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  • ANALYSIS: The value of distribution channels

ANALYSIS: The value of distribution channels

Management of distribution channels rarely makes it on to airline chief executives' agendas. Aircraft cost tens of millions of dollars, fuelling and crewing them millions more. By comparison, a system that costs just a few cents per passenger seems like small potatoes. Only when something goes badly wrong might top management realise this cheap technology is a critical part of business success or failure.

The recent history of Kingfisher Airlines illustrates the point. Between the third quarter of 2011 and today, the Indian carrier shrank from the country's largest domestic carrier to its smallest. Market share went from 20% to 6.4% in only six months.

There is rarely a single reason for such a decline. Many factors have contributed to Kingfisher's downward momentum, but there is a good case that the ill-fated acquisition of Deccan Airlines in 2008 lies at the root of the problem. Deccan was a successful airline operating an Indian take on the low-cost carrier model. Like budget carriers in other markets, Deccan achieved high fleet utilisation by operating point-to-point with fast turnarounds.

Unlike low-cost carriers in the West, Deccan could not assume its customers had credit cards. It relied on a specifically Indian approach. Thousands of small travel agencies sold its seats and managed cash payments. The airline held cash deposits or extended credit to favoured agencies. Deccan also took bookings from a group of Indian online travel agencies like ClearTrip and Yatra.


Traditional airline reservation systems take bookings from travel agencies connected via the global distribution systems. Payments are managed by billing and settlement plans operated by IATA. With the move to online booking in the 2000s, the systems added direct internet sales and credit card payments. What they have never been able to do well is operate in cash markets or connect directly to travel agencies that do not use a GDS. Deccan looked for a new option in the shape of passenger services systems.

Radixx International is a Florida-based systems provider willing to work closely with Deccan to meet the Indian market's particular requirements. Its chief executive Ron Peri recalls the early days of working with Deccan: "We had developed experience with the non-credit card model in Africa and Latin America and were convinced it was the key to success for Deccan in India."

Radixx and Deccan implemented a travel agency portal, giving non-IATA agencies access to Deccan's booking system, and enabling the airline to manage credit control and commissions directly from the PSS. Radixx also worked to connect the online travel agencies using a rich application programming interface.

By the end of 2007, Deccan was taking more than 5,000 bookings per day from the OTAs and about twice as many from the travel agent portal. "By the time we had fully implemented the TA portal and the OTA interfaces, something like 70% of all Deccan's bookings were coming from those two channels," recalls Peri.

Also in 2007, Kingfisher Airlines owner United Breweries invested in Deccan. As the two airlines were brought together, Deccan was rebranded as Kingfisher Red in August 2008.

Kingfisher was a full-service airline with aspirations to join an alliance. There were always going to be problems uniting its culture with the strict no-frills approach of Deccan. Nowhere was this clearer than the decision to merge reservations on the Sabre system used by Kingfisher.

"We were very sorry to see Deccan leave us, but these are the facts of life in the industry," says Peri. "Companies do merge and there are bound to be winners and losers."

Chandra Nene was chief information officer of Kingfisher at the time of the merger and he recalls the immediate impact: "Sabre is a very good system but at that time it was not designed for online sales in India. Many online travel agents were cut off from selling Deccan seats. Kingfisher acquired the Deccan network but lost the ability to sell it. Both load factor and flight profitability went down dramatically. I had expressed my concern about this to top management ahead of time, but the systems merger went ahead."

In response, Sabre says: "Travel portals can connect using Sabre web services. This was the solution then and still is now. It was up to Kingfisher's management to work with the portals and have them connect."

Sabre certainly has great capabilities. Unfortunately, despite Nene's warning Kingfisher management was either unaware of or careless of that necessary work. Since then, Kingfisher has made steady losses. The worst operating result until this year was in 2008, the year of the Deccan acquisition. Of course problems with distribution are not the only reason Kingfisher has struggled, but the Deccan merger and the loss of the majority of that airline's market have ensured Kingfisher's fall has been greater than most.

Deccan worked hard to build a distribution system to fit its own particular market. Sadly it appears no one in the Kingfisher executive suite understood that.

Ian Tunnacliffe is an airline IT consultant with over 30 years experience and has spent the last 15 years in the distribution arena. His company IFT Consulting has provided services to various players in the sector including Radixx and Sabre

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