When Ryanair boss Michael O’Leary addressed 400 members of the corporate travel community earlier this year, he described his attendance at the business travel event as one of the most depressing days of his life. But he said it with endearing grin on his face.

The maverick Irishman has made a career out of his roguish charm; though nowadays he adopts a slightly different tone, peppering his polemics with pinches of humility. Less than a decade ago he branded travel agents “parasites”, and insisted his airline would never load fares onto the Amadeus, Sabre and Travelport global distribution systems used by intermediaries.

He was an energetic and resolute apostle of the direct-sell gods: stack ’em high, sell ‘em cheap. Following in the footsteps of the trailblazing US low-cost carrier Southwest Airlines, O’Leary drove forward the development of fare unbundling and ancillary sales tactics in Europe, revolutionising the way airline products and services are marketed and sold around the world. His strategy helped pave the way for billions of pounds of new revenues for the global airline sector and forced many network carriers to rethink their business models.

O’Leary stuck steadfastly to his low fare, low-touch customer service values for much longer than many envisaged.

Some analysts had predicted a point would eventually be reached when Ryanair would have to target alternative customer segments to keep growing. The U-turn eventually came, almost inevitably, 18 months ago, when the carrier announced it would in fact return to the GDSs and embrace corporate travel intermediaries.

The truth is that Ryanair had no choice but to rejoin the GDS world, engage with travel buyers and travel management companies, and go after the business-travel dollar. Its growth in the point-to-point short-haul European market was reaching saturation point. O’Leary’s reversal is also consistent with the LCC trend toward the diversification of selling channels, particularly in the world’s most mature commercial aviation markets.

EasyJet tore up its web-centric direct distribution strategy seven years ago in order to pursue managed business travellers; and has done so with aplomb. The Luton-based airline already boasts scores of contracts with companies across Europe, while booking volumes via the TMCs, GDSs and corporate self-booking tools have grown exponentially.

Chris Wilding, senior vice-president of marketing for Sabre Airline Solutions, describes this as the LCCs’ “evolutionary path” on the distribution trail. At conception, he says, many budget carriers focus on one market with one or two aircraft filled by passengers who have booked direct on the airline’s website. “Over time they want to grow,” he says. “That means either entering new markets, or targeting new customer segments.” It seldom takes long before an LCC is tempted by the higher yields available in the corporate travel world. As a general rule of thumb, business travellers tend to book closer to departure and are likely to spend more money on ancillary products and services. “So while the LCCs don’t want to duplicate a legacy network strategy, they’d still like some of the business. That’s when they need to modify their product a little. A lot are not willing to compromise too much as it’s about keeping costs low,” he says.

Wilding is, of course, correct. If LCCs are to succeed in the corporate travel sector, they cannot be solely reliant on the booking channel itself. Though it provides the access to agents and bookers through the GDS, they still have to sell a product that business travellers want to buy. Both EasyJet (first) and Ryanair (much later) revamped their product offerings. The duo, for example, provides allocated seating, fast-track access through airport security and flexible tickets.

Evolution may also comprise of schedule changes or an increase in route frequencies to include departure and arrival times more amenable to the business community. And it could include the introduction of hub airports to the LCC network. “Whatever the changes, they all face challenges establishing their brands and product offerings in new markets, and that’s where third-party distributors – including the GDSs and their agency customers – can help,” says Wilding.

An interesting dichotomy is also taking place in the LCC sales stream. They were, as stated above, the pioneers of fare unbundling. The spin from the airlines was that fragmented fares gave customers control. Why pay for a checked bag if you’re not carrying one, they would ask. They reality is: ancillaries are lucrative. Corporate travellers, on the other hand, demand simplicity, as do those booking travel on their behalf. The latest trend, therefore, is LCCs rebundling fares and loading them into the GDSs as branded packages.

Ian Heywood, Travelport’s global head of product, marketing and air commerce, says these branded fares include elements fundamental to the business trip, such as seat assignment, fast-track access through the airports, onboard dining and priority boarding. “It’s about making shopping and booking simple,” he says. “Many are happy to fly on the LCC product, they just don’t have the time to go through a complex booking process. Though the legacy carriers are not going down without a fight. Just look at the likes of BA who have introduced no-baggage fares. We are going to see more of this kind of behaviour as selling strategies on short-haul services start to converge.”

This has already happened in the USA, notes Decius Valmorbida, vice-president Latin America & Caribbean for the Amadeus IT Group. “The traditional carriers reacted quickly to the LCCs, so today they are all pretty much cost competitive and are basically operating in more of a hybrid space,” he says, adding that in Asia the pure low-cost model is still relevant and dominant on account of the huge demand from emerging middle classes buying air travel for the first time.

For many years, the GDSs were lambasted for not being able to display content in a way that enabled products to be differentiated in any way other than price and schedule. However, the development of sophisticated API links (a virtual pipeline that allows the airline and GDS to pass information to each other) has started to provide rich content parity between airlines’ websites and third-party booking platforms. The ability for airlines to merchandise through third parties is, as a consequence, becoming much easier, though Amadeus’s Valmorbida believes some misconceptions still exist.

“Some people mistakenly compare the GDS to a B2C website. It is important to understand that the GDS is a professional tool. We present a comparison to an agency and an agent. The agent then conveys the information to the traveller,” he says.

What is crucial, therefore, is that a balance is found between making sure the agent is as productive as possible while at the same time providing enough relevant information and content in all booking channels.

The APIs have been so successful because they have allowed LCCs to maintain their operational functions, argues Heywood. Rather than connecting to the GDS in the traditional manner, and loading content through fare filing company the Airline Tariff Publishing Company (or Airlines Reporting Corporation in the USA), the API means the carrier can to continue to use the same revenue-management systems.

“This makes it really attractive to sell through the GDS. They are desperate to get to the agency market and the API makes it very straightforward,” says Heywood. Anthony Drury, head of business at EasyJet, insists the API connections create efficiencies for the entire supply chain. “It’s roughly five times less efficient for the agent to have to book on the website direct. The sooner everyone adopts the API the better for the industry,” he says.

The demand from businesses and travel managers for LCC content is booming.

Simone Buckley, chief executive of UK business travel association ITM, says many company travel policies require travellers to book the lowest available fare on the day.

“That’s why it’s so important for the low cost fares and schedules to be displayed alongside those of the carriers who have historically loaded their fares into the GDSs,” she says. “ITM members include travel buyers from the public and private sector as well as TMCs and supplier, including airlines.”

Drury says it is important for ITM’s travel buyer members “to be able to obtain the data that comes with booking itineraries. They need to fulfil their employee duty of care requirements, which comes from the TMC’s mid-office system.”

Conversely, airlines are also working out how to get the right level of data passed back from their corporate clients. “We need to find a way of standardising the data we receive. We need to know which company made the booking, and in which channel,” Drury adds.

As many of the world’s legacy, full-service carriers try to work out how to make money on their short-haul networks, the LCCs are powering ahead. EasyJet set the benchmark high in the corporate sector after its successful and sustained market entry towards the end of the last decade. “Ryanair is doing a good me-too job,” says Drury, who is unusually complimentary about his competitor.

Source: Airline Business