The basics of the package holiday have changed little in 60 years and, having failed to adapt to changes in the consumer landscape, this once-classic holiday format has become less desirable among today’s demanding holiday-makers. During the package holiday heyday of the late 1990s more than 20 million were being sold every year, but this figure has been steadily decreasing ever since.
Jet2 reported earlier in 2014 that demand for package holidays was below expectations and, as a result, the business’s 2014 operating profit was lower than anticipated. For many consumers, booking package holidays with travel agents has come to mean fixed holiday durations and inconvenient, inflexible flight departure times.
As the margins on package holidays become increasingly tight, agents are under pressure to maintain profitability. To bridge profit margins, the travel industry relies on ancillary products as revenue generators, such as travel insurance, car hire, event tickets and prepaid currency cards. The first IdeaWorksCompany ancillary revenue report for 2007 identified profits of $2.45 billion from just 23 airlines. By 2013, ancillary revenue dramatically increased, to include a 1,200 per cent increase of ancillary revenue disclosed by airlines globally.
Prepaid travel cards in particular offer an attractive solution to travel agents and tour operators who are looking for increased revenue. As well as within the package holiday sector, we are also seeing rapid growth of prepaid travel cards across the wider industry. Indeed, bespoke holiday providers not only see the income potential but recognise the value that cards can have in maintaining their brand as ‘front of wallet, front of mind’. Cards also offer their customers a much safer alternative than carrying large sums of cash. However, it is common across the market for the operator to earn commission only on the initial load, without any incentives to continue to push the product to the consumer. There can also be challenges around branding, integration with existing IT platforms and building the cards into BAU activities. There is no partnership approach and this restricted process does little to sustain the relationship between supplier and tour operator, and lacks discernible benefits for both parties.
At Tuxedo, we believe such restrictive programmes will soon become a thing of the past, as tour operators and travel agents look for more flexible and financially beneficial prepaid card suppliers. Our partner-led solutions are developed with the distributing partner very much in mind, providing them with a tailored prepaid product, which not only provides an ancillary revenue stream but also integrates seamlessly with existing business practices or processes. Most importantly for distributing partners, our prepaid programme provides a competitive commission model, designed to deliver significant income potential for partners, offering a generous commission rate, paid over the life of the card, irrespective of how the card is loaded, rather than a one-off payment on the initial load, as has been the industry norm. Our approach is designed for longevity with our partners, offering them a simple and lucrative prepaid solution.
We have also identified a gap in the market for card solutions to be designed with the aim of improving brand engagement among partners’ own customers. With this in mind, it is key for payment providers to deliver the options of own brand, co-branded or white label solutions to allow travel agents and tour operators to test the effectiveness and value of a prepaid solution with an own-brand market entry product before perhaps moving on to a white label solution. A bespoke branded card, along with all elements of customer communications, such as website and email newsletters, is integral to increasing brand engagement among customers and encouraging customer loyalty.
It is also important to consider how the cards will be sold. Providers must recognise that sales of the cards should be tracked by source, channel, branch and agent (including home-worker) giving distributors improved performance and channel analysis as well as the ability to pay commissions to individuals based on card sales.
We are also seeing clients using the cards as an enhancement to their traditional marketing and sales promotions; offering preloaded cards to customers instead of discounting holidays or adding free packages. This approach not only reduces costs of promotions as income is earned once the cards are used, but also provides a simple and cost effective way to increase distribution quickly.
The benefits to the customer are transparent too. Prepaid travel cards provide a convenient and safe alternative to carrying cash abroad and purchases can be made online, over the phone or in store for free. Whilst the market trend has been for multi-currency cards, very few people in the UK ‘hedge’ their holiday money, typically leaving it close to their departure before purchasing currency. As such, we believe that an alternative solution offers card holders much greater flexibility and reduced costs. Loading the card with GBP and currency conversion done at point of use, no matter where the cardholder is in the world, gives the cardholder a much more flexible solution as the card can be used in multiple destinations, on the same trip or future holidays, without the need to pay to re-convert currencies.
Through its adoption of prepaid cards, the travel industry can begin to lead the way along an emerging path of sales and currency processes, answering an inherent need for innovative, efficient and profitable solutions across the market.