During hard times, people may still want to travel, but they are afraid of spending any more money than absolutely necessary. On top of that, to make certain that they don’t act in haste and repent at leisure, they book their vacations at the last possible second.
In normal times, most summer vacations were booked by March at the latest. But right now, there are plenty of options for summer travel at terrific destinations for bargain prices.
With prices fluctuating like never before, values are at a premium, and both agents and travelers know it. Suppliers, therefore, have two options: They can add features to a package to increase its value, or lower the overall price.
“The goal for everyone is to match inventory with demand,” says Paul Wiseman, president, Trafalgar Tours. “Where inventory is fixed [such as cruise ships and hotels], there may be no option but to discount heavily to create demand.” This option, however, impacts the profit from the sale. “Where the volume of product can be adjusted, which tour operators can achieve through contracting adjustments, tour operators can maintain profitability.”
As part of a promotion, guests can dine free at Walt Disney World Resort restaurants such as Coral Reef
When Disney’s theme parks sensed economic woes looming, the leadership team began creating an offer that, in the words of Vicki Johnson, director, sales and travel operations PR, Disney Destinations, would be “compelling and competitive, and would help stimulate travel.” Walt Disney World Resort in Florida began offering three nights free at affiliated hotels when four nights were booked—in other words, seven nights for the price of four. The deal ran through the fall and winter, and helped keep people visiting the park. According to Johnson, people felt that the deal was too good to pass up, and despite economic uncertainties, were willing to book the trip.
It paid off. “We’re seeing room reservations through the balance of our fiscal year, which runs through September, on par with last year,” Johnson says. She acknowledges, however, that while the deal has kept people traveling to the resort at the same rate they usually have, the margins have taken a hit.
Disney also brought back its late-summer deal of free meals earlier than usual, offering it during the peak season rather than during the back-to-school times when families book less. “We’ve had a range of promotions over the year targeting that season,” she says, but the free dining program has been lauded by agents and guests alike as an especially attractive value.
Cutting costs seems a simple solution, but might prevent clients from booking if they believe an even lower price might be available later. “Unfortunately, those companies with very large fixed capacity are currently undertaking unprecedented discounting, which destroys the industry’s ability to undertake any normal pricing and commissions,” Wiseman says. “For example, we are seeing a large number of cruise-only agents trying to move into selling other products right now because they cannot survive [otherwise].”
But there can be a positive side to lowering prices, especially when one discount makes another portion of the trip suddenly affordable. For example, Wiseman continues, “the airfare often creates the incentive to travel, and with discounted air in the market, we are seeing good volumes for travel—and thus, the sale of land.”
Yachts of Seabourn has cut fares by as much as 65 percent to woo travelers
Offering a steep discount on cruise packages worked for Yachts of Seabourn, which recently cut fares by as much as 65 percent. “We tried a one-week sale with up to 65 percent off and the phones rang, so we did another and it worked again,” says Adam Snitzer, vice president of marketing. “That’s when we decided that this was, for now, the market condition.” The plan has worked better than expected: In addition to repeat guests, Seabourn is getting both new cruisers and new agents to sell the product. “With three ships on the way, we need that growth,” Snitzer says. “It seems absolutely clear to us that this is the best strategy in the current market condition.”
Fairmont Hotels and Resorts is offering a promotion of up to 20 percent off to drive up leisure business. It seems to be working: Leisure bookings are up so far this year. “All of the evidence we’re looking at suggests that Americans will travel close to home this summer,” says Brian Richardson, Fairmont’s vice president of brand marketing and communications. On the other hand, Richardson acknowledges, business and meetings travel has fallen off, and people are booking their trips at the last minute.
Another option is adding value to a product—a fourth or fifth night free in a hotel, for example, or a complimentary excursion on a cruise. Wiseman believes this is a better solution for both suppliers and agents, especially since a discounted price means a discounted commission. Snitzer, on the other hand, had a different experience when Seabourn tried adding value to their cruises. “We found that consumers were very distracted and uncertain and didn’t seem to be willing or able to calculate a lot of complicated value-adds,” he says, and adds that an all-inclusive product cannot add more now and then take it back later. “If you burst that bubble for the consumer, it will be harder to take that back than it will be to raise the price.”
For resort properties such as Fairmont, adding value has proven more effective than cutting prices beyond normal. “We want our rates to be competitive,” Richardson says, “but we’re really more on the side of trying to build added value, and build packaging that’s meaningful, relevant, compelling and appealing to target audiences.” To that end, resorts will offer trips to local theaters or offer special activities around the resort that travelers could not enjoy elsewhere. Fairmont has also partnered with BMW, which will be bringing luxury bicycles for guests to use on resort grounds, and with a children’s fitness program for active kids.
In Hawaii, The Four Seasons Resort Hualalai is offering guests a $1,000 resort credit with all standard room stays throughout the summer. “The prices we charge have not been reduced because the experience has not been cut back on at all,” says Ciro Tacinelli, Jr., the resort’s director of marketing.
Riding Out the Storm
A healthy dose of realism is also necessary if agents and suppliers are going to ride out this storm successfully. Wiseman acknowledges that Trafalgar’s sales have already bottomed out—but they have also started to improve. “At the moment, there is an extremely late booking pattern, so there is still good business coming in for 2009 when normally we would not be seeing much volume, so that is very encouraging.” Wiseman does not expect the pattern to change any time soon. He does admit though that last-minute vacations make planning difficult. “We all hope for some economic recovery in Q3 and Q4 of this year,” he says, “which will strengthen our trading into 2010.”
Snitzer agrees, and believes that the current economic woes are temporary. “It’s hard to predict the change, but we are seeing demand growing and we are confident that prices will normalize at some point,” he says. “Our concern was to get the agents booking business, because it was awfully still out there for a while, and although these aren’t the prices we’d like, thanks to a strong parent we are able to do what it takes and help the agencies keep the doors open.”
Snitzer acknowledges that Seabourn’s bookings are down for the upcoming season, but adds that “the demand has really been growing and activity heating up [and] we expect to sail full for the summer.”
Richardson believes that suppliers have “preconditioned” travelers to wait for the best deal. “We’re dealing with a very savvy traveler who probably has arrived at the conclusion—not just for us, but for all hotel brands—that there’s more inventory available going into the summer,” he says. While he expects the remainder of 2009 to be rough for Fairmont’s business and meetings market, he believes 2010 will be a turning point. “I think people’s buying behavior has certainly changed in this environment, given the circumstances,” he says, “and we’re doing the best we can to respond to that.”
In the end, according to Disney’s Johnson, the ultimate goal of any deal, whether cutting prices or adding value, is to keep people traveling. “The American people need something to really stimulate and get them moving again,” she says.