The Subscription Model Comes to Luxury Travel
(Bloomberg) -- What does luxury travel now have in common with grocery shopping, music streaming, and shaving?
The subscription model.
In mid-July, Denver-based travel club Inspirato launched its Inspirato Pass, which allows customers to book unlimited stays in luxury vacation homes, as well as legacy five-star hotel brands such as Ritz Carlton, starting at $2,500 a month with no other nightly rates or fees.
The subscription e-commerce market has exploded in the past decade, generating more than $2.6 billion in sales in 2016, according to a 2018 report by McKinsey & Co. About 15% of online shoppers have signed up for one or more monthly subscriptions.
But though such subscription service companies as Netflix, Blue Apron, and Dollar Shave Club are widely known, this model has yet to become commonly used in the travel industry. There have been such entrances into the market as that of FinalPrice, which launched in 2017 to offer hotel, flight, and rental car deals for $99 a month, and Flightpass, a pass valid for 10 flights that Lufthansa Innovation Hub tested out in 2017. There are also many membership options in the private jet arena.
But the Inspirato Pass marks the first time the upscale leisure travel industry has tried out the model.
Inspirato founder and Chief Executive Officer Brent Handler came up with the idea as a way to solve a common luxury travel problem—unbooked inventory, especially in the high season. He saw this phenomenon plenty in the normal business of his company, which uses long-term leases to manage $1 billion in homes and hotel rooms. Inspirato’s goal is to create a complete and comfortable vacation experience for families or groups of friends, usually in houses.
“I knew that was happening with Inspirato,” he says “It’s not just low season in a resort or hotel, where inventory spoils”—or goes unused, in other words. “When inventory spoils, let’s say, in a ski area in February, it’s even more costly.”
In Inspirato’s traditional model, members—currently 15,000—pay a $20,000 entrance fee to join and then $3,600 each year, not counting the cost of a specific trip. The membership allows them access to stays at properties Inspirato handles. Rates run from $300 to $8,000 a night, depending on the property.
But with the travel pass, you pay a flat monthly fee to book stays at three types of inventory: more than 350 Inspirato homes, rooms in five-star hotel brands, and Inspirato-only experiences such as cruises and safaris, all updated daily.
For $2,500 a month, customers can make a fresh reservation as quickly as one week after they have checked out of a prior reservation. An additional $500 a month allows you to share the pass with friends or family when you’re not traveling.
But say you want to plan ahead and make multiple vacation plans for the year. For $5,000 a month you can have two active reservations at a time, and for $7,500 a month you can have three. (To share these passes with friends or family requires an additional $1,000 a month and $1,500 a month, respectively.)
“For instance, a lot of New Yorkers would buy or rent a place in South Florida,” Handler says. “You can still go to South Florida with the Inspirato Pass, but you can also go to Paris. You’re not locked in or tied in to a single place.”
The Inspirato properties available for pass holders to book vary, based on an internal algorithm that determines which places are going to lose Inspirato the most money if they remain unbooked.
Where it gets interesting is Inspirato’s ability to give pass holders access to five-star hotel brands such as Ritz Carlton and Mandarin Oriental. Inspirato has developed relationships with more than 200 hotels to offer their unbooked inventory to pass holders—as long as it doesn’t show the discounted price.
“What all luxury hospital providers also share is a disdain for consumer discounting,” Handler says. “You will never see a Four Seasons sell a room for half off.”
The Inspirato model allows luxury hotels to prevent rooms from sitting vacant without revealing how much of a discount they’re giving—which could cheapen the brand.
“We’re buying inventory from the hotel, and we’re paying for it, and the consumer is never seeing the price,” Handler explains.
Inspirato has direct relationships with about 90% of the hotels it lists, he says, but is allowed access to about 10% indirectly, through tech partners. Handler declines to disclose the exact details of the tech partnerships. A representative for Ritz Carlton said the brand does not have a relationship with Inspirato, although rooms at its hotels are listed on Inspirato’s website.
Nicholas Farina, general manager at 1 Hotel Central Park, says his hotel worked with Inspirato and then agreed to be part of the pass program. “They have a loyal membership base, and we’re able to have access to those guests,” he says.
Although he would not reveal the discounted rates for his hotel’s rooms on the Inspirato website, he noted that 1 Hotel lists its higher-end rooms, as well as its unbooked inventory.
For Michael Shaw Jr., a 45-year-old car dealer in Denver, buying an Inspirato Pass was a natural extension of his regular Inspirato membership, which he’s had for five years. Handler says that about half of Inspirato’s members have also bought into the Inspirato Pass.
Since he got the pass in June through Inspirato’s test program in the Denver area, Shaw has already been to Jackson Hole, Wyo., and Park City, Utah, along with a jaunt to the British Virgin Islands, where just he and his wife stayed in a 9,000-square-foot home.
“That’s the beauty of the pass; it wasn’t going to change the economics of it for us,” he says of the generous space.
Unlike, say, Hulu or Birchbox subscriptions that you can cancel after a month, Inspirato pass customers make an initial six-month commitment to stick with the payments, after which they have an opportunity to cancel every month.
Tien Tzuo, CEO of Zuora, which provides software for companies to launch and manage subscription businesses, says the subscription model is successful because it’s a good deal for consumers and exposes them to new things—in this case, new travel locations. Inspirato is using Zuroa’s software to manage its pass program.
“It’s not just about how I can save on that nightly rate,” Tzuo says. “My whole experience different now. I can try out new cities and experiences.”
But Devy Schonfeld, a business professor at Pasadena City College who has studied the subscription economy, questions whether there will be consistent consumer demand for the pass.
“Luxury travel purchases can be ‘chunky’ in that time is a restricting factor, and even if people travel luxuriously, the ability to take enough trips to maximize value will be a gating factor,” he wrote in an email.
Another risk for Inspirato is that pass holders will take full advantage of the travel opportunities. “The subscription economy works because they’re betting on people not using it that much,” says Rafat Ali, CEO and founder of travel intelligence platform Skift. “If the utilization is very high, that will affect their margins.”
Still, Ali expects the travel industry to increasingly adopt the subscription model as a way to generate customer loyalty.
“I wouldn’t be surprised if other luxury hospitality companies like Four Seasons could potentially look into something like this as well,” he says.
©2019 Bloomberg L.P.