Why Aren’t Travel Brands Creatively Generating Revenue?

Filed Under: Advice

Obviously all kinds of companies are in a terrible situation right now, though I can’t help but feel like many travel brands are leaving some easy(ish) money on the table…

I’ve been trying to support small businesses

While revenue here at OMAAT is obviously way down at the moment, we’re lucky enough to be in a position where we can sustain the current circumstances for a long time, since the business has been expecting a rainy day. The same is true personally, which I’m grateful for.

On a personal level, I’ve been doing what I can to support local businesses that I frequent by buying gift cards (even if I’m not using the business right now), and tipping well for the services I continue to use.

From our favorite local restaurants to the places where Winston gets groomed, we’re doing what we can, and recognize the situation so many small businesses are in.

Travel brands: why aren’t you getting creative?

While I’m buying gift cards for small businesses, I’m not about to do that for publicly traded companies out of the kindness of my heart, for a variety of reasons.

With major travel brands losing an insane amount of money at the moment, I can’t help but feel like they’re not getting very creative with ways to generate revenue. If the issue for them is cashflow, then why aren’t they giving consumers an incentive to purchase future travel?

The principle is the same as with small businesses — I’m willing to pay now for some future experiences, but for mega-companies, I need some incentive to do so.

Two particular concepts come to mind:

Points should be sold at much lower costs

Many travel brands are continuing to sell points, though in almost all cases we’re just seeing brands sell points at their normal discounted costs, rather than especially low costs that account for circumstances.

While current promotions might represent a good deal for some, for a vast majority of people they’re a “hard pass.” Why not change that?

For most loyalty programs:

  • Margins on selling points are huge
  • Odds are that margins will be increasing even more, since it’s unlikely the travel industry will recover soon (meaning there will be more empty seats on planes, and more empty hotel rooms, which reduces the cost of redemptions)

Why not sell points somewhere between the cost at which they usually sell points to consumers, and the cost at which they usually sell points to banks?

On top of that, why not temporarily lift the limit on how many points consumers can purchase, at least when that’s contractually possible based on the agreements travel brands have with co-brand partners?

Surely this would greatly stimulate demand. If Hilton were selling points for 0.4 cents each, 0r Hyatt were selling points for 1.2 cents each, or American were selling miles for 1.2 cents each, I’d probably buy a lot of points.

Etihad A380 first class

Gift cards should be sold at a discount

If travel brands are having liquidity issues, why are we seeing virtually no travel brands sell gift cards at a discount? From airlines to hotels to cruise lines, I don’t know of a single major company selling discounted gift cards at the moment.

It’s ironic because some airlines are offering bonuses when you accept a voucher over a cash refund for an existing ticket, but they’re not offering a similar bonus if you outright want to purchase a gift card or future travel.

From American Airlines to Aman to Lindblad Expeditions, is no travel brand willing to take someone’s money towards a future travel experience at a discount?

Heck, we often see travel brands do this, so it’s odd we haven’t seen this now. For example, Fairmont sells gift cards with a 20% bonus twice a year, Hyatt sold gift cards with a 10% discount last year, etc.

Aman Sveti Stefan

Bottom line

I realize that the above won’t singlehandedly get cashflow for travel brands back to where it was, though it would be better than nothing. Given that airlines and hotels have people running loyalty programs, people running gift card programs, etc., you’d think there would be some opportunities here to get creative, but we’re seeing very little of that.

How much of a bonus would you need to buy a travel gift card right now? At what price would you purchase your favorite points currency?

  1. I think it has largely to do with C suite misguided perceptions. The average consumer is not like us. In other words, most don’t place monetary value on points for hotels, airlines as we do. I have plenty of family members that will redeem 50k points to fly coach to LAX.

    They don’t understand that valuing AA miles at 1.6 cents a mile is laughable to us. I truly believe AA was trying to give a deal. To them they were. To us not so much.

    Didn’t you just have a story how people are still buying a billion miles a day or something. People are buying miles. Until that stops they have no need to get creative.

  2. Why would we want to invest in companies that may disappear? There’s no guarantee that any particular travel company, large or small, will survive. This is a time to husband resources. Anyone who thinks this will end reasonably soon and that employment will rebound is mistaken, in my opinion.

  3. @ Ted — That’s the point, there should be a greater reward for the risk. I’m not saying everyone should buy points or gift cards, but am saying that significantly more people may be willing to buy an airline gift card with a 20% bonus rather than at face value, and more people may be willing to buy points with a 150% bonus rather than a 100% bonus.

  4. Gift Cards are not being pushed by anyone at the moment because of accounting reasons. When you purchase a gift card it has to be recorded as a liability on the books. It’s not recorded as revenue on the balance sheets until it is redeemed. So it actually is worse for companies to sell gift cards during these cash strapped times.

  5. I agree with you especially since people are starting to get the economic stimulus checks this week. I understand the purpose of this money is for Americans to stimulate the economy but I do have a feeling people may simply save that $1200 for his/her emergency fund.

  6. Lucky,

    Having worked for numerous large companies it comes down to costs. The marketing department is considered a cost center so during a downturn they are the first to get laid off or furloughed. Likely, many of the marketing departments of the large companies are currently furloughed so there are few people left to develop these promotions.

    Plus, companies often believe that discounts dilute their brand value and thus aren’t going to spend much money to do this. That is why instead we often see Amex offers or discounts through third party travel agencies. These are not seen by many of the loyal customers of the company and instead are a targeted discount to incentivize further travel.

    However, I do agree with you that it if travel companies didn’t have so much bureaucracy, they likely would be offering discounts on gift card purchases or selling miles at an even lower price.

  7. You will see these deals and more pop-up on the other side of this. Right now most people aren’t thinking about travel, and those that are don’t want to spend money on it. They likely don’t expect tons of takers on deeply discounted points or GCs at the moment, and it needs to be contrasted against getting a low-interest loan from the gov’t.

    Once the growth of cases starts to slow down and there is serious talk about reopening borders and thoughts of encouraging travel, that’s when you will see deals start coming up as a much larger take rate will occur at that point.

  8. Very early on when all of the pandemic started, Chef Emeril Lagasse started selling $100 gift cards good for any of his restaurants – with 100% of the money going to a relief fund for his employees. This is a fantastic idea, a great motivator and gesture, as well as a great business idea. These are the types of businesses I will be spending my money now as well as in the future.

  9. Maybe the brands should pull themselves up by the bootstraps and get a second job 😉

    Joking aside, I agree that they haven’t been creative enough. Airline miles go on sale often and they sell at relatively the same prices. Anything advanced purchasable hasn’t been giving me any desires to buy. If they really do need the money, right now, I’d think they would try a bit more?

    Also I’d be all for AA selling their AAirpass like the good ol’ times!

  10. Doesn’t the same apply to airfare and hotel rates? It seems to me (am I wrong?) that from 6 months in the future until the end of the schedule, prices are at regular levels.
    It seems like the companies are waiting to see how deep the crisis will be and what they can get from government before trying to seduce consumers.

  11. Remember that points and unredeemed gift cards are a liability on the books for the brand. While it might be good to get cash flow if they really need it, you’re adding liability onto the books. Could also take out a loan to do the same thing.

  12. Why empower the customer when they can wait for big bailouts from the government? Socialism at it’s finest!!

  13. I think they’re in denial. They’re hoping that by June/July travel will be back (maybe not where it was last year, but significantly recovered). They don’t want to give any deals until they’re sure that this fiasco is as bad as it seems.

  14. @ORD Flyer – When you record a liability you also need to record a debit and that would to cash. Cash during a time like this is king – you need to pay employees, pay vendors, service your debt. You don’t care that you have deferred revenue as long as you can keep the lights on.

  15. There is a lot deeper stuff than trying to be creative here.

    How much do you think airlines can make money from selling cheaper miles. Will the volume really helps? As a comparison DL is losing $50M every day. Do you think mileage or giftcards can sustainably offset that? Most people buy and burn miles or gift cards in few months. The are very few who will be travelling in upcoming months. The savvy ones, much smaller footprint too, would know there isn’t any reason to hoard more miles.

    Now to the ignored downside that isn’t discussed. What will be the cost of having a quick cash scheme?
    Public reaction. You bet if I see airlines or hotels selling much deeper discount means its their last ditch to grab cash. At worse they are literary going out of business. This message will send the stock crashing. Guess what, it affects loans and credit ratings. These loans are the lifeline of airlines right now.
    So unless they will be making $50M daily for the next 6 months selling miles or gift cards, I see no reason for them to take any risk of making things worse than it should be.

    From the last few topics like this, its sad that most people really don’t know how economy or business works. Many don’t see the big picture of consequences, yet these are the people who complain about bailouts but are happy with getting the $1200 check.

    @ORD Flyer

    Having liabilities is not necessary a bad thing, especially in times like this. The bigger question is what is the cost of it. Does a no maturity zero interest loan sound better? Also hard to believe but I think a study shows 10-20% never got used, so they are (on non accounting) making money here.

  16. @ Eskimo — I’m not sure I follow your logic here. As I said, in and of itself this wouldn’t solve the problem, but every little bit helps. Airlines and hotels continue to sell miles at discounts, which suggests they find it to be worthwhile. If they could exponentially increase sales, you think they wouldn’t want to, just because it doesn’t amount to $50 million per day in sales?

    Again, I didn’t just give the example of major airlines that are used to $50 billion per year in revenue. I’m also giving the example of Lindblad Expeditions, Aman, etc., which are much more “boutique,” and where people are paying for expensive experiences and are likely to return.

    As far as the public reaction goes, I’m not sure I follow? Airline after airline has stated they are on the verge of going out of business. It’s not like their financial situation is any mystery. I think we all know they’re desperate, and that’s why there should be a significant discount over normal prices.

    If you don’t agree with selling points at a discount, fine, but then I raised the topic of gift cards. Companies are saying they can’t afford to refund people, and many are offering a bonus if you accept a voucher. So why not do the same for those willing to give these companies some money?

  17. Lucky – I reached out to your award booking service to inquire about a discount, given business is way down. But go no response. Perhaps these companies are not getting creative for the same reason you aren’t (whatever that happens to be).

  18. @Lucky

    Fair enough, “boutique” might not fall under my comments. Since they are not public a lot could be unknown which doesn’t result the same. I also agree being smaller and more personal connection does entice me to ‘support’ them too, especially if they were nice. But they might also do fall under my comments, just at a smaller scale.

    Now let me explain the big public airlines. Yes they are desperate but that doesn’t mean they are very desperate yet. As in AA or UA share price isn’t near $0. They have cash to survive for many months. Showing signs of even more desperation (i.e. cash grab) means share price will move closer to $0. What this does (and I’m simplifying things here a bit too), make the airline less trustworthy for loans. Means instead of banks giving out more loans (more cash), banks would call their loans (less cash) before bankruptcy or refinance (they have to protect themselves too). In a time where cash is essential, they have to maintain cash before anything else. Selling gift cards or miles right now only point to cash grab, which is not a good signal to send.

    Accepting voucher instead of refunds already made them look bad, why make it worse. And remember those are damage control to an already engaged contractual agreement. Selling miles and gift card is nothing more than creating more problematic contractual obligation.

    Again, if they can make a living out of selling future travel, they should. But for all the risk just to make a few extra million isn’t worth it.

    I hope I addressed your point.

  19. Here’s a creative idea – to better hoard cash, offer the 20% voucher kicker to NOT cancel AA was selectively offering to everyone. I and many others would happily do that over a full refund (which should be easier now that the DOT woke up).

    Voila, win/win situation. But no, airlines are stupid and greedy.

  20. @Lucky I work for a company that measures consumer willingness to pay. Dropping prices can often be a fools errand. In many situations it’s unlikely to stimulate enough additional demand. The current situation is dominated by fear and the majority of people who are willing to spend money now will keep spending it without any discounts. You might entice a few extra people to spend with a discount but you also end up discounting to those people who would have purchased without a discount.

  21. Actually I know of one major brand that is currently researching this very topic by engaging with their long term top tiers. It focuses on bringing in revenue to the company earlier. Some of the proposed ideas are very rewarding for the consumer.
    The smarter brands have teams dealing with the fallout from the pandemic, teams focusing on “starting up” again once the bans are lifted and teams looking at revenue streams.

  22. My guess is the US3 most likely have contracts with banks that says the lowest they will sell to general public is X cents per mile. Hence it is unlikely they will sell the miles for cheaper price.

    For brands like Aman, they don’t need to sell gift cards etc. Doronin has a big balance sheet that can withstand current downturn. Plus there are other investors who bought Aman with him and they are loaded as well. People who can afford to go to Amans will still be able to afford to go during/after this crisis. There is no need to dilute a brand like Aman for a short term gain that’s not needed. Smart wealthy people would have already diversified before this downturn hit. Sure, they are loosing money like everyone but someone with a balance sheet of 10M will still be able to go to an Aman or Four Seasons when his/her balance sheet dwindle down to 6M. Remember there are over 1.3 million people in United States alone that has a household net worth over 10 million. You just need a small percentage of that to fill the beds at Amans. I remember in 2009 I went to Fairmont and Four Seasons on the big island. Fairmont’s occupancy rate was perhaps 30% at best while Four Seasons was easily over 90%!

  23. If unemployment hits 10-15% (which is very realistic) I predict it will take a while for the employment situation to rebound and therefore the travel industry may have no choice but to discount airfares/hotels since demand will be less even after the restrictions are lifted. Those bachelor/bachelorette parties will likely diminish, families racing to the airport every time there’s a school break of more than two days will become car trips to relatives. Spring break in FL will be Spring Break where people can drive in less than a day and stay at a friend’s house looking onto a field or hills, or just someplace other than home.

  24. Companies will take a wait & see approach following government aid before offering significant promos. People are also scrambling to make ends meet right now – not much of a ready market.

  25. @Cliff
    Is there any place online where I can find the Four Seasons discount? A google search doesn’t seem to turn up any results.

  26. @Other Kevin, I agree with you 100%. Some brands won’t dilute their value (in addition to goodwill with existing guests) if they sell gift cards at a discounted price. For Aman, after COVID you will see the usual rate but with added values (free lunch or dinner or offer some packages). That is what I would do if I were to run an Aman or a Four Seasons.

  27. At 1.2 Cents for AA points, that means for ~$660 worth of points you can book their Web Special First Class award to Tokyo. That’s crazy! And business would be around $540 with that deal. I’d buy them in a heartbeat. Qsuites from the U.S. to the Maldives for $840, yes please 🙂

  28. @kenindfw not *that* AAirpass. The old one without the nerfing. Of course maybe they learned a few things since then haha

  29. Probably because theyre scared of getting a PR backlash, and at the same time, they arent sure when people will be able to travel again.
    Also, as somebody else wrote, these sales will count as liabilities in their books, and they want to minimise liabilities till the situation comes closer to normal

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