to use the Web to gather information and book individual pieces of their holidays, dynamic packaging offers much more. At the moment, consumers have to visit many independent websites to plan their holidays. This usually involves:
Anyone who uses the Internet to search for travel deals knows that some websites work better than others. Consumers are put off by sites that provide a frustrating experience by offering poor functionality. They want to be able to create, manage and update their travel plans. Ideally they would like to individually customise their holidays, by including their preferences for travel, accommodation, car hire and leisure activities while they were away. 
Image: Some websites work better than others. Copyright: iStock ICT offers travel agents the opportunity to provide customers with this kind of functionality, regardless of their location. They can bundle trip components according to their customers' holiday preferences. Perhaps by suggesting a three night city break, with dynamic access to information aimed at finding items such as air fares, car hire and leisure activities at the same time. The travel agents who can provide these services most effectively are likely to be the most successful. Dynamic packaging or dynamic pricing?Dynamic pricing is a common idea, even though you may never have heard the phrase. When you shop online, you're using systems built on fluid pricing. This is just another term for the way the price of an item reacts to supply and demand. It means that you might pay completely different prices for a flight today as compared to tomorrow. In travel and tourism, dynamic pricing first appeared with the advent of the budget airlines. With Ryanair, EasyJet or FlyBe, tickets cost more when lots of people want to fly and a full plane is likely. But they cost less when fewer people want to travel, as the airline tries to fill the plane. If you can travel when fewer people want to, or when tickets have just been released for sale, you can pick up a bargain. 
Image: Stuck? Try travelling when fewer people want to next time. Copyright: iStock As the technology has improved, so has the software behind many of the systems used by the travel companies. So now it's not just the airlines using dynamic pricing but hotel chains as well. Dynamic packaging is what the travel industry has come up with to describe using this method of pricing to build a package holiday. The 'package' consists of the ingredients of the holiday, sourced from different travel suppliers, put together into one deal. These dynamically-created holidays are cheaper because they have been put together, in effect, at last-minute prices. But what happens if something goes wrong?The travel industry has long since given up warning consumers against booking on the Internet. To continue to do so would have been pointless given the changes affecting the industry:
The industry has acknowledged in recent years that consumers can save money by booking online, benefiting from dynamic pricing. However, travel firms have warned that if something goes wrong with their online, dynamically-priced (or any other) bookings, consumers could be left seriously out-of-pocket. The experts agree that travel insurance is helpful to avoid a bad experience from booking online. Another handy way of protecting yourself is to use a credit card to make all your online bookings. Consumer credit law entitles people to a refund if, having paid for a product or service on a card, they don't receive the item or any other problems occur. 
Image: Use a credit card wisely and it could pay dividends later. Copyright: iStock If you pay for goods worth over £100 on a credit card then the credit card company is equally liable with the retailer. That means if you have a problem such as not receiving a product that you bought on your card, then you can take it up directly with your credit card company rather than the retailer. This is a big help if the retailer has gone bust, or is refusing to give you a refund. This same protection applies even if something goes wrong with something you've bought abroad. So all's well with the travel retailing world, then?Not quite, because economic challenges at the time of writing, (September 2008), are a major worry. Not only is the travel and tourism sector facing big structural change, as technology and consumer demand cause them to re-think how they do business. At the same time, the fear of recession and the impact of the credit crunch are posing a threat to many firms. Ironically, the protection offered to consumers paying for holidays and other items on credit cards, is the source of pain for some small firms. At the start of September 2008, short breaks firm Brilliant Weekends went bankrupt. It had already begun to suffer from the declining value of the pound sterling against the Euro. The economic slowdown also had an impact, as fewer people wanted to spend money on lavish stag and hen parties abroad. But the final nail in the firm's coffin was when their credit card company contacted them saying they were withdrawing their facilities. The card company didn't want to risk Brilliant Weekends going bust, as they would have had to pick up the bill, under consumer credit law. The loss of their credit card facility was the final straw for this firm. They ceased trading and posted the following notice on their website: "We regret to inform you that Brilliant Weekends Limited has ceased trading with immediate effect. The office is now closed. Customers who booked a flight inclusive package covered by our ATOL license should contact the Civil Aviation Authority for advice and refunds http://www.caa.co.uk. If you have booked the flights directly with the airline and not as part of a complete package then you will not be covered by the CAA/ATOL protection scheme and should refer to your credit card company. We sincerely apologise for the distress and inconvenience caused by this matter and thank all of our loyal customers and hard working staff over the past 6 years." What worked to protect consumers against losing out eventually led to the demise of Brilliant Weekends. Other small travel firms may be looking worriedly over their shoulders at the news. XL Leisure GroupAt the time of writing, (September 13th 2008), news broke of XL Leisure Group entering administration. XL is the UK's third largest package holiday group. As well as indicating the precarious state of some players in the travel and tourism industry in these challenging economic times, the demise of the group illustrates an issue relevant to this resource. Despite the shock at the firm's failure, which left tens of thousands of Britons stranded abroad, package deals booked by XL customers are covered by the Civil Aviation Authority's (CAA) Air Travel Organisers' Licensing (ATOL) scheme. This means that customers can return on flights paid for under the scheme. If they have yet to travel, customers will be offered their money back as part of this protection. But the XL case illustrates another question. Does ATOL protection extend to elements of travel bookings made by dynamic packaging? What if customers bought a seat on an XL flight from the firm's website? It turns out that if customers had booked directly with XL Airways, part of the XL group, they would not be eligible under the ATOL scheme. This goes to the heart of a legal case fought between the CAA and the Association of British Travel Agents (ABTA). ABTA claim that dynamic packaging deals do not require an ATOL bond (which costs travel operators thousands of pounds each year); the CAA believe they do. If ABTA is correct, travel firms can save a great deal of money by not being ATOL bonded. The CAA thinks that travel agents who sell dynamically packaged holidays without having an ATOL bond are acting illegally. Observers believe that it will take a test case in the courts to decide once and for all. If that does not happen, the industry will have to wait until 2011, when a new European Package Travel Directive comes into law, defining the package holiday. 
Image: Travel agents may have to wait for the EU to define what is a package holiday. Copyright: Jenny Rollo, stock.xchng Sources of further information:'Credit crunch hits travel company' BBC News article(http://news.bbc.co.uk/1/hi/england/bristol/7594668.stm) 'Dynamic pricing to change travel bookings'. Marketing Tourism article(http://marketing2tourism.wordpress.com/2008/03/05/dynamic-pricing-to-change-travel-bookings/#more-181) 'Credit Card Protection' Which? article(http://www.which.co.uk/reports_and_campaigns/money/campaigns/Banking%20and%20credit/consumer_credit/Credit_card_protection_campaign_article_559_77266.jsp) 'Special Report - Thomas Cook and MyTravel Merger' Travel Weekly report(http://www.travelweekly.co.uk/Articles/2007/02/15/23755/special-report-thomas-cook-and-mytravel-merger-15-feb.html) 'Worldchoice and TTA Merger - Fast Facts' Travel Weekly (http://www.travelweekly.co.uk/blogs/2008/02/worldchoice-and-tta-deal-fast.html) 'Holiday Firm XL in Administration' BBC News article(http://news.bbc.co.uk/1/hi/business/7611639.stm) 'Dynamic Packaging Supplement 2007' Travel Weekly (http://www.travelweekly.co.uk/Articles/2007/04/13/24194/dynamic-packaging-supplement-2007.html) Activities:
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