Flights may be grounded, but innovation in the travel industry has not stopped. The Covid-19 pandemic has encouraged travel players to reflect and review their payments strategy to cater to travellers’ evolving expectations and strengthen their loyalty. The subscription payments model is increasingly gaining traction across many sectors: in a nutshell, customers increasingly subscribe rather than purchase a product. Will it also be adopted amongst travel merchants and their customers? This article will introduce what has been identified as “the Netflix-ization of travel” and its challenges.
Overview of the subscription payments model
Economic instability has led consumers to be more cautious spenders. Offering customers the ability to travel without a significant upfront payment may appeal to both travel merchants and travellers. From the travel merchant perspective, subscription plans can offer the security of recurring revenue to support their current lack of cash flow, while increasing customer retention. For travellers, subscription plans could ease the buying process or offer benefits such as access to special deals. These benefits could be applicable to both corporate and leisure travellers. In 2019, the number of Volaris customers using/subscribing to their subscription product grew 20% per month. Furthermore, the significant overall growth of the subscription economy (subscription businesses grew approximately five times faster than S&P 500 between January 2012 and June 2019, according to Zuora) and innovations in technology, support the potential emergence of subscription payments in travel.
So, what does subscription travel look like? Several examples have emerged in the travel market from various industry players such as hotels, airlines, car rental and Online Travel Agents (OTAs). La Compagnie launched a subscription model pre-Covid, offering an annual pass plan for exclusive business class flights starting from $35,000. Air Canada tested in 2020 an ‘Infinite Canada Flight Pass’ involving a monthly fee giving access to unlimited domestic flights. InterContinental offers ‘work from hotel’ packages at monthly rates starting at $1,100. Etihad introduced a TravelPass for frequent and business travellers covering a specific time or number of flights. Sixt responded to customers wanting to rent cars for longer by launching Sixt Plus, a monthly subscription car rental plan starting from approximately $760 per month with no sign-up fee. And eDreams has expanded its Prime product to include subscription plans for special deals for hotels as well as flights.
However, subscription travel is not without its challenges. Covid-19 travel restrictions continue to have severe impacts on global travel. As long as restrictions are imposed, travellers will need to have the required flexibility to make changes and cancellations. Furthermore, locking travellers into longer-term payment schedules during a time of financial hardship might have limited appeal and may even deter certain travellers. The question can also be raised as to whether the frequency of travel, compared to online content subscriptions, complicates the value proposition of subscription travel. When the service provided via subscription can be used daily, compared to travel, which would be limited to longer use intervals, does a subscriber’s perception of value change? Lastly, the exclusivity of selected subscriptions being offered means the accessibility to these plans can be limited. Therefore, will such plans be effective and provide the value that many of them boast?Not all travel industry players have seen the appeal of incorporating a subscription model in their payments strategy. Prior to the Covid-19 pandemic, many airlines were critical of using a subscription model due to the risk of losing sales and implementation complexity. However, a global pandemic has swayed certain players. IATA’s Director General and CEO, Alexandre de Juniac, stated “Financially, 2020 will go down as the worst year in the history of aviation”. As a result, airlines are eager for revenues, which has encouraged certain industry players to explore a subscription model. Such a change requires investment and not all travel merchants have the booking platform or the payment acceptance capabilities to support subscription-based offers.
By working closely with payment experts, merchants in the travel industry have the opportunity to optimise their payment strategy through an in-depth review, using the likes of a 360-degree payment diagnostic. It is an important time for travel merchants to comprehend the impact their payments strategy has on their revenues and understand which strategic payment options may be beneficial. Specialised payment consultancies such as Edgar, Dunn & Company are experienced in supporting the development of payment strategies and have the market knowledge to define the appropriate payment acceptance strategy and match payment service providers with industry players’ needs.
In conclusion, the global pandemic has encouraged travel merchants to rethink their strategies to respond to travellers' new expectations. Certain players see value in testing subscription payments to secure regular revenues and increase customer retention. However, the roll-out appears to be in its early stages, and it is not without its challenges in the travel sector. As with any new business model, travel merchants will need to experiment to determine if travellers will be eager to use the subscription model for travel services and if this is a viable model for their business.
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).