American Airlines started it all three years ago. Other US majors were quick to follow. Now, Internet discount fares are beginning to generate significant revenues.
The formula is simple. Deep discount fares are announced on-line each week for travel the following weekend. As well as generating revenue, these on-line bargains help to cut distribution costs, in part by weaning passengers off travel agents. American started the trend with its Netsavers scheme, an off-shoot of deeply discounted fares initially publicised only on cable television in its home hub market of Dallas, Texas. Since American's launch, every US major has developed similar discounts, although Delta Air Lines, the last to hold out, did not enter the fray until February.
As inventor of Internet discounts, American appears to be benefiting the most. John Samuel, American's director of interactive marketing, says 2.1 million passengers have registered to receive a weekly e-mail listing of each week's fares for domestic and international travel, sometimes including American Eagle, the carrier's regional subsidiary. American sells its Internet discount fares either on-line or through a special telephone number. Samuel says sales are "in the seven figures" each month.
"Initially, Netsavers were all about saving money. They were an inexpensive way to distribute the product," he adds. "But now they've gotten out of the gate, they're creating new ways to generate revenue."
Steve Cossette, Continental Airline's vice-president of distribution planning, says the airline sends its weekly list of Internet discounts to more than 1 million people. Like American, Continental sells discounted fares on both domestic and international routes and allows travellers the option of buying either on-line or by telephone. But there is a $20 fee for telephone purchases.
American has started offering a new type of Netsaver with a seven-day advance purchase, which it e-mails to potential passengers 10 days before departure. The original Netsavers, which are still available, are posted on American's web site and put up for sale the week they are good.
Continental, which began its Internet discount fares scheme in 1996, sees sales in the six-figure region weekly, says Cossette. "The discounts allow us to get smarter about electronic commerce and help the customer learn more about how to do it," he says.
Northwest Airlines also has over 1 million subscribers for its e-mail list. Again, there is a $20 fee for telephone purchases and discounts available for domestic and international flights. But services are only available out of Northwest's Detroit, Memphis and Minneapolis hubs. Al Lenza, Northwest's vice-president of distribution planning, describes sales as "meaningful" and says the main purpose of the scheme is to generate awareness of the airline's web site. "We want people to get excited about coming back frequently so they can see how we're adding value to the site," he says.
Bill Reeves, Delta's general manager of e-commerce, says his carrier waited three years before offering Internet discounts because the airline wanted a proper infrastructure in place. Delta's discounts are sold only via its web site and are for domestic flight only. Reeves points out that the scheme not only reduces inventory spoilage, but it is also four times cheaper to sell a ticket over the Internet than via a travel agent.
Seema Williams, an analyst in on-line retail strategies for Forrester Research in Cambridge, Massachussetts, believes carriers are becoming more selective in their Internet discount offerings. "Now there is a more limited number of city pairs than in the past," she says. "The whole effort has two functions - to fill 'planes and to fill databases with customer names so airlines can develop direct marketing capabilities outside their frequent flier databases."
Changes on horizon
More changes may be on the horizon. Northwest is considering selling Internet discounts in Japan this year, while American plans to start selling its discounts overseas. American's Samuel says the carrier will "review more intensely the cost of sale when it considers new products". The Internet has taught the airline that it can "tell a lot of people about fares in an inexpensive way."
David Kirby, editor of the newsletter Interactive Travel Report, believes airlines will make their web sites more interactive. For example, from a choice of five e-mailed Internet specials, a customer will be able to click on the desired fare, connect directly to the carrier's web site and immediately make a booking. And Williams expects that carriers will begin to work with ticket consolidators to bundle together discounted tickets with cheap car rentals and hotel rooms - creating inexpensive vacation packages.
Source: Airline Business