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Many people subscribe to streaming TV, internet access, and apartment rentals, so why not vacations? That was Skift’s thinking when we noted earlier this year that one of the rising megatrends in travel was the testing of subscriptions in services.
Several travel companies have added subscription products and services in recent years, reporting encouraging early results. But only a couple of companies, most prominently Inspirato and BeRightBack, have gone “all in” on subscriptions. Inspirato, focused on luxury, and BeRightBack, focused on budget travel, both say they have held up better-than-expected during the pandemic.
Other travel companies may watch their resilience with interest. Airlines, hotels, and other travel providers have more supply than demand right now and might adopt a whatever-it-takes approach and test subscriptions.
Inspirato, a luxury hospitality club based in Denver, debuted a year ago Inspirato Pass, which let people book unlimited travel for a monthly fee, as Brent Handler, founder and CEO of Inspirato explained in September 2019 at Skift Global Forum (see video).
Customers of the startup are mostly based in the U.S. and Mexico. They pay about $2,500 a month, without taxes or resort fees being extra, and can book up to about 25 stays a year at a curated list of destinations, homes, and hotels.
“When we first started to share this idea with large hotel groups, they literally laughed as out of the conference rooms,” Handler said. “They said, ‘There’s no way this will work. You’ll have to pay them instead of customers paying you.'”
But the early customer reception has been promising. Inspirato expects this year to book around $70 million in recurring revenue from subscriptions.
The pandemic gave heartburn to Inspirato, which has raised more than $79 million in funding.
The company basically shut down in March, April, and May. It asked subscription holders to continue to pay their monthly fees during those months when they couldn’t travel on the pledge that they could skip payments in July, August, and September while traveling after stay-at-home restrictions had lifted.
“We haven’t had much attrition at all,” said Handler. “The pass has done unbelievably well and really changed our business.”
The situation is stable, even though travel restrictions continue to essentially block U.S. residents from visiting Hawaii or Europe, trimming by a third Inspirato’s inventory available to U.S. residents.
The Denver-based luxury brand Inspirato in late August lowered the bar to subscribe. It switched from annual to monthly payments. It dropped a six-month commitment while adding a $2,500 enrollment fee. The company also added a perk by giving subscribers membership to its pay-as-you-go “club,” which gives them access to book stays at otherwise hard-or-impossible to book lodging.
The subscription model has worked so well that Inspirato has retooled its core “club” product to be more subscription-like. The membership had been $20,000 to join and $4,600 a year to continue. It has changed the model to a $600 enrollment fee and a $600 a month charge.
“We wanted to make the barrier to entry lower and make the product feel more like subscription services customers have become used to buying,” Handler said.
BeRightBack Shows Budget Subscriptions Have Potential
BeRightBack, a London-based subscription travel startup, sits at the other end of the travel market, with more of a budget focus.
BeRightBack has sold subscriptions for two years, typically on an annual contract working out to about $65 (£49.99) per person a month to travel three trips a year. It’s open to UK residents and offers up to 60 European destinations with centrally located hotels with at least 3.5-star reviews on TripAdvisor. Customers give preferences for places, ideal departure airports and flight times, and travel dates.
“Providing that things return to some sense of normalcy fairly quickly, we should be fine,” said Gregory Geny, founder and CEO.
When the pandemic struck, BeRightBack handled all the trip cancellations on behalf of customers. It refunded the money to accounts and asked customers to leave it in their accounts to use for future travel.
“The vast majority, or about 80 percent, of our subscribers have kept paying,” Geny said.
This month BeRightBack will pass vetting and get, for a fee, authorization to become a provider under the UK’s regulator-backed program, the Air Travel Organizer’s License (ATOL). The startup had only offered travel products that were ATOL-backed before but had to source them via third parties like tour operators. Being able to be the agency that directly sources rooms from hotels will help it cut out commissions and double the typical margin it has overnight.
The subscription model gives BeRightBack the ability to go to hotels and say, a few months ahead, it has demand from essentially guaranteed guests. That intel will lets it negotiate favorable rates on room blocks.
Subscriptions Can Help Make the Small Beautiful in Travel
The subscription model enables both Inspirato and BeRightBack to focus on a smaller set of high-quality inventory options, too.
Inspirato isn’t seeking to amass a list of every luxury property in the world. Besides the properties it exclusively manages, it sources rooms from only about 600 hotels worldwide.
“Let’s say there are 75 five-star hotels in New York City,” Handler said. “We’re going to make big bets on five of them.”
Some critics would argue that Inspirato has some gaps in geographic markets and types of inventory that hold it back. If it improved its onboarding of properties, it would see a proportional growth in consumer interest.
Yet the startup believes that it can become significant demand suppliers for a handful of hotels by concentrating its bets. Its buying power will help haggle for access to those properties’ best inventory.
BeRightBack has a parallel approach in the mid-market.
“If we only work with a curated number of properties, we can drive a lot of demand to them, which helps us negotiate to get perks for our customers, whether that’s guaranteed breakfast, champagne on arrival, or the best suites in the property.”
The subscription model enables the company to take a less-is-more, small-is-beautiful approach.
Private sale sites like Secret Escapes or Vente Privee and online travel agencies like Expedia effectively rely on a more-is-more strategy. To lure customers to their site, they need broad inventory and a never-ending string of sales on properties. Because they have little information into their customers, they need to provide a lot of everything and hope something appeals. Amassing that inventory requires an army of market managers.
BeRightBack is betting that it can flip that business model. It focuses on a small number of hotels, and it uses information from customer surveys of its paying members to match what they like to the right inventory.
“If we know we have 50 subscribers who are foodies, we can cluster them and go to a hotel in Bologna with a well-regarded restaurant that is next to the best Italian restaurants and food markets and offer a relevant trip,” Geny said.
The subscription model also has a built-in incentive to ensure quality control, the executives argued.
“We’re heavily incentivized to keep the customers we have as paying customers,” Geny said. “If you have a bad experience at a hotel, we need to address that right away and not send more customers to that hotel. But if you book a property through a major online agency, they’ll barely care about your feedback.”
Subscriptions Dovetail With the New Luxury
The subscription model benefits from the rise of “new luxury.” As Skift said when noting the travel megatrend of “new luxury,” “rather than scarcity being tied up in the cost of an item, or prestige being defined by the logo on the side of someone’s bag, scarcity and prestige are linked to unique and outstanding brand experiences.”
“Progressive, smart consumers today feel no shame in getting more for less,” Hander said. “There’s no badge of honor for having overpaid for things.”
Yet even Handler was surprised by some behaviors of today’s new luxury travelers. For instance, Inspirato only late last month first tested for a brief time online-only sales of its subscription service.
“I was surprised that people would buy online,” Handler said. “But we sold a half-dozen passes during the brief trial period without customers having any conversations with our salespeople. I shouldn’t have been surprised, though. The idea of ‘subscription’ is easy. Everything you subscribe to online is easy on some level.”
Having a subscription model helped make sales more cost-effective, sparing them hours of their representatives’ time. So the company plans to push online sales in a big way later this month.
Testing Original Content
Inspirato is looking at other ways to be more like a “Netflix for travel.” One way Netflix has helped generate sales via word-of-mouth has been by creating original content. When your friends are talking about the latest Netflix show, you are more likely to subscribe to the service to be part of the conversation.
Inspirato’s version of that so far has been to offer some lodging not available to the public, such as whole houses it owns or manages exclusively on secluded beachfront in desirable resort areas. Inspirato anticipates creating one-of-a-kind experiences, such as enabling a group of travelers to enjoy a one-time cooking demonstration by a celebrity chef who doesn’t ordinarily offer such an occasion.
Upselling has a chance to be more “personalized” under a subscription model, too.
“The typical upsell from a major online travel agency today is, ‘Hey, you booked a flight, here’s a random car rental offer for those dates,'” Geny said. “It’s undifferentiated. But suppose you have subscribers who fill out details of what they want and like. In that case, you can offer upsells that are only the kinds they’re likely to want, such as two or three walking tours or experiences relevant to their preferences for art, food, or shopping at their destination.”
Subscriptions Can Invert the Typical Loyalty Program
Subscriptions have a financial impact on a company beyond the recurring revenue. Other parts of the business also change.
For example, people pay Inspirato money for the benefit of being able to stay at its properties, saving it from customer acquisition costs like buying Google ads or paying a travel agent commission.
“We think of Inspirato as a paid loyalty program,” Handler said. “That’s the opposite of a hotel brand loyalty program, where the brand pays to give consumers points to encourage them to be repeat customers.”
The startup says it gets away with this by offering better value for the money.
“By its definition, luxury hospitality is inefficient, especially for branded residential products,” Handler said. “It’s priced at the maximum for lower occupancy. If you take a four-bedroom, on-the-beach, house that’s at a desirable fully featured resort, that’s something like $5,000 a night. We can offer it for half the price through our model.”
Right now, Inspirato focuses on customers in the Americas, and BeRightBack focuses on UK residents. But as each one expands to other countries, the marginal cost of adding new customers should drop.
Not for Everyone
The lessons of the early subscription pioneers Inspirato and BeRightBack are promising but they also suggest notes of caution.
One of the best summaries of how the subscription model can work is the book Subscribed by Tien Tzuo. The book argues that companies can more cost-effectively sell some products and services via subscription pricing than fixed pricing.
Tzuo argues that subscriptions can make it easier to figure out what customers like because, if you change the offering, you can quickly see how it affects sales and cancellations of your subscription. It typically takes longer for consumer acceptance of a change to show up in fixed-price sales.
Tzuo also argues that a customer’s so-called lifetime value is more straightforward for a company to measure when customers have agreed to pay a recurring fee. Subscriptions can also save on the cost a company may have to do to “re-acquire” a customer, especially for incidental purchases spaced out over time like travel. It’s easier to upsell something to a customer who is already paying you, too.
Yet some analysts have critiqued the idea that subscriptions can apply widely.
Many travel companies sell products and services with high fixed capital and labor costs. The pandemic has cast in stark relief that hotels and airlines often need a minimum threshold of customers, often including a minimum count of high-paying customers, to break even.
While the phrase “Netflix for travel” is a popular shorthand, the more relevant metaphor might be broadband providers, who offer their internet and cable services on a subscription basis. Like hotels, airlines, and similar suppliers, broadband providers have capital-intensive businesses in setting up and renewing their networks.
Like many travel companies, broadband providers also have labor-intensive servicing costs. If there’s a problem with your trip or with your internet connection, a worker probably has to resolve it in person. Not so for Netflix or other subscription services like Spotify or Rent the Runway.
Many travel companies also operate on tight margins and struggle to acquire customers as cost-effectively as digital startups.
“The big mistake companies made in the 1990s was jamming an offline model onto a website — let’s just scan our catalog and add some hyperlinks! Genius!” analyst Byrne Hobart wrote at his newsletter The Diff. Hobart worries that some companies are doing the opposite, applying the digital-first concept of subscriptions to businesses whose models don’t match how software companies work.
“Technology changes what’s possible, but you still have to think it through,” Hobart wrote.