Skift Take
Once snobbishly consigned to the ‘bucket and spade brigade,’ package holidays are one of the fastest-growing products in UK travel. This lucrative opportunity to diversify revenue has not gone unnoticed by British Airways or easyJet, with both airlines rapidly expanding their highly profitable holiday divisions.
Package holidays are a cornerstone of British travel. They’ve been around for generations but really took flight in the 1960s when air travel to continental Europe and the Mediterranean became much more affordable. For many, Cornwall was replaced by the Costa del Sol.
However, their popularity has dropped in recent years. Budget carriers, online travel agents, and the likes of Airbnb have made do-it-yourself vacations the norm. This shift towards independent booking helped accelerate the demise of heritage brands that were once household names.
Now the humble package holiday is enjoying a rebound. And the UK’s biggest airlines, easyJet and British Airways, have found a hugely lucrative niche.
The Rise of easyJet Holidays
For easyJet, holidays are a relatively new business. CEO Johan Lundgren launched the venture in 2019, tapping former colleague and long-time TUI Group executive Garry Wilson to head up the operation. Speaking to The Times, Wilson described easyJet going into the holiday business as “symbiotic.”
During the Covid-19 pandemic, the carrier was able to negotiate low overhead deals with thousands of hotels, ensuring it didn’t end up paying for rooms it didn’t need. In doing so, it helped create a free market for supply where room prices can be altered to better suit demand.
The company says 15% of all departing seats from its new Birmingham base are now easyJet Holidays customers.
Context is key here. On a per-customer level, easyJet Holidays makes around £72.50 per booking, compared to an average of just £8 for a passenger on an average easyJet flight. Given the potential margins at play, it’s no surprise that the Luton-based airline is hoping to grow its share of the market from 5% in 2023 to 7% by the end of this year. It’s looking to boost profits further with the addition of extra elements to package trips, including car hire and excursions.
Change of Direction at BA Holidays?
Over at British Airways, holiday packages have been around since 1955. However, this isn’t business as usual.
Parent company IAG recently transferred ownership of the company from British Airways to IAG Loyalty, operators of the Avios currency. While the airline group did not go into detail about its decision, it did note the move is designed to “support BA Holidays’ ambitious growth strategy”, improve profitability, and better serve other IAG airlines.
IAG doesn’t break down the individual profitability of BA Holidays as a division. Financial disclosures from the group typically leave out earnings altogether. However, its 2023 annual report mentioned a 15% rise in revenue to €938 million, with ambitions to increase this even further under the IAG Loyalty arm.
For its part, IAG Loyalty has already been busy rolling out projects such as Avios-only flights, which have proven extremely popular with customers. With 20% of travelers already using the currency to pay for their holiday bookings, the potential to integrate loyalty into the business is a potentially lucrative one.
Aggressive promotional activity, such a long-running double tier point offer have further helped cement BA Holidays’ role as a major force in the competitive landscape.
What Could the Future Hold?
The uncertainty of the pandemic made package holidays an attractive choice for many British holidaymakers. Greater consumer protection laws when booking a package trip provide an important safeguard should something go wrong. The ability to part-pay over several months at little or no extra cost is also a bonus for families and other travelers on a budget.
For airlines, packages can open the door to juicier profit margins. There are logistical and operational complexities compared to selling a simple flight ticket, but the rewards can be huge.
The ghost of Thomas Cook, which went bankrupt in 2019, still looms over the UK holiday market, however the trading environment has changed considerably. Today’s market leaders enjoy a slimmed-down exposure to the peaks and troughs of the package holiday sector. They’re also more aligned with the needs and demands of the modern traveler.
Alongside British Airways and easyJet, leisure carrier Jet2.com has successfully filled the void left by failed legacy brands. Its record profits of over £520 million last year show that huge demand remains and there could still be money left on the table for competitors.
In barely two decades, Jet2 has grown to become the UK’s third-largest airline and its biggest tour operator. Its “package holidays you can trust” tagline hints at the brand’s appeal among consumers.
For its part, easyJet has publicly stated its goal for £250 million in profit from holidays alone, accounting for 25% of its wider £1 billion target. IAG’s reorganizing of its business to unleash the potential of BA Holidays across the group is also worth watching.
The Ryanair Factor
With high margins and lucrative ancillaries, could existing players find themselves going up against an old foe? Following a difficult first quarter, Ryanair CEO Michael O’Leary recently spoke to The Telegraph about starting a holiday division.
If realized, this would represent a sharp U-turn from just a quarter before when O’Leary described the sector as a distraction. It would also be something of a ‘back to the future’ moment for Ryanair, which launched a holiday product in 2016 before scrapping it just months later.
The Irish low-cost carrier says it won’t rush into the package market until it maximizes traffic with its current aircraft order. It currently has more than 300 planes pending delivery from Boeing. However, O’Leary appears to be attracted to the high yields attached to holiday packages, especially with regular Ryanair ‘flight-only’ fares softening.
“I wouldn’t rule out setting up a holidays division. The holiday product is probably a reasonable way of charging higher fares and yields and for wrapping it into a package,” he told The Telegraph.
In recent months, Ryanair has made peace with several online travel agencies. Today it partners with OTAs including Expedia, lastminute.com, and loveholidays.com, with the ability to create flight and hotel package-style combinations. Once his plans (and planes) are in place, will O’Leary still be happy to have middlemen in the mix, or will Ryanair want more margin for itself?
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