The travel industry has long operated on a fee-for-product or fee-for-service basis. Consumers purchase an individual airline seat or a hotel room, and pricing strategies are built around getting the highest possible payment for that particular product. But as other industries successfully implement alternative models, the travel industry is looking at ways these other models can increase value to the customer while also increasing their bottom line.
One such model, the platform model, we explored in our recent article - The Power Of Platforms. Booking.com has seen success by transforming from a hotel booking site to a user-friendly platform where consumers can go to create an entire travel experience from hotels to flights to restaurant reservations.
Another model that has seen great success in other industries is the subscription model. With Netflix as the leader, the last few years have seen an explosion in subscription-based products and services, from clothing rentals to meal delivery services. Consumers have embraced this model, which provides them with a product or service they want with the added convenience and predictability of a fixed price.
So how would this play out in the travel industry? A few airlines are already leading the way. Volaris, which operates several low-cost routes through Mexico, has recently launched V.Pass. For a monthly fee of about $20 USD, subscribers get one flight a month, anywhere Volaris flies. Even if the traveler doesn’t fly every month, they still get value from the subscription.
Lufthansa Innovation Hub is also trying out the idea with Flightpass, where consumers pay a set price and get a pass good for 10 flights within 6 months, with special pricing and routes for students or business travelers.
These two companies have shown enthusiasm for the model, while also acknowledging the challenges. According to Phocuswire, Volaris’ Juliana Ramirez, business development senior manager explained at the Aviation Festival in London that the V.Pass service provides predictable cash flow for the company but they are still working on optimizing their yield management strategy with this model.
Lufthansa has had a similar experience, Gleb Tritus, managing director of their innovation hub shared with Phocuswire, “It sounds easy, but it’s heavily complex on the revenue management and network side” but they have seen high consumer acceptance and are planning to establish it long-term.
This business model has potential for travel companies other than airlines. In a recent Swift.com survey of individuals who work at travel startups, 27% expected subscription-based models to be frequently adopted by travel companies over the few years. Some have already tried. Several years ago Trvler promised “random adventures every few months” for a monthly subscription fee, while Subtrav offered a pay-what-you-want subscription for adventurous travelers. Neither idea took off.
But as consumers grow more and more accustomed to shopping by subscription, new startups are giving it a go. As one example, Finalprice has recently started offering a subscription travel booking app that charges $99 per year with the promise to get the best rates on hotels and airlines. The question is, will consumers be willing to pay upfront for services they’re used to getting for free.
One of the challenges of a subscription-based model for travel is that many consumers don’t travel enough to make it worthwhile. To be willing to pay a monthly or annual fee, consumers need to see the value over the long-term. Companies that are looking to explore this model need to provide a unique offering, added value, and potentially target those who travel more, such as business travelers.
For companies who can offer such value to the consumer, there are several benefits. In addition to steady cash flow, subscription revenue can provide an opportunity to focus product development around key customers and can provide more freedom to scale effectively.