In a turbulent year when it posted its first-ever Q2 loss and then exceeded expectations with a strong Q3 profit, Canadian travel giant Transat A.T. is taking a bold approach to the upcoming winter season.
Chairman & CEO Jean-Marc Eustache announced last week that the company would try to turn on its ear the last-minute pricing model that many Canadian sun-seekers have come to expect. Instead of starting with optimistically high prices then lowering them as the fiercely competitive marketplace had its way, Transat has vowed to offer its best deals to early-bookers.
“We used to start very high – and after everybody cut their prices, we were putting our price down,” Eustache told the Globe and Mail last week. “This year, we’ll start aggressively with a strategy of having low prices at the beginning.”
Eustache is banking on a recovering economy to free up the wallets of Canadian travellers. He thinks attractive initial pricing will result in brisk early sales, allowing the operator to raise prices as inventory diminishes. “You will not see the prices going down as much as last year, especially during the months of September and October,” Eustache said.
And, yesterday Transat Holidays and sister company Nolitours announced they will offer flights “by segment” to sun destinations this winter for departures beginning 01NOV. This new option provides travellers with greater flexibility than the traditional 7, 10 and 14 day package. Those travelling to destinations served by more than one weekly flight can opt to stay for the number of days they choose, based on the flight schedule.
This move could be seen as a response to increased competition from the tour operations of Canada’s two main sched carriers – Air Canada Vacations – which has ramped up its product offerings in the past couple of years, and WestJet Vacations, which has been expanding aggressively.
The wild card in the deck is the merged company made up of Sunwing Vacations and Signature Vacations. Sunwing Group management has built a strong rival to Transat with a volume strategy of low prices and thin margins. How it behaves in the marketplace this year may have a strong impact on the success of Transat’s plans.
Denise Heffron, Vice President National Sales & Commercial for Transat Canada, told Open Jaw that she believes her company’s pricing strategy will succeed even if other suppliers don’t follow suit.
“Pricing is just one piece of the puzzle. We got out to market really early this year to ensure bookings were in early. We’ve had a groups offer out since May, the flight schedule has been in place for months, the pricing we came out with is very aggressive… all that makes for early bookings which are so important.”
There’s no doubt that other tour operators – small and large – would like to see Transat’s pricing approach work. The Canadian market has been called the ‘worst in the world’ for margins by none other than Manny Fontenla-Novoa, Group CEO for Thomas Cook Travel plc, the world’s second-largest travel company.
“The concept is a good one for everyone but it will take 5 years of the same approach by all tour operators to reverse the trend,” says Jason Sarracini, President of TargetVacations.ca. “The second a price goes lower ‘last minute’ than it was at the ‘first minute,’ the idea is dead.”
Industry veteran Heffron is realistic about the competitive nature of the market, but she contends that every reservation counts, and the sooner they’re on the books, the better.
“For sure the market will dictate what happens to some degree. Competitive factors are at play which we have no control over. And it will always be hard to get someone to book for Christmas in May. The idea is to get the business on the books early.”
Transat has used other tactics to encourage early bookings, including a ‘best price guarantee’ at select resorts for bookings made by 30SEP. If the price of the same package drops prior to departure, travellers will be refunded the difference in cash.
Many retail travel agents would also like to see Transat’s efforts succeed. Rock-bottom last-minute pricing isn’t good for agent profitability either.
“Transat Holidays announcing low ‘first time pricing’ is a great idea for everyone, the travel agent, Transat Holidays and the consumer,” says Alexander Handa, President of Handa Travel Group. “We are definitely going to support them, but I do question whether or not they have that much control in the market to pull this off again.”
Dean Horvath, President of Vancouver’s Mason Horvath Elite Travel Experiences, sees Transat’s winter approach as a clear response to the expansion of Air Canada Vacations and WestJet Vacations.
“There’s no doubt that Air Transat had to make some serious changes coming off their first-ever second quarter loss. They’ve been forced to react to the entrance of WestJet Vacations and the expansion of Air Canada Vacations. These changes are obvious attempts to align Air Transat’s model closer to WestJet Vacations’ and AC Vacations’ model in an effort to directly compete with them.”
Horvath also couldn’t resist reminding Transat’s Eustache of comments he made back in June, referring somewhat disparagingly to WestJet Vacations and Air Canada Vacations: “Today, we have two new guys on the market. It’s not their business. They don’t know anything about that,” Eustache said.
Competition aside, Transat’s Heffron is confident entering another prime winter travel season. “We wanted to make sure we came out early with strong pricing – which is good for both the travel agent and the consumer. Summer to Europe was very strong and all indications are good for the winter as well.”