Chapter 29
The Summer I Invented Fluid Pricing and, Unfortunately, the Airport Surcharge
Sometimes you can solve today's commercial problem without realising you have just created tomorrow's industry.
People often assume innovation comes from carefully examining the future and designing a better way to do things. However, I find that many of the biggest changes in business are invented by people desperately trying to solve an immediate problem, with little idea of where their actions will eventually lead.
1995
As we headed into the summer of 1995, I could see a large and particularly ugly problem looming in front of me.
My new travel-agent incentive scheme had worked extremely well, increasing Airtours’ brochure sales by around 10%. Unfortunately, we had increased our overall holiday capacity by a massive 20%, which left me with an extra 300,000 flight seats to sell in what was already developing into a very difficult late-sales market.
The worst possible start to the summer for a tour operator is a hot May and June. Once the sun came out in Britain, parents who would normally have booked their peak season overseas holiday often decided to wait. With the children playing outside and the barbecue uncovered, spending the summer in the UK suddenly seemed like a realistic option.
The problem was that the 22nd of July, when most schools broke up, operated like a dam holding back an enormous volume of peak-season capacity. Every tour operator was waiting for customers to blink first and accept the sharp price increase caused by the school holidays. However, if one operator lost its nerve and released too much discounted capacity, the dam could collapse, and everybody’s prices would be washed away.
We had sold May and June reasonably well, but we still had a mountain of peak-season holidays to clear. I knew that unless I acted quickly, Airtours might be the company forced to lose its nerve first.
The answer was what became our first “Lucky Dip” late-deals brochure. We grouped four named hotels together, priced the holiday aggressively and guaranteed that customers would be allocated to one of those properties. We obviously knew which hotel they were most likely to receive, but presenting the offer this way let us control discounted capacity without undermining the full-priced sales of each individual hotel.
At the time, I simply saw it as a practical solution to a large commercial problem. Looking back, however, it was an early step towards what the industry now calls fluid pricing, where prices are constantly adjusted to stimulate demand before distressed capacity reaches the traditional late-sales market.
It also helped move the industry away from completely unnamed Sundeals towards discounted holidays featuring identifiable hotels. When the internet arrived, tour operators could distribute these named offers directly, contributing to the eventual death of Teletext as the dominant late-sales channel.
It is only with hindsight that you realise some actions were early signs of a permanent change in how an industry operated.
Unfortunately, that difficult summer also forced me to introduce another innovation with a rather less positive legacy.
1995
In 1995, every customer received a booklet of paper flight tickets that had to be presented at check-in. The system was primarily a form of credit control, as tickets were not issued until the final balance had been paid. It also created an administrative nightmare, generating thousands of calls from worried customers asking why their tickets had not arrived.
Customers booking close to departure did not leave enough time for the tickets to be printed and posted, so they had to collect them from the airline desk at the airport.
Recognising that customers had little practical choice, I opened a ticket-printing desk in the reception of Wavell House. Customers could collect their tickets there for free, but if they wanted them waiting at the airport, I introduced a ticket-on-departure charge of £2 per person, which quickly increased to a far less defensible £6.
Importantly, the fee did not have to be included in the advertised holiday price because customers theoretically had the option of driving to Helmshore to collect their tickets themselves.
I remember Andy Cooper, our legal adviser, sitting on my shoulder and describing the idea as legal but slightly immoral. He was right.
Our competitors quickly copied the charge, and it became part of the blueprint for the low-cost airline model, in which baggage, allocated seats, printed boarding passes and almost everything else were stripped from the headline price and sold back to customers as extras. Even dropping somebody outside an airport terminal has now become an opportunity to collect another unavoidable fee.
Had I understood the long-term consequences of that innocent-looking £2 charge, perhaps I would have thought twice. However, as the man who later introduced a lead-price Sundeal deliberately described so no one would book it as “Basement Room, No View,” I doubt morality would have overcome my commercial instincts at the time.
That summer taught me that innovation is neither inherently good nor bad. The Lucky Dip helped drive smarter pricing and more transparent late deals, but the ticket-on-departure charge helped create a surcharge culture that customers still hate today.
Sometimes you can solve today’s commercial problem without realising you have just created tomorrow’s industry.
