Travel has the same enduring allure of the most popular commodities, while the competitive nature of the industry has provoked many airlines to prioritise low costs over high-quality service.
The definition of a commodity traditionally applies to raw substances, but the nature of the modern travel industry has prompted a reassessment of that definition. Travel has the same enduring allure of the most popular commodities, while the competitive nature of the industry has provoked many airlines to prioritise low costs over high-quality service.
This shift was evident in 2005 when the Financial Times declared that airline seats had become the ultimate perishable commodity. Given the widespread demand for travel, such commoditisation was inevitable. The world’s most popular commodities are diverse in nature, but they all share the quality of being universally desired.
Source : IG
Agricultural commodities (such as corn, coffee, cotton, wheat and sugar) offer a sustainable form of business, but fuels and metals constitute the most sought-after commodities. When looking through the list of commodity markets accessible through the IG app, the biggest are those of oil, silver and gold. Travel is unlikely to ever present similar trading opportunities, but it nevertheless shares many qualities with these substances.
Going for gold
The concept of travel is integral to modern society. Travel advertising is ubiquitous while holidaying is prominent in popular media. Because the travel industry thrives on facilitating an inherently human desire, the desire for package travel is consistent. Gold once appeared to have a similarly perennial hold on society, but that was a result of gold's stable value. That stability has disappeared in recent years, a consequence of gold's impracticality.
Source : IG
The first formal gold standard system was introduced by Britain in 1821. Under that system, paper money could be converted into a fixed quantity of gold. The toll of war revealed the gold standard as an unsustainable system, with the international monetary system exclusively consisting of fiat money since 1976.
Transporting and storing gold has since caused logistical difficulties, while the rise of online transactions and cryptocurrencies have decreased the modern utility of gold. While optimists might suggest that gold's price drop in 2013 is nothing more than a natural fluctuation, others have suggested that gold's inability to generate income is turning people away from this once-dependable commodity.
Source : IG
As with modern gold, travel has no direct economic benefit for the consumer. However, the emotional pull of travelling ensures that consumers consider plane tickets a worthwhile investment. While technology has hindered gold's modern potential, aeronautical developments allow airlines to offer more flights than previously imaginable. This ability to access a wider audience has driven some costs down, often at the expense of a higher-quality service.
This emphasis on maximising yield over optimising experience highlights how some businesses treat airline travel as a commodity. In 2016, the CEO of Routehappy, Robert Albert, acknowledged to the Skift Global Forum that travel was being erroneously sold as a commodity. Albert stressed that airlines should revert to selling seats at a price that reflected the quality of that seat, as opposed to a standardized travel fare.
The evolution of coffee
Airline travel can follow the example of the coffee industry in allowing customers to choose quality over cost, as Albert advised. 2.25 billion cups of coffee are consumed daily worldwide, but the manner of that consumption has evolved. Rather than ordering a standard cup of coffee, many consumers opt for a more extravagant variety of coffee at a higher cost.
Source : IG
Variations of coffee are now widely available, which gives the power back to the consumer. Customers can purchase a product that appeals to their taste and their budget, rather than being forced to take the only option. This approach has slowly been translated to the package travel industry.
Travel as a Commodity
If companies present package travel in one rigid form, at a price that seeks to undersell competitors offering similar packages, then the companies are treating the product as a pure commodity. However, some package travel options resist that classification. The increasing prevalence of dynamic packaging, in which consumers can personalise their package holiday, shows an appreciation of different tastes.
Most commodities are raw products that can only be obtained in one form, with gold's inflexibility resulting in its decline. The customisation potential of dynamic packaging suggests that package travel can operate in a different fashion to commodities.
While commodities like silver and cotton can be traded purely as raw substances, the personal nature of travel means that it shouldn't be approached in the same manner. The development of dynamic packaging demonstrates that package travel doesn't have to be commoditised, although airline travel may still have work to do in prioritising the consumer experience.
