Two websites, for TUI UK Ltd's First Choice and Thomson brands, both seen on 4 August 2016.
a. The First Choice website www.firstchoice.co.uk, featured a listing for the Riu Palace Pacific hotel. Text stated "£1620 Per Person Includes £180pp discount".
b. The Thomson website www.thomson.co.uk, featured a listing for the same hotel. Text stated "£1638 Per Person Includes a £162pp discount".
The complainant, who understood that holidays covering the same dates had not been sold at the undiscounted price of £1,800, challenged whether the savings claims were misleading and could be substantiated.
TUI UK Ltd explained the process by which they calculated the cost of their holidays. Before a new holiday package was offered for sale a ‘base cost’ was calculated from the cost of flights, hotel rates, agents’ commission and a profit margin. They said the base cost of the holiday was the genuine cost, and that cost remained the same. At the point a new holiday package was first made available to consumers, it was placed for sale on their websites at the base cost and given a fair chance to sell at that price, usually a period of four weeks, as they expected to be able to sell holidays at the base cost. An online discount was, however, often applied at that time to the base cost of the holiday to reflect that TUI did not need to pay commission to travel agents for holidays sold via their websites.
TUI said that, given the fluidity of the industry, they needed to also take into account the sales of holiday packages at varying points throughout the year and make adjustments as necessary to stimulate sales and interest. This was done through applying a ‘yield management cost’ to the base cost, which was based on departure dates, flight times and available airports, duration of holiday, and the different types of room available at the hotel. Yield management costs could be plus or minus amounts, and therefore could result in holidays being offered at a higher or lower price than the base cost. For example, if a particular flight was more popular and in greater demand than others, the yield management cost for the holiday including that flight would be increased. Conversely, if a particular flight or departure airport was not in demand, then the yield management cost would be reduced. That process was run by algorithms within parameters set by TUI’s trading team.
They said that where per person discounts were stated for holidays on their websites they were based on two variables: the ‘channel’ discount (i.e. a saving for a holiday sold by TUI online compared to the price of the same holiday sold concurrently in-store, to take into account the lack of an agent commission fee online) and a negative yield management cost (a discount applied due to a lack of demand for the holiday). If the price of a holiday had been increasing because of demand, the discount online was made up only of the channel discount. If the price of a holiday had been reduced because of lack of demand a negative yield management cost was applied as well as the channel discount.
TUI provided the pricing history for the holiday in question (which was common to both the Thomson and First Choice websites), covering 22 June to 25 August 2016. The database extract showed the base cost of the holiday (which was £1,429) and the different yield management costs applied throughout the period. A £140 room supplement was added to the resulting price to take into account the specific room type advertised. The total price, taking into account the base cost, yield management cost and room supplement, would be the amount charged in-store for the holiday on the relevant date. An online discount would then be applied to that total price where the holiday was advertised on TUI’s websites.
On 4 August 2016, a yield management cost of £230 was added to the base cost of £1,429. With the room supplement of £140 added, the total price of the holiday was £1,799 per person. An online discount of 9% was applied on the Thomson website (resulting in the advertised final price of £1638 per person), and a 10% discount was applied on First Choice’s website (resulting in the advertised final price of £1,620 per person).
TUI provided six examples of bookings for the holiday (two in-store purchases and four online purchases) ranging from £1,332 to £1,578 per person, booked between 14 May and 31 July 2016. One of the examples of the purchases showed the holiday was sold in-store on 30 July 2016 for £1,466, when the database extract showed the total price of the holiday as £1,459. They explained that the £7 price difference was because the in-store price included a contribution to charity and a cost associated with the holiday being sold through a third-party retailer. The other in-store purchase cost £60 more than the total price stated in the database that day; TUI provided a screenshot of their booking system which showed that the additional £60 related to the customer opting for additional leg-room on their flights.
TUI asserted the claimed discounts were fair, honest and not misleading because the ads indicated to the consumer that they would obtain a package holiday at the value of £1800 for a lesser price, as a result of a number of variables applied for their benefit. They said that showing a discount was important to illustrate the relative value of different holiday packages.
The ASA considered consumers would expect the claim "£[XXXX] Per Person Includes £XXXpp discount" in the ads to mean that by purchasing the holiday at that price they would make a genuine, meaningful saving. We considered that consumers were generally aware that holiday pricing was fluid and that the price of a specific holiday could fluctuate over time, sometimes within the space of a day or less, based on a number of factors. In that context we considered that in the absence of further information about the basis of the comparator (or pre-discounted) price, consumers would be unable to have an informed understanding of whether the discounted price constituted a genuine, meaningful saving.
On 4 August 2016 a positive yield management cost (the cost which reflected the fluid nature of pricing in the industry) was added to the base cost of the holiday seen by the complainant. We understood from TUI that because on that date the yield management cost applied was a positive number, the discount stated online related solely to a discount against the price at which the holiday was concurrently available for sale in-store. A consumer purchasing the holiday online on that day would therefore pay less than if they bought the same holiday in-store on that day. We considered that a discount made against that day’s in-store price represented a meaningful and genuine savings claim, as long as the advertiser could demonstrate that the higher, in-store price was genuinely available and the basis of the comparison was clear to consumers. However, we considered that the basis of the discount claims on 4 August 2016 (that they represented a saving against the in-store price on that day), was not sufficiently clear in the ads and that they were therefore likely to mislead consumers about the nature of the saving being offered.
In addition, on a number of dates a negative yield management cost had been applied to the base cost of the holiday, resulting in the cost of the holiday dipping below the base cost. We understood from TUI that on such occasions, the discount stated on their website was based both on the online discount and the negative yield management cost. We noted that as with positive yield management costs, negative yield management costs resulted from the normal fluctuations in price encountered in a fluid pricing model – prices could go up or down dependant on a range of factors. In that context we considered consumers would be unlikely to expect a lower price resulting from a negative yield management cost to be described as a “discount” or “saving” unless further information was provided about the comparator price, such as when it had been charged and for how long. We therefore considered that consumers were also likely to have been misled about the nature of the saving offered on occasions when the claimed discount was based all or in part on a negative yield management being applied to a ‘base cost’.
Notwithstanding our concerns about the presentation of the discount claims to consumers, we also reviewed the substantiation TUI had provided in support of the specific discounts claimed. The information TUI had provided about the two in-store purchases showed that, excluding additional charges, the holidays were sold at the total price stated in the database on those days. We considered we had therefore seen substantiation which showed that on those dates the discounts stated on the Thomson and First Choice websites related to a ‘channel’ discount.
There were ten dates on which we were able to compare the pre-discount prices advertised on the websites (from information provided by the complainant) with the costs in the database extract. We acknowledged that on four of those dates the pre-discount price advertised on the websites correlated with the total price of the holiday as calculated from the database extract, and noted that on each of those occasions a positive yield management cost had been applied to the base cost, meaning that the discount claims related solely to a channel discount. However, on six of those dates those prices did not correlate – on each of those occasions a negative yield management cost had been applied. We therefore considered that, where discount claims related to a negative yield management cost being applied to a ‘base cost’, we had not seen sufficient evidence to substantiate the savings claims on the basis by which they had been explained by TUI.
Because the basis of the comparator prices had not been made sufficiently clear to consumers, and we had not seen sufficient evidence to substantiate TUI’s explanation of how their discount claims were calculated in relation to claims based on the application of a negative yield management cost, we concluded the discount claims were misleading and had not been substantiated.
The ads breached CAP Code (Edition 12) rules 3.1 and 3.3 (Misleading advertising), 3.7 (Substantiation) and 3.17 (Prices).
The ads must not appear again in the form complained about. We told TUI UK Ltd (t/a Thomson and First Choice) to ensure that future ads referring to discounted prices made clear the basis of the price comparison, and that they held evidence to substantiate such savings claims.