The Asia-Pacific market has its own specific challenges when it comes to selling and marketing its "perishable" product, the aircraft seat, delegates heard at the 2008 Airline Distribution conference

In the railway station underneath Kuala Lumpur's famous Petronas Twin Towers an entire walkway is emblazoned, floor to ceiling, with the vivid red advertising of AirAsia. More specifically, the message is designed to tempt customers to the airline's website, which has grown to take about two-thirds of its bookings.

The adverts, shamelessly name-checking the airline's connection with Manchester United soccer stars Ryan Giggs and Wayne Rooney, are a vivid demonstration of the impact this south-east Asian airline brand has had on consumers in Malaysia. Under the leadership of Idris Jala over the past two years, the country's flag carrier Malaysia Airlines, battered and bruised by the entry of AirAsia into its home market, has proved that a legacy carrier can reinvent itself to compete with a low-cost upstart, and indeed thrive in a market where air travel has boomed and continues to flourish.

Idris Jala
 © Patrick Peartree
Idris Jala from Malaysia Airlines outlined his carriers turnaround
In his keynote speech at the 2008 Airline Distribution conference, organised by Airline Business and corporate credit card company UATP, and held in Malaysian capital Kuala Lumpur, Idris described how his carrier has already achieved a 20% reduction in costs in the last two years as he seeks to transform the business. "We need to be a five-star airline. I am often asked, isn't this a contradiction - how can you possibly offer quality and at the same time reduce cost? I say it is all about finding the sweet spot between quality and cost - it is difficult to do and requires a lot of work, but we have to build a ship that can weather the storm."

For Idris, Malaysia Airlines is only at the beginning of its transformation as he goes about fixing parts of the airline that were not working properly. "It's all in the execution - strategy is cheap," he told the audience. Much effort has gone into improving the carrier's "enabling systems", he said. "We have struggled with implementing IT systems as a company, but in the last two years we broke the trend." Upgrades to the airline's website have come in and e-ticketing has been brought in over the past year to meet the end of May IATA deadline. In the distribution area, Malaysia Airlines is "putting a lot of emphasis to catch up on this game", ­explained Idris.

Lagging Behind

In some ways, Asia as a whole lags the rest of the world when it comes to distribution. As Beatrice Lim, commercial director of the Association of Asia Pacific Airlines noted, quoting the Airline Business/SITA IT Trends Survey, online sales represent just 14% of the region's total bookings. It is half the amount of Europe and a quarter of that of the USA.

Carriers are stepping up their online push as they seek to emulate their western peers in reducing distribution costs. However, with the region's strong affiliation to travel agents to consider, the move is not to wage all-out war against agents and the Global Distribution Systems, but to undertake a more subtle and gradual transformation. As Eddy Leong, managing director of Firefly, a regional start-up carrier formed by Malaysia Airlines, said: "We are trying to shift our [sales] channels to direct distribution, but we are meeting some resistance."

The positive note for this dynamic region is that demand remains robust, although "for this year, performance is anyone's guess", said Lim, as fuel prices soar. This is in contrast to 2007, which saw a record operating profit of $6 billion for AAPA ­carriers. On the negative side, some see a slide towards less desirable distribution practices in the Asia-Pacific. In particular, airlines frown upon GDSs paying incentives to travel agents to use their system over others. In Europe and the US, airlines have attacked this model, with success. As Lars Denlew, vice-president distribution & e-commerce at Gulf Air said: "Thank you very much BA for taking this fight - you have my 110% support for that."

But, according to Deborah Dickens, senior manager distribution at British Airways: "We are seeing this business model moving into the Asian market. It's quite depressing as an airline to see that model proliferate in new markets, but it is up to airlines in those markets to see if they can change that business model."

Asian GDS Abacus, which is celebrating its 20th anniversary this year, bemoans this shift. "Incentives are not the way to go, but Abacus can't fix the problem," said Patrick Lai, vice-president North Asia & content marketing at Abacus, which is jointly owned by 11 Asia-Pacific based airlines and Sabre Travel Network. "For the first decade incentives were not a big problem, but in the last 10 years as foreign GDSs try to enter this market in a big way they have become more common." Offering incentives has been a typical method for the newcomers to "buy into the market". "Some agents survive on the incentives not on the tickets they sell. This is a very worrying trend," said Lai.

Western Model

Some markets, like Malaysia and Singapore, are moving to the western model, where agents charge a fee to customers instead of obtaining incentives from the GDSs. "In Singapore travel agents are managing that [transition] pretty well - in some cases agents say they can make a little bit more money," said Lai.

Abacus, which despite losing market share to the likes of ­Amadeus and Travelport, is the region's largest GDS outside China and is trying to defy going down the incentive route. "I want airlines to work with us to influence the behaviour of the agents and share the difference with the ­airlines," said Lai.

But in other markets, the fee-based model is absent, for example Hong Kong and China, where travel agents remain highly popular. There are some 6,000 travel agents in China that sell mostly domestic flights and about 800 that are authorised IATA agents to offer international destinations, said Hugo Zhang, product ­director GDS business department at TravelSky Technology.

The Chinese GDS is the only IATA authorised distribution system in the country and provides the inventory management for the country's main carriers. In this controlled environment, most agents in China operate on a commission-based payment structure. With a virtual monopoly, the incentives issue has not come to China so far, said Zhang.

As the Asia-Pacific travel market wrestles with the future of incentives, it is also bringing low-cost carriers into the fold. Abacus recently signed deals to distribute Firefly's fares, adding it to contracts with AirAsia, Jetstar Asia and India's Deccan.

The web is easily AirAsia's most important sales channel, and is the one it is focusing on boosting, explained Rayner Teo, the carrier's head of sales & distribution. Its website currently represents 65% of its sales, with 23% coming from its call centre, sales offices and group bookings via travel agents. Another 10% comes from travel agents using AirAsia's B2C booking platform while just 2% come via its access deal with GDSs signed a couple of years ago.

When AirAsia signed with Abacus, Amadeus and Travelport it "was looking to it more as going into new markets, to places where internet penetration is low", said Teo, such as Cambodia and Laos. "But somehow this didn't really work out and sales are quite small. With the introduction of the GDSs we did notice a bit of cannibalisation from what we had already, so at the end of the day there is still a lot of work to be done."

As carriers and suppliers become more experienced with the online world, new challenges emerge to manage this environment. Online travel agents, for example, obtain the fares of low-cost carriers by screen-scraping their content from the airline websites. AirAsia knows this is going on, and has sent some letters to online travel agents to stop the practice, said Teo: "We are still analysing what incremental value they add, and have not reached a conclusion yet." ­Adding distribution channels also gives AirAsia more work in revenue management. "It is ­increasing in complexity," said Teo. "As we add on additional channels of sales we do protect what kind of price is allowed in these channels," he said.

Grab a Bargain From ANZ

The "sold out" sign is swinging gently on the grabaseat website for flights from Wellington to Hamilton. But if you are quick you can still buy for NZ$39 ($30) a flight from Auckland to Rotorua.

ANZ grabaseat

Grabaseat is a site Air New Zealand has developed to "throw very low fares" onto the market, Cam Wallace, ANZ's general manager for New Zealand and Pacific sales told the Airline Distribution conference. Every day ANZ puts around 500 cheap seats up for sale on grabaseat.

The site counts them down to zero before your very eyes as they get snapped up. It is a sales tactic pioneered by television where hyped up presenters offer a limited number of items and people call in to buy them. The items count down to zero on the TV screen as they are sold.

The carrier "threw grabaseat together in a few weeks", said Wallace, as a kind of experiment. It is proving successful with the site obtaining 40,000 hits a day. These ultra-low fares are only available on this site.


Airline Distribution 2009 will offer a high-level conference and excellent networking opportunities for industry sales and marketing experts

Dates 31 March-2 April 2009

Venue Vienna, Austria

Event organiser Airline Business/UATP

Conference manager Michelle Fagan

Tel  +44 20 8652 2182
e-mail: mailto:


Source: Airline Business