Pricing tactics vary by sector as consumers return to travel

Pricing tactics vary by sector as consumers return to travel

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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