Travel industry dynamic packaging: Here to stay or on the way out?

May 23, 2022

The rise of dynamic packaging in the travel industry.

Back in 1841 a Baptist Missionary called Thomas Cook had a bright idea. He wanted to go to the Temperance rally in Loughborough and he knew a lot of other people who wanted to go too. What if he arranged it for everyone, threw in some extras, and charged them a fee in advance? That was the start of package tourism. An 11-mile train trip from Leicester to Loughborough, including tea and a sandwich, for Thomas Cook and 500 of his teetotal chums.

From there package tourism grew and grew in the UK as people happily left the difficulties of organising holidays to professionals. Package holidays had their heyday in the 90s as everyone jumped on week-long summer-seeking trips to the Costa Del Sol or the Algarve.

Then, the European Council relaxed rules to create a common aviation area across Europe and along came Easyjet and Ryanair and low-cost flights. Online disruptors made it much cheaper (and still pretty easy) for people (or smaller, nimbler online travel agents or OTAs) to put together their own packages. Dynamic packaging was born.

Over the past 15 years, travel agents and OTA’s replaced selling the big tour operators with dynamic packages. Combining low-cost carriers’ flight seats with hotels and the use of bed banks.

And it grew and grew and grew, expanding further by customers ‘self’ dynamically packaging using Skyscanner, and, increasingly, Google’s travel tools.

COVID changed the packaging dynamic

Then COVID hit the travel industry like a tsunami. Along with the massive drop in travel, and revenues suddenly, booking things yourself wasn’t that easy.

Travel regulations kept changing, flights kept getting cancelled, dates moved – dynamic packaging became a nightmare. Faceless’ self-service booking platforms with no customer service phone number (or even no customer service), were incredibly difficult to get credit from, let alone refunds. Many firms went bankrupt completely, leaving customers with even fewer options. Even if you did manage to get refunds, or credits, from multiple different operators – making them all line up again to book your next holiday was nigh on impossible.

The appetite for dynamic packaging has been severely dented for both customers and agents’.

So, people started booking with traditional big tour operators again. With better customer service, more financially secure operations, more flexible booking and refund options – they gave people the security and comfort to book travel in challenging times. This trend is still happening, with Tui expecting a very strong summer of travel this year.

Fully bonded ATOL holidays are likely to be in higher demand, but there are far fewer ATOL licences around these days. Many OTAs have also lost their appetite for dynamic packaging, instead selling bonded holidays from major tour operators or using self-service packaging portals like On The Beach’s Classic Package Holidays.

Will this trend continue? Is dynamic packaging permanently on the way out? For an answer we need to look at what else is happening in society.

It’s not just dynamic packaging that’s changed

COVID has changed so many things in society, so suddenly, and we’re really only in the early days of recovery. While the old 9 to 5 seems likely to be a thing of the past, experts are still divided about what the normal working week will look like, or even if there will be a normal working week.

Our increased use of digital during COVID has greatly accelerated society’s overall use of digital technology, not just for luxuries like travel, but also for essential services. People are 60% more confident of using digital government services now than before the pandemic and digital health services, including remote medial consultations, have seen a dramatic lift.

Even if some of this digital activity shifts back to the physical world, it won’t all come back, things have changed irrevocably. This permanent shift to a more digital world will be the same in the travel industry, which seems to benefit OTAs, but whether it means an end to dynamic packaging or not, still seems uncertain. That’s because as well as COVID changing the world, other changes are happening too.

What happens next is uncertain

Climate change, Russia’s war in Ukraine and the shifting balance of power in the world between the USA and China means we are all living in a scarier, less certain world. These factors, combined with COVID, are impacting all aspects of our world.

Many people are re-evaluating their priorities in life, placing less emphasis on work and greater emphasis on other things. They are putting greater importance on security and health insurance and other safety measures when they book holidays.

In general, people are less comfortable leaving their country, long-term, because of increased travel difficulties and greater fears they might not get home that easily. Other people are more concerned with seeing family and friends that they’ve been separated from rather than, travel and new experiences.

A lot is still uncertain. The only thing that is really certain is that we don’t yet know how the world and the travel industry will be impacted long term. Smart people, and companies, will be able to quickly adapt their approach when the situation changes.

For travel companies that are planning ahead, and thinking about the way they structure their organisations and systems, flexibility will be key.

That is the way we are organising our company, and what we are prioritising. We’re continuing to enhance our flexible, modern, fast payment solutions so that our clients can work with whichever suppliers and partners they want – whether that’s traditional big names, a myriad of different suppliers to dynamically package holidays, or some new form of travel that none of us have thought of.

With the popularity of low-deposit schemes, and travel agents cash flows at an all time low, sensible agents will be focussing on improving liquidity, efficiency, and identifying additional revenue streams. Our payment solution with virtual cards enables OTA’s to turn supplier payments into an efficiency and revenue driver.