The travel and tourism industry goes through seasonal fluctuations that can make revenue management a challenge. Tour operators such as hop-on-hop-off buses or city sightseeing companies can mitigate these seasonal shifts by monitoring how and when to take customer payments. The three payment windows in the run-up to the date of a customer’s tour, activity, or admission booking can be described as:
- ‘Pay now’. This means setting up an online reservation system so customers can browse your live availability, make their payments, and pre-book their place for your tour or attraction in advance. An example is a customer searching for a tour to join or an attraction to visit ahead of a city break, placing their booking, and paying immediately online.
- ‘Pay later’ refers to the ‘reserve’ of a ticket. The customer demonstrates the intent to travel by booking, but funds are not transferred until later. This could mean the payment is automatically taken 24 hours before the event, or it could mean that it’s taken at the admission desk. An example is hotel bookings, where customers can ‘reserve’ a room, but the payment isn’t due until arrival.
- ‘Walk-ups’ are customers who simply turn up on the day, make their payment (likely using the operator’s mobile ticketing system), and enjoy your tour. Walk-ups are common on hop-on-hop-off city sightseeing tours. Customers typically see the sightseeing busses driving around town, and make an impulse ticket purchase there and then.
Operators are advised to cover all bases where relevant. But each approach has pros and cons that are worth considering when trying to maximise revenue across the year.
Taking bookings and payments in advance
Advantages of ‘pay now’
Allowing for advanced bookings in your reservation system means you’ll be better positioned to manage and optimise capacity. Knowing the number of pre-booked passengers allows you to allocate resources efficiently.
You can also optimise tour schedules to accommodate advanced reservations. If you implement dynamic pricing into your advanced ticket sales, your prices will fluctuate with demand, likely boosting ticket sales and revenue in the long term.
Using a booking system to take advanced reservations ahead of time also means you’ll have to deal with fewer cash or card payments. Customers can simply scan and validate their e-tickets and jump into the tour – with no need for unnecessary paper tickets. This means a seamless ticketing and reservations system, less queuing, and happier customers.
The ‘pay now’ approach also means you can incentivise early bookings with limited-time discounts. By filling seats early, you optimise capacity, and customers benefit from cost savings compared to last-minute fares. So, your happy customers enjoy better value for money.
From the consumers’ perspective, there are many advantages to pre-booking their tickets in advance.
- When customers book ahead, they secure their reservation – helping ensure they won’t miss out on the tour date or timing they want.
- Cruise passengers booking in advance can select their preferred seats – such as a window or upper deck spot. This is a big benefit for ferry operators’ customers, especially during peak seasons or for popular routes.
- By securing their spaces on your tour in advance, customers won’t have to queue for tickets, saving valuable sightseeing time.
- They avoid last-minute problems such as service overbooking or schedule changes and can plan and enjoy their time at their destination.
Disadvantages of ‘pay now’
You must look quite hard to find disadvantages to taking advanced bookings, but there are points worth raising.
The disadvantages of the ‘pay now’ approach centre around cancellations and refunds. If your customers book ahead but subsequently need to cancel, they’re subject to your cancellation policy and risk losing money.
Another potential disadvantage concerns older or elderly customers, who might not be comfortable making reservation payments online. For various reasons, some people just prefer the human interaction of on-site purchasing.
Taking reservations now, and payments later
Advantages of ‘pay later’
A study undertaken by financial analyst firm Juniper Research indicated that in 2022 there were 360 million customers around the world embracing ‘buy now, pay later’ flexibility. That number is predicted to surpass 900 million by 2027. Customers’ ‘buy now, pay later’ preferences are clear, and offering people a degree of payment flexibility has several benefits.
You’re likely to see a reduction in cart abandonment rates – because customers can see they’re not locked into immediate payment. Anybody who might hesitate due to financial constraints may proceed with their reservation, knowing they have time to allocate funds or arrange payment later.
Potential customers may be interested in taking your tour or visiting your attraction – but may need more time to be ready or willing to pay. The ‘pay later’ approach broadens your customer base and improves conversion rates by allowing customers to defer payment.
From the customers’ point of view, the ‘pay later’ approach works well because:
Disadvantages of ‘pay later’
Drawbacks of the ‘pay later’ approach include the increased risk of no-shows or cancellations, as customers may not feel quite as committed to your tour without paying up-front. This will have a negative impact on revenue, and you’ll need to make sure your cancellation policy is crystal clear to avoid issues or complaints. For instance, you might decide to retain a percentage of the booking cost, depending on the timing of the customer’s cancellation.
People who make a reservation in advance but fail to pay later can block availability for more committed customers keen to simply book and pay. This potential revenue loss highlights the importance of balancing booking flexibility with reliable revenue generation.
Taking bookings on the day
Advantages of ‘walk-ups’
For operators, accepting walk-up payments on the day of your tour allows you to fill empty spaces – which is essential during off-peak times or when pre-bookings are low.
There’s also no risk of ‘no-shows’ when walk-up customers pay on the day. Unlike advanced bookings, walk-up passengers are physically present and ready to board.
Walk-up bookings also offer immediate cash flow, as customers pay on the spot. This can help in budgeting for day-to-day operational expenses.
From the customer’s viewpoint, freedom and flexibility lie at the heart of the argument for operators to embrace walk-up payments on the day. Essentially, walk-up payments cater to spontaneous travellers who haven’t planned ahead. In recent years, contactless payments have reshaped travel experiences across the world – and customers enjoy the benefits they offer.
Disadvantages of ‘walk-ups’
Relying heavily on walk-up customers paying on the day is a risky approach, because there are so many variables at play. For instance, the immediacy of walk-up fares leaves no room for early-booking discounts or promotions. Depending on your fare structure, this could negatively impact annual revenue optimisation.
In terms of operational planning and efficiency, the numbers of walk-up customers can vary wildly – making it harder to forecast demand. You risk facing capacity restraints or overbooking problems, which contribute to customer dissatisfaction.
From the all-important customer perspective, an over-reliance on walk-up ticket sales can have damaging consequences.
- Your customers may find they have to stand in a long ticket queue, which will negatively affect their tour experience. With recent advancements in reservation technologies, a 30-second booking process is a realistic goal for tour operators and visitor attractions today. However, tedious admission queues make this target hard to hit.
- Customers paying on the day may begrudgingly pay more for your tour or attraction than those who pre-booked online. Although this is part and parcel of the dynamic pricing model, it can leave customers feeling disgruntled.
- Walk-ups may find they reach the front of the queue, only to be faced with severely restricted tour times. Having to rearrange their plans to fit your dwindling last-minute availability can damage the experience for those pay-on-the-day customers.
- Essentially, walk-up customers paying on the day are wasting time waiting for a pre-bookable tour that was only a few quick clicks away. Depending on the tour or service, this frustration can spoil a customer’s experience.
To win in the customer satisfaction stakes, tour operators must strike the right balance between the reliability of pre-booked ticket sales, the flexibility of the ‘reserve now, pay later’ approach, and the immediacy of walk-up ticket sales.
Operators encouraging and incentivising early bookings while proactively filling last-minute availability with walk-ups stand a better chance of long-term success.