It's like someone trying to drink from a fire hydrant" is how Marc Rosenberg compares the job of today's executives with airline distribution in their management portfolio.
As keynote speaker and summariser of the Airline Business/UATP Airline Distribution 2009 conference, held in Vienna in early April, Rosenberg, the former vice-president sales & product distribution at Air Canada and now an independent consultant at Marsalyn Creative, said: "There is so much to handle and there is so much confusion out there on how to do it."
Over the past decade the distribution world has changed enormously. Up until the late 1990s, tickets were mostly sold by travel agents using global distribution systems to make and manage the bookings. The rules for all were straightforward. "In the past you didn't need a distribution strategy," said Lars Denlew, director distribution and e-commerce at Gulf Air. "This whole thing changed when low-cost carriers came along and showed they can actually sell a ticket much cheaper." At Gulf Air, it is up to seven times more expensive to distribute through a travel agent compared withthe web, said Denlew.
As the 2008 Airline Business/SITA Airline IT Trends Survey showed, on average low-cost carriers sell nearly three-quarters of their tickets on the web. For some it is also much greater. EasyJet, for instance, makes 98% of its sales through its own website, said Jerry Dunn, easyJet's distribution development manager.
Managers of network and low-cost carriers alike are struggling to find the best distribution strategy which makesbest useof their own websites, while selling via travel agents where appropriate. "For most it is not about either/or, it is about choosing the right path," said moderator Richard Clarke, director of Travel Technology Research (T2R).
"Improved channel profitability is the ultimate objective," said Rosenberg. "Cost is a big driver, but the bigger one is driving revenue resulting from merchandising opportunities."
And in today's dire economic situation, the ability to boost revenue from better merchandising, which could mean improving the sale, upselling of different fare categories or selling ancillary products like insurance, car hire or lounge access, is critical. "Our tickets need to be sold in a technology environment where that is optimised," said Rosenberg. "For now GDS technology limits that opportunity. You need to ask should you be compromised by that technology or should you be embracing it?"
Air Canada found the GDSs did not have the technology to deliver seat selection and the carrier was losing ancillary revenue opportunities. It moved seat selection and its buy-up branded fares out of the GDS environment. This was a radical but calculated decision that angered the GDSs, but was designed to let Air Canada play by its own rules.
Air Canada's move was not about cost savings, but about new revenue generation opportunities. It wanted the ability to offer passengers the choice of different fare categories or seat assignments or to buy lounge access. This was only possible on its own website as travel agents using the GDSs cannot, for now, offer these choices. It is simply not part of the menu displayed to them by the GDSs.
As the GDSs tackle this issue, they have already made major efforts to ensure that airlines make all of their fares available to them and travel agentsdo not hold back special cheap fares that are only available on the airline website. The move to sign these so-called full content agreements began a few years ago.
For its part, Air Canada never had an appetite for these full content deals because of its strategy of pushing ancillary revenues. Fearing that Air Canada's move could become an industry trend, the GDSs moved rapidly, and have since signed multi-year full content distribution deals with all of the US majors and many other carriers around the globe. It has been a successful strategy to protect travel agency access to the entire airline fare inventory. The GDSs give discounted distribution prices to those airlines that sign full content deals.
But is it short sighted? "What have full content deals achieved other than segment booking savings?" asks Rosenberg. "I suggest they have slowed down many of you in your own efforts to boost ancillary revenue opportunities. The content belongs to the airline, it doesn't belong to anyone else - you must believe in that."
Technology providers like Ireland's Datalex and US-based company ITA Software have come up with solutions that enable carriers to develop their websites to capture these opportunities. It will be an essential part of airline strategies to raise revenues and boost yield in these tough economic times. "In 2009 there needs to be a big focus on merchandising," said Ornagh Hoban, vice-president strategy & marketing at Datalex.
The missing part for the GDSs is being able to reproduce what airlines are able to sell on their own websites at the travel agent point of sale. "Our clear strategy is to empower airlines to do what they need, because they are going to do it with or without us," said David Doctor, global head of airline distribution at Amadeus. "We know there's a lot of catch up to do." A year ago Amadeus launched its Airline Retailing Platform, designed to allow airlines to present their products to customers as they appear on their website. Qantas is the pilot for this with the first elements going live this year. The work Amadeus and others are doing is welcomed by airlines. "They [GDSs] are at the stage where they are now saying 'I get it now and I want to work with you'," said Rosenberg.
While the GDSs have been slow to align the airline website customer experience with that travel agents can offer, there is general agreement that GDSs are here to stay. "I acknowledge the fact that GDSs can be a good distribution channel - but they do not bring value for every passenger category," said Denlew.
The market power of the GDSs has meant it has been hard for small- and medium-sized carriers to control their distribution costs. "For us the GDS channel is easily over-priced by 40%," said Rudy Maex, vice-president channel development & service delivery at Brussels Airlines. "But as a smaller player it is tough to withdraw content. We don't have much muscle to show to the travel agent community." At the same time, "GDS full content discounts remain relatively marginal for smaller carriers," said Maex.
GDSs are still crucial for Brussels Airlines with 65% of its sales in 2008 coming via this channel, compared with 27% via the web. To offset the high GDS costs, and with a strategy to make every channel cover its costs, the carrier was one of the first to charge travel agents a GDS booking fee in 2005. This fee is now €3 ($4) per segment for any booking class.
The merger of SN Brussels Airlines with low-cost and non-GDS carrier Virgin Expressmade this transition, which was resisted by travel agents, a little easier, said Maex. The move, coupled with the removal of travel agent commissionsand the introduction of credit card fees on the web is judged a reasonable success at the carrier, with distribution costs reduced by 60-70% over the past five years, said Maex.
Interestingly, while network carriers have been fighting to boost their web sales, some low-cost carriers have been moving to use GDS distribution to access new customers. But they have been trying to do this on their own terms where possible to avoid high GDS costs.
EasyJet, AirAsia and Transavia, for example, have worked with Amadeus on technology that connects their website booking engines with the GDSs. "We made a conscious effort four years ago to tailor our products to the business traveller," said easyJet's Dunn. Part of this meant enabling selected business travel agents to sell easyJet tickets via the GDS. This is done using a direct connection between the easyJet website and Amadeus.
Ticket numbers sold this way are still relatively modest but it does produce higher ticket yields, said Dunn. EasyJet recovers its distribution cost and any ancillary revenue lost whentickets are booked by an agent by charging them a fee per booking.
Another that has brought on board GDSs is Spain's Vueling, which has just completed a merger with low-cost neighbour Clickair. "We were not targeting the indirect market in Spain.We thought direct channels were enough,but it wasn't.The model was failing," said Juan Carlos Iglesias, Vueling chief sales officer.In particular, Vueling realised its ability to sell in crucial business markets like Madrid-Barcelona was hampered by not being available through travel agents, and decided to bring in the GDSs. "We did nothing special we just plugged in our system to the traditional GDS," said Iglesias.
It began selling on Amadeus in mid-2008. Travelport was added in December. "Now 20% of our total sales are coming from the GDSs and it is also bringing higher yielding passengers," said Iglesias. This will bring a positive bottom line impact of between €20-30 million in the first half of this year, he said.
Although GDS distribution has been a major part in Vueling being able to reach breakeven once again, Iglesias is under no illusions about the cost. "We are paying the most expensive price of the GDS because we've just arrived," said Iglesias.