Navigating the travel subscription world
A guide for travel leaders
Travel subscriptions can be a challenging subject. On one side, most people are familiar with subscriptions, and understand what they are. On the other, in the travel industry, the term has often been misused to improve the appeal of other solutions, creating confusion.
In this article, we’ll help you understand what travel subscriptions are and provide you with the core concepts and vocabulary to differentiate the various types of travel subscriptions. To get started, we’ll clarify what a subscription really is.
What’s a subscription?
Subscriptions are something most of us take for granted. After all, we are all subscribed to something, be it a newsletter, access to movies, music, gyms, groceries, or even flights. However, very few people ever stop to think about what a subscription really is.
If we look at what a newsletter may have in common with, say, Netflix or a grocery subscription, one element will stand out: recurrence. Subscriptions are characterized by cycles where the user receives “something” on a regular basis. This can be anything from a set of groceries or a newsletter that gets delivered every week, to access to unlimited movies that gets renewed every month.
In paid subscriptions, these cycles are associated with automated recurring payments. The result is the equivalent of a recurring, passive purchase on the part of the user, where each month/week/year the users’ account is charged with a recurring fee that grants access to the products or services.
Automation is what separates a subscription from something like paying rent, and together with recurrence creates the passive purchase cycle that makes paid subscriptions so effective. This also helps differentiate subscriptions from the “bulk discount”, prepaid, solutions that are often seen in the airline industry and do not share the same mechanisms or results.
Types of travel subscriptions
Now that we have clarified what a subscription is, it’s time to see how the concept can be applied to the world of travel and how it can adapt to its unique complexities. To do that, we will start by putting ourselves in the shoes of a travel company that has to choose between the two main branches of the travel subscription “family tree” and then explore the options available on each side.
Influencing choice Vs influencing demand
Designing the right subscription program requires clear priorities and a good understanding of the tradeoffs involved in each decision. In the case of a travel company, the first decision to be made is where to create a subscription that:
- A) makes people who are planning to travel more likely to choose the company. (increasing market share), OR
- B) makes people travel more often and always travel with the company, boosting demand and ensuring the company captures 100% of the subscriber’s trips (increasing demand and market share)
The answer might seem obvious, but there’s a catch. On the surface, if a company can make people travel more and capture 100% of their trips, it should clearly do that. However, the company also needs to consider adoption rates, and several other factors that differentiate the two main branches of the travel subscription world: Trip Subscriptions and Clubs/Membership programs.
Trip Subscriptions are the truest form of travel subscriptions, where users pay a recurring fee and get access to trips. A good example would be Alaska Airlines’ Flight Subscription, where users pay a monthly fee and get access to flights that must be used within the month.
Clubs/Membership programs are an alternate form of subscription where users do NOT get access to trips but receive some perks, discounts, or special treatment, IF they decide to buy a trip. Good examples are Volaris v.club or eDreams Prime.
The difference between the two is significant. Trip Subscriptions have a strong, direct, effect on demand, and make subscribers immune to competitors. Club/Membership programs only have a relative influence on the choice of provider.
On the other hand, because the cost of a typical Trip Subscription is significantly higher than that of a Club/Membership, subscribers numbers will be much higher in Club/Membership and the program will be able to reach more users.
This means that the company will ultimately have to make a decision between influencing a relatively smaller number of people very strongly or a larger number but weakly. To make this decision, it will need to consider multiple factors, such as the variations that exist within each category.
Types of Trip Subscriptions
Broadly speaking, Trip Subscriptions can be divided into 2 branches, limited and unlimited. Limited Trip Subscriptions restrict the number of trips the user can take by using a quota that resets automatically with every payment. Unlimited Travel Subscriptions do not, although, as we about to see, their name is often misleading.
True Unlimited Subscriptions, where the user is allowed to travel as much as they want with no restrictions, are extremely rare in travel. This is because travel pricing is complex, and the value of a trip changes based on travel dates, times of day, occupancy, advance booking etc. making it very risky for a company to offer truly unlimited access to its inventory at prices users are willing to pay.
All You Can Travel (AYCT) Subscriptions are sometimes confused with True Unlimited subscriptions, but are in reality far from being unlimited. In these subscriptions, there is no limit to the number of trips a user can book, but there are strict rules that determine what trips can be booked.
A classic use case for AYCT subscriptions is dumping distressed inventory by making available to subscribers only those trips that are unlikely to be sold. As an example, an airline may want to monetize seats that are still unsold at the last minute, but may not be willing to drop the price to avoid missing out on the high-yields that it could get from last-minute passengers.
By using an AYCT subscription that only allows users to book, one–way, last minute trips, the airline can separate flexible bargain hunters from high-yielding last minute travelers and fill otherwise unsold seats. This strategy, used by both Volaris’ Pase Anual and Frontier GoWild subscriptions, and has the added benefit of generating extra revenue through ancillaries and return flight bookings.
Limited or Quota-Based subscriptions are considered the most profitable and effective form of travel subscription. In their simplest form, subscribers receive a monthly allowance of trips that must be used within the month. Unused trips are lost, and every month the subscription fee is automatically charged, resetting the number of trips available.
Translated in financial terms, this means that users will purchase trips automatically every month, and later choose when and where to travel. As a consequence, users will often take unplanned trips to avoid wasting their allowance and will no longer search and compare prices with other travel providers.
For subscribers, result is a situation where travel becomes cheaper and more frequent, the booking process is easier and most of the stress is removed. For travel companies, it means an increase in market share, a drastic reduction in marketing and sales cost and the creation of a stable, recurring revenue stream.
As we mentioned earlier, Clubs/Membership based subscriptions have the advantage of attracting a larger user base and can be great tools to influence the behavior of customers. This is especially true when it comes to influence the decision of travel provider and, to a lesser extent, the total purchase value.
Their basic proposition of a travel subscription club is simple: the user signs up, pays a recurring fee, and in exchange gets a benefit that only applies if they purchase a trip with the company. The benefit can fall into two categories: discounts or ancillary services.
Discount clubs target bargain hunters and other price sensitive groups by asking them to pay the subscription fee in exchange for access to lower fares. This access can be in the form of early access to promos or as a direct discount (in % or cash) on the trip price.
Ancillary clubs target value-oriented customers and frequent travelers by using add-on products such as meals, checked luggage, fast-tracks etc. The simplest version is a free ancillary club, where users pay a subscription fee to get an extra (like checked luggage) included by default in all their bookings.
Boosted Ancillary clubs give users a better version of an ancillary IF they decide to purchase it in the first place. This could be, for example, a 25 kg checked bag instead of the normal 20 kg one.
Limited Ancillary subscriptions use quotas to limit the number of times a subscriber can receive the free ancillary in a given period. An example could be a travel agency that offers 3 fast-track passes per month to be used in trips booked with them.
Taken together, ancillary clubs can be a great way to boost repetition in customers that do not travel frequently enough to be meaningfully influenced by loyalty programs and/or for companies that do not use traditional loyalty systems.
NOTE: In some cases, ancillary clubs have also been expanded into the paid loyalty territory where users subscribe to miles, status, or get benefits like lounge access that are typically reserved for frequent travelers. However, as it often happens with paid loyalty, the results have been hotly debated, because of their potential negative effects on the unpaid side of the loyalty program.
Putting all these elements together, we get a taxonomy that looks like this.
This theoretical framework is useful to understand the options available to the company, but is not the end of the story. As subscriptions evolve and advanced platforms like Caravelo’s start to emerge, we are likely to see subscriptions that combine different elements of the subscription landscape, creating hybrids designed to compete against other subscription programs or exploit specific niches.
Another important thing to remember is that subscriptions are heavily dependent on a correct design and setup for their profitability. A well-built travel subscription, with the right business rules and correct integrations with IT systems can be incredibly profitable, with some airlines reporting margins that are 2-3 times higher than traditional purchases, but a badly built one can deliver the opposite result. To get started and find the best way to design your subscription, reach out to us at firstname.lastname@example.org