Do you know that Madonna’s song from the 80s, i.e., “we are living in a material world”?
It is true in the 80’s, it was all about buying and owning stuff… your car, your primary and holiday home, your yacht (for the richest…), your Walkman (ancestor of the IPOD and MP3 mobile players), your music tapes or LPs….
Four decades later, it seems that we have become more “un-material”.
It is no longer about owning, but rather easy access to an experience by subscribing monthly to a service, e.g., your films (Netflix), your music (Spotify), your books (Amazon Audible), your IT (google workspace, Amazon web services, Office365), your mobile, your internet access, your magazines, your grocery stores, your health insurances, your dating site, your fitness club, your food diet program… And whenever you are fed up with one of these services, or you can no longer afford it, you can just unsubscribe.
Travel & transportation industry seemed to be lagging behind adoption of monthly subscription models. But recently with COVID and the emergence of “nomad” traveller tribes, monthly subscriptions are progressively entering the space of travel & transportation.
Let’s illustrate this with few examples:
Car monthly subscription: Less and less people now own a new car (especially the
electric ones which are quite expensive), and leasing has become a default option. Yet, we also start to see more and more car monthly subscription offerings.
Compared to leasing, here you have nearly no upfront payment and no long-term engagements. This makes sense for emerging nomad remote workers for which a standard rental car contract would be too expensive, i.e., when Jerry works two months in sunny south of Spain (instead of grey London), he needs a car at an affordable price during these 2 months. Big car dealer marketplaces like Cazoo, recently valued at $7bio, have led the way. But such shift makes even more sense for car manufacturers who see the opportunity to extend their customer lifetime value metrics beyond a car purchase transaction which occurs every 5 to 7 years.
With such business model, recurring maintenance and used-car trading revenues can be channelled more systematically towards car manufacturers instead of car dealers. Volvo, Audi, Lexus, Porsche have move towards this direction. Cadillac stepped back at some stage after an early start; it did not quite find the right profitability balance.
Renault has initiated experimentations for its trucks business line, partnering with Wagonex marketplace, a UK-based start-up. Lastly, rental cars like Hertz, Sixt are also making such move.
Airline monthly subscription: in mid-February 2022, Alaska Airlines announced a subscription service to be redeemed for 6, 12 or 24 nonstop trips a year to eligible destinations in the Western U.S. Let us introduce you the "Flight Pass" starting at $49 per month or Flight Pass Pro starting at $199 per month. Both plans allow members to book up to 90 days in advance. Flight Pass requires members to book at least 14 days in advance and “Flight Pass Pro” allows for same-day booking (up to two hours before departure).
As we speak it is too early if this is going to become general trend through other airlines. Yet, for certain Low-Cost Carriers this could make perfect sense. Streamlining such business model might push airlines to rethink their airline frequent flyer loyalty programs and derive new perspective within airline alliances.
Looking further, amongst many start-ups designing forthcoming electric-based air taxi services (e.g., next generations airlines based on, eVTOL, electric Vertical Take-Off Landing aircrafts) are seriously considering monthly subscription models to operate their “on demand” air taxi services on a more resilient basis thanks to a more recurring and engaged customer-base.
Hospitality subscription model: The sharing economy with Airbnb has been the premise towards a subscription model consumer mindset; you no longer need to own a vacation flat to have a personalized local experience anywhere!
With COVID, hoteliers were amongst the first affected following the “airbnb home sharing tsunami”. Consequently, as an evolution of the “old” time-sharing model, some hoteliers are now trying out the monthly subscription model. For example, Citizen M offers a global passport for various US and European properties where one can purchase monthly blocks of flat fees of $50/night, with a minimum stay of seven nights and a maximum of 29 nights. The start-up Outsite is taking a “community” angle for remote workers: pay a community membership and access to various perks including accommodation in shared villas.
The luxury travel group Inspirato proposes for $2,500 a month, subscribers can stay at 300 accommodations globally with no nightly rates, taxes, or fees. Other players like Freehand Hotels, Zoku (micro apartments) are lining up. And this is the beginning as big brands like InterContinental Hotels Group, Marriott and Accor are also considering monthly payment plans. If one compares big cruise lines to floating accommodations (in many cases benefiting from a loyal customer base), there are even more incentives to stretch current business models with a monthly subscription model, especially for retired folks or sabbatical leavers; this would make the business more resilient should further crisis arise.
TMC subscription model: TMCs (Travel Management Companies, i.e., large corporate travel agencies like AMEX, BCD, Carlson Wagon Lit…), are being impacted by this trend through their direct customers, corporations travel managers. Originally TMC core revenues were based on a commission approach for each airline seat ticket issued. But when airlines cut down commissions, TMCs had to move towards transaction management fees charged to corporations per trip booked.
This counterbalanced the loss of airline commission revenues. However, this latter business model is being challenged by some corporation travel managers. And it is also being challenged by the TMCs themselves especially when they might be losing money when servicing efforts are much above the total value of management fees, as observed during the COVID pandemic. Amongst various alternatives, a monthly subscription business model is on the table. And the fact that some travel service suppliers might also be moving in this direction, could accelerate the adoption of such model by more TMCs.
MIDOCCO, a travel IT provider had initiated recently an interesting debate on the subject. But, as a key take away, TMCs need first to rightly forecast real efforts behind to effectively serve corporations through such model, this, in order to avoid similar pitfalls as with management fees.
OTA subscription model: OTAs (Online Travel Agencies) have been scrutinising monthly subscription models for some time. In fact, some OTAs like Voyage Privé were originally set with a business model based on some kind of subscription model. ODIGEO, the leading pan European OTA, has launched through its brands, its “Prime” subscription program, i.e., “OPODO Prime”, “ eDreams Prime ”. Until recently at the last Phocuswright innovation event, Trip Advisor announced its evolution towards a monthly subscription model which would cost 99$/month; this program is still under trial in certain regions of the world. Now, what is common across these programs, is that they offer discounts and various travel perks on top of hotel room nights, flights seat purchases … In other word, you still must pay on top your hotel and flight, even though these might be discounted.
The start-up Berightback has a slightly different approach; the paid monthly fees go into a travel saving account which on top generates points. Based on you pre-specified travel desires, you will be proposed inspiring hotels and other travel products at discounted prices. And should your travel saving fund not be sufficient to cover the cost of very inspiring trips, you can always upgrade your membership.
One key question we might ask ourselves, is whether monthly subscription models in travel & transportation is yet another hype thing or whether it is here stay.
Few reasons why we believe this trend could remain:
The traveller has become a “monthly subscription native” in the same way when he became “mobile native” a decade ago. And when we consider on top the emerging nomad remote worker trend, subscribing to travel and transportation services fits in perfectly. Now, many of us might think that this “nomad things” only applies to a minority, i.e., single, young freelancers. According to a Phocuswright study done early 2022, 60% of these new nomad workers are 35+ years old, 80% have full time job, 75% have a middle management position, 75% have a life partner (engaged, married…), more than 65% have children.
More fundamentally, we believe that the nomad remote worker trend is here to stay as corporations face a talent war, and through COVID, talents realized that they could work in places that “allows them to better balance work and play”. So, corporations who comply with such employment flexibility, are more likely to attract best talents.
Corporations are also becoming “subscription natives”. Just look what an IT department looks like today compared to one or two decades ago. SaaS cloud-based business models have shifted drastically the approach to the extent that we deal more and more with start-ups and growing SMEs who are outsourcing most of their internal IT.
Travel service suppliers can make their business operation more resilient through
subscriptions. COVID has been a wakeup call where various travel service players realized how volatile their business was in case of major crisis. As such traveller monthly subscriptions can partly secure financial bottom lines. For example, not only airlines could have a more predictable revenue through a larger loyal customer base, but as well, it might provide more leverage to further hedge fuel price increases or any other commodity.
Monthly subscriptions encourage people to consume more travel on a regular basis. To
the benefit of travel players, a monthly subscription fee contributes to commoditising the act of purchasing travel. Travel becomes as normal and simple as to buy new clothes. Now, one challenge with subscriptions from a travel service provider standpoint, is to generate enough volume and cope with inferred membership costs. Thanks to major consolidations amongst travel suppliers throughout the past decades, such volumes condition can be more easily met today. But the challenge of predicting effectively when travellers are likely to use certain travel services and consequently ensuring sufficient operational capacity, remains.
As such, travel players need to become more data analytics savvy to better forecast traveller demand and operational cost impacts. Standard revenue management and demand prediction methods based on historical booking data are no longer sufficient. So, even though membership might not become the mainstream business model for many travel service suppliers, it might dramatically grow overtime and the ones who master the art of new data analytic techniques should make the most of it.
We conclude this trend analysis with a wishful vision…imagine we could pay 300-500 Euros per month to our favourite online travel agency and benefit any time from air tickets, hotel rooms, urban transportation options from a large variety of travel suppliers.
So, wherever you decide to travel for remote work or for a short weekend brake or just for summer holidays, you would just book it…And so away, high churn rates on website online payment pages. But as some might say, “be careful with what you wish for”!
About the author: Landry Holi is the founder & CEO of Fairval, a consulting firm offering strategy and finance engineering services in the space of travel & transportation. Landry has nearly 30-year experience in travel & transportation. You can reach out to him by email: landry.holi@fairval.com
