Changes in pricing and conditions – blog series on the status quo of the industry development (part 3)

What is the current status quo of the industry development?

The Corona pandemic has posed major challenges on the tourism industry worldwide. Therefore, Dr. Fried & Partner and the Travel Industry Club asked at the end of 2020 how things will go in the medium term and carried out a corresponding scenario analysis. Result: A “metamorphosis” of the industry was seen as the most likely scenario. Almost six months later, Dr. Fried & Partner has now carried out a study on the status quo of the industry development to determine how the travel industry has dealt with this period of standstill and whether it has made use of it.

In this blog series we look at the different areas that the study focuses on and provide insights into results and conclusions.

Over half of the sample are managing directors or owners

The survey accompanying the study, which was carried out in cooperation with the Travel Industry Club and in which over 300 industry experts participated, took place from 19 April to 5 May 2021. Over 50 percent of the participants are managing directors or owners. In addition, the sample consists mainly of the segments of tour operators, travel sales, accommodation, IT and data companies as well as consultants.

Pricing and conditions are not exposed to major changes

This article sheds light on the question of how extensively companies have made changes in pricing and conditions since COVID-19. Using a scale from 1 (very extensive changes) to 5 (no changes at all), questions were asked about the extent to which price flexibility was introduced, to what extent revenue management was further developed, whether approaches to increase contribution margins were initiated and service fees and additional charges were introduced. Compared to the other areas covered, we see the smallest changes around pricing and conditions.

Approaches to increase contribution margins initiated selectively

As the above graphic shows, approaches to increase contribution margins were only initiated selectively (evaluation: 2.90). The quest for higher profit margins is generally omnipresent – Corona has only increased the pressure in this context. According to Dr. Fried & Partner, the focus in particular lies on expanding direct sales, developing new pricing models, and launching new programs and supplementing additional products and services with higher profit margins. Upselling offers are being used more and prices are being raised. However, in some cases, corresponding price reductions were also advertised. In the flight sector, artificial intelligence is increasingly being used to control ancillary revenues.

Average degree of change in price flexibility and revenue management

A similarly mediocre degree of change was perceived regarding the introduction of flexible pricing (rating: 3.10) and the further development of revenue management (rating: 3.11) in companies. In the course of the pandemic, many providers introduced more flexible conditions for payments and cancellations and offered corresponding flex prices and various packages. In some cases, more flexible deposit and cancellation conditions without price increases were advertised. The question now arises to what extent the end customer has got used to the introduction or expansion of flex rates and expects them to be offered in the future. In addition to this, more flexible payment models have also been made possible.

The logic in revenue management has changed, especially in the flight sector. New pricing models such as “continuous pricing” were introduced, free rebooking was made possible and “pay as you fly” was offered selectively. The call for the latter has recently been growing louder, especially from consumer advocates. While these developments were strongly driven by COVID-19, topics such as “continuous pricing” or NDC surcharges were promoted before.

Very minor changes in introducing service and additional fees

Regarding the introduction of service and additional fees (rating: 3.76), the experts attest very little progress. An uneven distribution of the answers indicates the different importance of the topic in the segments surveyed. The introduction of service and additional fees is particularly relevant in stationary travel sales and while the industry has been discussing the advantages and disadvantages of an introduction for years, the call for it became even louder during the pandemic. Accordingly, more and more offices are introducing such a fee. In the summer of 2020, Dr. Fried & Partner and the Travel Industry Club organised a Think Tank on this topic and highlighted the corresponding opportunities.

Series on the status quo of the industry development

• Part 1 – Changes in structures and processes
• Part 2 – Changes in products
• Part 3 – Changes in pricing and conditions
• Part 4 – Changes in customer approach, sales and marketing
• Part 5 – Changes regarding employees and activities outside the tourism industry

The Travel Industry Club

The Travel Industry Club is opinion, network, and future. This is where the makers and movers of the travel industry meet, and together the future of tourism is thought out independently. This is where complex future topics are discussed, and ideas are developed – and all of this with a view of the bigger picture. In addition, the Travel Industry Club puts the economic importance of the travel industry in the spotlight of the public, media and politics and brings young talents together with the leading players of the industry through the initiative “Young TIC”.