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Does the Travel by Subscription Model Work?

Posted August 31, 2016

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Subscriptions used to be largely for content that was new each month and largely disposable: think magazines and cable television. Along with the rise of the internet, subscription services like Netflix drove video rental stores out of business. Now as consumers value convenience, they're increasingly buying subscriptions to everything including music, meal delivery, shoes and even shaving supplies.

Businesses and consumers have adopted Software-as-a-Service and paying for applications as needed. Mobility-as-a-Service brings the on-demand model to local travel, replacing car ownership with rideshare services.

Increasingly companies are exploring a subscription model for delivering travel services. It's still unclear whether this approach will succeed. The subscription services that have succeeded are mostly delivering fairly low-priced products that consumers use practically every day. Travel for almost everyone is an occasional, big ticket purchase, more about an experience than a possession. Can subscription based travel services really work?

The Benefits of a Subscription Model for Businesses

While there's a big question about whether consumers will accept a subscription model, travel companies also need to consider whether the benefits that a subscription sales model offers are applicable to them.

In an article discussing the growth of the subscription model, Inc lists several benefits such as lowering overhead costs due to not needing a storefront and increased sales as customers return to buy full-size versions of products they sample in their monthly box.

Those benefits aren't applicable to the online travel industry, which mostly sells services. Entrepreneur discussed the value of a subscription-based model in the service industry, identifying benefits such as flexibility, the ability to scale work up or down and building a relationship with the customer. But those benefits are applicable mostly to project-based services that customers use continuously over a period of time, which isn't the way most customers buy travel.

The subscription model does offer benefits that the travel industry can realize. One is the recurring revenue a subscription brings, which increases customer retention and makes it easy to quantify the value of each customer.

The Benefits of a Subscription Model for Consumers

Even if a company finds benefits in a subscription model, would consumers accept it for travel? Phocuswright points out that for a subscription to work it must offer a price advantage on a product the customer users regularly or offer a service or product that isn't otherwise available.

There's a fairly small number of leisure travelers who take more than a few trips per year, so travel subscriptions based on the first benefit may find it difficult to attract more customers. The second benefit may attract more customers, if the company can identify a unique travel service.

Companies Selling Travel By Subscription

Despite the challenges, a handful of companies are selling travel services by subscription. United Airlines offers subscriptions that eliminate the need to pay for checked bags and Economy Plus seats. Several new companies offer itinerary management or travel planning services by subscription. An app commonly provides basic features for free, while monthly rates offer upgraded levels of support and unique perks. A few companies even sell actual travel by subscription: OneGo allows members to fly as much as they want for one monthly rate and several membership-based companies provide access to private jet travel.

Because subscriptions only really make sense for a product you use frequently, the best target market for subscription-based travel is likely to be business travelers. Paying a fixed rate for travel could help businesses manage their travel expenses and ensure that booked travel complies with company policies.

As with any new business model, companies will need to experiment to determine whether there's a viable market. When the internet was new there was an early rash of online stores and delivery services. Some, like Pets.com, went out of business. Others, like Amazon.com, went on to dominate. It's worth mentioning that part of the Amazon's current success is due to the Amazon Prime subscription service. Whether a company in the travel business can replicate that remains to be seen.

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