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The demise of the FIT market segment?

The demise of the FIT market segment?

The correct definition of FIT is Foreign Independent Tour or Flexible Independent Travel, generally used to indicate any independent travel, domestic or international, that does not involve a package tour. (Ref: The Travel Industry Dictionary). These leisure tourists are therefore independent, planning their own travel, itinerary or route, without the assistance of a group tour, pre-arranged schedule or other group setting. By virtue of the fact these tourists do not pre-plan, nor book early, they are considered a high yielding segment of customers.

In days gone by, hotels had a published rate which was known as the ‘FIT rate’ or ‘rack rate’. This often was the rate quoted to guests who request accommodations for the same day without prior booking arrangements- The FIT’ segment. The rack rate price tends to be more expensive than the rate that the customer could have received if he/she used a travel agency, or third-party service. Rack rates can vary based on the day that the room is requested. For instance, the rack rate may be more expensive on weekends, which are usually high travel days. Because this ‘FIT rate’ is the highest rate charged by a hotel for a room, often it comes with a discount to entice the ‘walk-in’ guest to book the room.

In a resort hotel the approximate normal hierarchy of the rate structure would be as follows –

It is seen that (as discussed earlier) the highest rate would always be the FIT rate. Travel agents and tour operators, by virtue of the fact that they bring in group business, most often on a continuous basis year-round (sometimes back-to back), receive the best discounted rates in a hotel. (Corporate business also would be somewhere in this range).

The relative ‘newcomer’ to this hierarchy are the OTAs who can command sizable discounts on hotel rates because of their marketing reach and access to many GDS (Global Distribution Systems). It is due to these new and revolutionary phenomena that most tourism SMEs are currently thriving. These SMEs do not have to invest in high marketing costs themselves and are quite happy to give the 15%-20% booking fee to these OTAs and obtain global outreach to market and sell their product.

In Sri Lanka, it has been shown by this author in an earlier publication that the informal sector accounted for about 50% of all tourist arrivals in 2016.

So, what then happens to the FIT traveler? Perhaps it is not correct to say that the FIT traveler is vanishing. On the contrary, more and more people are now wanting to travel independently. But what is happening is that the hotels are not being able to realize the FIT rate from these travelers.

The scene unfolds somewhat like this. The FIT tourist arrives at the hotel and is greeted by the Front Office Manager eagerly, who offers the FIT rate with a discount. The guest pulls out his PDA or smart phone, connects up to one of the OTAs and shows the Manager the lower rate published! Although the Manager can argue and say that it is a special rate for OTAs, the ‘cat is out of the bag’ and the guest knows his bargaining power! Most often it ends with the guest getting a sizable discount off the FIT rate.

As an industry colleague quipped to me “They come to our hotel and use our Wi-Fi to connect to the internet and then ask for the OTA discount!”

So, in reality although we may still talk about a FIT traveler, FIT rates and Rack rates are fast becoming history. Hoteliers have to accept this and the fact the OTAs are here to stay in one form or the other. They will have to device other initiatives that add value to a guest’s stay so that they can charge higher rates and consequently achieve higher yields.