Understanding Distressed Inventory in Travel: A Delicate Balancing Act

In the travel industry, distressed inventory is inventory that will soon be impossible to sell. Airlines and hotels know this concept all too well. With limited capacity that can’t be stored, inventory like seats or nights becomes useless once their date has passed. The day after a hotel night is vacant, or a plane departs with empty seats, the potential revenue vanishes. 

One of the challenges here is that last-minute purchases often command premium prices. Revenue managers, for instance, have long capitalized on the fact that an urgent, last-minute booking usually comes from someone who needs to travel, and with limited capacity left, these travelers are more likely to pay a high price for convenience. It’s a system that works—until it doesn’t. 

The risk is clear: pricing these last-minute seats too high may maximize profits if the demand materializes, but it also raises the stakes. People who have flexibility in their travel dates but are not under pressure to book are less likely to bite, and as a result, unsold seats become a real possibility. This creates a significant risk of distressed inventory and lost revenue. 

Navigating the Distressed Inventory Dilemma 

Travel companies, especially airlines, are constantly trying to reduce the amount of distressed inventory while still extracting as much value as possible from their unsold capacity. In a previous article, we explored how some airlines are creating "virtual capacity" to address this issue. Virtual capacity is a set of strategies that allows carriers to offer more inventory on paper than they physically have. This set of solutions has helped minimize the risk of unsold inventory in certain contexts but is not enough on its own. 

At its core, the challenge of distressed inventory is a delicate balancing act: ensuring that customers willing to pay a premium for last-minute travel do so while also filling as many seats as possible. Revenue management strategies have been central to this effort, constantly evolving to capture demand and adjust prices in real time.  

The Reincarnation of Last-Minute Deals 

In recent years, airlines have revisited an old solution—offering last-minute deals. It’s a strategy that was once incredibly popular and even gave the name to companies like Lastminute.com, which specialized in these kinds of deals. But the problem with this approach was that it attracted both bargain hunters and travelers who were not flexible with their plans, making it difficult to distinguish between those who needed to travel versus those who planned a trip because of the deal. 

A modern twist on this model has emerged from the blending old tactics with a new tool: subscriptions. 

Today’s version of last-minute deals is offered exclusively to customers who have purchased an all-you-can- travel-subscriptions in advance. These subscriptions, designed to attract bargain hunters, help separate price-sensitive, flexible travelers from those who simply must fly at the last minute and are willing to pay any price. Examples include Volaris’ Annual Pass, Frontier’s GoWild! Pass and WizzAir’s All You Can Fly.  

The logic behind this approach is sound. Subscriptions appeal to flexible travelers who are willing to book last-minute trips if the price is low, but they are unlikely to attract high-yield corporate travelers who need to fly to specific destinations. By offering these deals only to subscribers, airlines avoid devaluing their last-minute inventory and ensure they are targeting the right audience. 

A Broader Industry Shift, Evolving Revenue Models 

This subscription-based approach isn’t just an isolated trend. It’s part of a broader movement across the travel industry, where all-you-can-fly models and other subscription services are gaining traction. Spearheaded by innovative travel tech companies, these new offerings allow airlines to both minimize distressed inventory and tap into the increasing demand for flexible travel at competitive prices. 

In the end, distressed inventory remains one of the toughest puzzles to crack in the travel industry. As airlines continue to innovate and experiment with new revenue management strategies, they are also reshaping the way travelers think about last-minute purchases—bringing the subscription model into sharper focus as a viable long-term solution.