Holiday Pricing in the 1990s Wasn't Complicated. It Was Utter Madness.

Throughout my career in the travel industry, I was deeply involved in the commercial side of holiday pricing, but my journey began from a purely financial perspective, understanding the intricacies of prices set by others.

Like most people, my memory is like a scratched hard drive, with some things remaining in laser focus whilst others, such as the name of the lady in the marketing department who set Global’s holiday prices, become completely opaque.

My initial responsibility was not setting prices but understanding why the business generated the profits it did each month, and as I have mentioned before, brochure sales were generally profitable, while holidays sold within the final three months before departure almost always generated lower margins or even losses.

However, that simple observation barely scratched the surface of the complexity hidden beneath the numbers.

I always enjoyed working with hotel-based holidays because their commercial mechanics were relatively straightforward.

Hotels were rarely purchased on guaranteed contracts and instead operated on a pay-for-usage basis with contracted daily rates across defined date bands. Pricing a holiday was therefore a relatively simple and logical exercise.

We would begin with a “Base” fixed flight cost, perhaps £122 per passenger from Gatwick to Palma, overlay the hotel cost by calculating how many of the average 14-night holiday nights fell within each pricing period, and then apply a demand-based margin profile. Early departures in April or May often carried very low, or even negative, margins to create attractive lead prices, while peak school holiday departures generated substantially higher margins.

From an accounting perspective, everything lined up neatly because revenue and costs were recognised on the departure date, exactly matching the way the holiday had originally been priced.

Self-catering holidays, however, were a completely different challenge, and I absolutely hated them.

Most self-catering accommodation was purchased on seasonal guarantees. So, rather than paying for individual bookings, we committed to paying, for example, £2,000 for an apartment for the entire season regardless of how many weeks we actually sold. The problem then became deciding how much of that guaranteed cost should be allocated to each departure date.

As an industry, we adopted a simple seasonal profile, allocating approximately 7.5% of the annual cost to May and October, 17.5% to June and September, and 25% each to July and August. We then increased these costs further to assume only around 85% occupancy so that the full guarantee would still be recovered even if every apartment was not sold.

While this approach appeared logical on paper, in practice it created a series of artificial pricing distortions. Significant price jumps occurred at the end of every month as holidays crossed into a higher or lower-cost period, forcing us to make further margin adjustments simply to smooth the customer prices. It also meant that periods such as the first three weeks of July, which were outside the main school holidays, frequently became overpriced compared with the actual demand.

More frustratingly, this crude allocation completely distorted the profitability reports I relied upon. My forecasting model would consistently predict that a guarantee was underperforming because occupancy had only reached, say, 80%, yet the accounting reports often showed an apparent over-recovery of costs. It took me years to fully understand why.

The explanation was surprisingly simple once I eventually found it. A fourteen-night holiday departing at the end of May might include several nights charged at the higher June accommodation rate. The holiday itself was correctly costed on a daily basis, but because both revenue and costs were recognised on the departure date, the entire booking, including those more expensive June nights, was charged against May's fixed guarantee allocation. The accounting treatment was technically correct, yet it produced misleading monthly reports that obscured the underlying commercial performance and even though I pointed this out, nobody wanted to change it: “Because this is how we have always done it”

I still remember the sense of relief when I finally understood what was happening, but nearly forty years later, I can still picture those reports because my ADHD side has always hated not understanding how a business actually works.

If the accounting was difficult for us, however, understanding holiday prices was almost impossible for customers.

Imagine a family of four trying to calculate the price of a self-catering holiday departing from Manchester. The adult price appeared in the accommodation price grid, the regional flight supplement was hidden in the back of the brochure, the child prices were explained elsewhere at the front, and then, just when you thought you had finished, you discovered that children did not count towards occupancy calculations. Even if the apartment slept four people, you could still be charged an under-occupancy supplement.

Looking back, it was sheer madness.

From a commercial perspective, however, it taught me one of the most valuable lessons of my career. Complex pricing structures gave clever accountants like me countless opportunities to quietly protect margins while presenting customers with attractively low headline prices.

It was commercially effective, but it also demonstrated that complexity almost always benefits the seller more than the buyer. That is a lesson that extends far beyond the travel industry and one I still exploit today, although AI analysis is killing even this as you can just chuck things into ChatGPT to summarise and explain these days.