Pricing tactics vary by sector as consumers return to travel

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Travel cost
Photo Credit: Montri Thipsorn/Shutterstock

As the travel industry slowly and erratically reopens, some airlines and hotels, as expected, have begun slashing rates to lure travelers back to their struggling businesses.

But while some of those discounts have indeed been steep, industry executives and analysts say the unpredictable nature of a Covid-19 recovery could protect at least some sectors from the widespread discounting seen after other crises, such as 9/11 and the Great Recession, that ended up dragging pricing down for years.

“There’s a lot of people saying, ‘Oh, you’re going to have to offer the lowest prices in the market to get people traveling again,’” said Jack Richards, president and CEO of Pleasant Holidays. “We don’t necessarily agree with that because, I think, top of mind is going to be safety and sanitization protocols and convincing travelers that it’s safe to travel. We think price -- although it’s important -- it’s not going to be the leading variable to get people traveling again,” he said.

There are exceptions, Richards said, adding that Las Vegas, for instance, “appears to be focused on the lowest room rate to drive occupancy.”

On the flip side, he said, some other suppliers have increased prices to cover additional costs related to Covid-19 cleaning requirements.

Still, most agree that it’s difficult to predict how pricing will play out in the long run, given uncertainty about airlift; reduced air, hotel, cruise and tour capacity to accommodate for social distancing; and general unknowns about when widespread travel will be able to resume.

“There’s a huge amount of uncertainty,” said Aran Ryan, director of lodging analytics at Tourism Economics. “I can see a mix of things playing out, maybe multiple things at the same time.”

Hotel rates, for instance, are down about 22% this year, according to STR. And Jan Freitag, STR’s senior vice president of lodging insights, said they are expected to rise only about 1.7% next year.

Hayley Berg, economist for the booking platform Hopper, said domestic fares are down 20% to 30% compared with last year, and international fares are down 20% to 23%.

“Prices were really low to start with,” she said. “Now with demand falling off and the need to incentivize travel, prices are just incredibly low this summer.”

Southwest Airlines CEO Gary Kelly in a May 28 blog post said his airline was gearing up to “compete hard for customers. It will be a brutal low-fare environment, as there are far more airline seats right now, and there will be for some time, than there are customers.”

Cruise lines, on the other hand, report that pricing remains strong amid high demand for both new and rescheduled travel for next year.

“I think all the effort around price integrity that we’ve done, and I think others in the industry have done, what we’ve seen is people being much more measured in terms of taking pricing action,” Jason Liberty, CFO of Royal Caribbean Cruises Ltd., said during the company’s recent first-quarter earnings call. “You see more packaging, more promotional activity, but we are seeing your pricing stay relatively stable. And of course, the likelihood that there’s going to be some lower load factors for a period of time will also help support that pricing going into the early part of next year.”

Carnival Corp. CEO Arnold Donald said that even during the initial resumption of cruising, “With less capacity at the beginning of whenever the restart occurs, it’s very logical to presume there will be excess demand for the capacity available.”

River cruise lines also report that pricing remains strong. Ellen Bettridge, CEO of Uniworld Boutique River Cruise Collection, said the company has even raised prices on a few of its most popular 2021 itineraries.

Tour operators, likewise, say that as they look at a return with potentially smaller groups and increased health and cleaning protocols, any reduction in hotel rates likely won’t translate into price drops for guided vacations.

“Looking into our crystal ball, we are expecting basically a static price from this year,” said Steve Born, chief marketing officer for the Globus family of brands.

Ray Snisky, executive vice president of Apple Leisure Group Vacations, said they are seeing varying strategies by hotels and airlines.

With hotels, he said, many are reopening at greatly reduced capacity, and if “I know I am only going to be at 20% utilization, I don’t need to have a rate structure out there to try to get me to 70%.”

But as Phocuswright analyst Robert Cole notes, once hotel occupancy drops below 50%, some hoteliers are “going to look at it in terms of, if you can get any money in the door, that’s better than zero. Any business is better than none, so there’s going to be some desperation to discount and say, we don’t care. It may be a bad long-term move, but there may not be a long term for this entity. It’s rough to say that’s a bad business decision when individuals have to go into survival mode.”

Still, given the many uncertainties, industry consultant Robert Jocelyn warns it “would be a mistake to make any kind of generalization [about] what’s going to happen to prices in the travel industry as we come out of Covid-19, or as we continue to live with Covid-19.”

He notes that there are two sets of people: those who are afraid to travel and those who are going to travel anyway. Pricing, he said, will not dramatically impact either.

“But I think it’s a complex question, and it’s going to depend on individual companies and their strategy,” he said.

Jack Mannix, founder and principal of Jack E. Mannix & Associates, agreed.

“There are so many variables out there that we just really don’t know ... what’s going to be the best bet,” he said.

But rather than resorting to blanket discounting, he said, “the smart company today that can really refine who they’re going after ... I think they’re going to do better and it will help mitigate some of the negatives associated with where we are now.”
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Jamie Biesiada, Johanna Jainchill, Christina Jelski and Robert Silk contributed to this report.

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