By the time you read this, the 2nd ‘50% off hotel bookings’ sale on avios.com will be over.
(The final offer, 40% off Eurostar bookings, is still running until Monday – see this post from yesterday for details.)
I am still trying to make sense of what happened with this promotion. However, this is what we know to be true:
This sale was an avios.com sale and not a ba.com sale. Whilst the offers did appear on ba.com as well, they were NOT emailed, tweeted or actively promoted. You would not have known they were on ba.com unless you followed Head for Points or Flyertalk.
The average avios.com collector has a far smaller balance than the average BAEC collector, reflecting its history as a ‘frequent shopper’ scheme. (Remember that, whilst we are happy to move our points around via ‘Combine My Avios’, most avios.com collectors do not do this.)
Avios was prepared to lose a little bit of money on these sale offers. We saw this from the Reward Flight Saver £1 deals – Avios still has to pay the Air Passenger Duty to the Government for these flights, for example.
This is how I think the hotels promotion was MEANT to go:
Someone decided that offering a range of – and this is the key bit – fairly expensive hotels (Four Seasons, Mandarin Oriental etc), at a 50% discount to the Avios points usually required, would be a clever deal.
They imagined that demand would be relatively modest. After all, a £200 hotel – even at 50% off – would still require 17,500 Avios per night. For the average avios.com collector, this is quite a lot of points.
Somewhere along the line, though, someone also decided to reduce the cash alternative by 50%. There is logic here – because there was a sliding scale of ‘cash vs Avios’ prices, it would have been difficult to reduce the Avios element without reducing the cash element. The big mistake was to not restrict the discount to a ‘100% Avios’ booking.
The sale then launches. Head for Points probably played a part in the huge flow of traffic it got, because the list of participating cities had been leaked to me earlier in the week and people knew what was coming and were able to line up flights, check for time off etc.
As soon as the scale of the discounts was clear (you could save £1,500 over the cheapest hilton.com price for a week at Conrad Algarve during peak Summer, or get the Four Seasons in Budapest for Valentines Weekend at half-price), people rushed in. Flyertalk and similar sites also picked up on it.
Because you could book most rooms for 100% cash (or just a token amount of Avios), you could book as much as you wanted. Had it just been 50% off the ‘all Avios’ rate, the week at Conrad Algarve would have only been bookable for 125,000 Avios points – which would have cut back the number of bookings dramatically.
Let’s look at profit margins. It is widely known that Expedia Special Rate hotels generate a 25% margin for Expedia. The typical travel agent hotel commission is 10%. BA’s hotels are supplied by a wholesale group who would have a margin closer to 25% than 10%, albeit that the wholesaler and BA would be sharing that 25% profit.
Realistically, for every £100 spent on ‘50% off hotels’, BA / avios.com will have lost around £80. This is based on you getting a £200 room, which would cost BA £180 or so, for £100.
BA EXPECTED to lose this money, of course. However, they only expected to generate a handful of bookings – because the original plan was to offer low balance avios.com members hotels which required a high balance to book! In the end, they took a bit of a beating.
Someone then realised, of course, that the second round of the sale was going to be even worse. The locations in Round 1 were a little esoteric (Vienna, Dubrovnik, Prague, Copenhagen, Berlin, Budapest, Istanbul, The Algarve). Round 2 was going to include London – letting people freely book 5-star hotels in London for the entire Summer at a 50% discount was going to lead to a huge financial hit.
At the last minute, the discounts were changed. London was cut to a 15% discount, which was effectively no discount at all. Most of the other cities also ran sub-50% discounts.
The original wording on ba.com makes it clear that this is NOT what was meant to happen. It said:
“Today’s Thank You is 50% off Avios for hotel stays until 30 September when making a booking in Edinburgh, Guernsey, London, Florence, Milan, and Venice. You can also pay with a combination of Avios & Money where you’ll receive 50% off both the Avios and the money.”
No reference at all to ‘up to’ 50% off. The discount was clearly meant to be a full 50% in all cities.
Remember that everything I wrote above is only my best guess. However, I have been around this business for long enough to know how it works.
All in all, though, we cannot complain about the Avios sale. Whilst the first offer (20% off a handful of long-haul economy routes) was woeful, the £1 Reward Flight Saver deals were a huge success. If you managed to get a hotel at 50% off in the initial round, you also got a fantastic deal.
The nature of the ‘miles and points’ game has always been ‘win some, lose some’ (well, more like ‘win a lot, lose the odd one’). Nothing has changed!