First it was the turn of the US majors to launch a joint Internet site. At the end of February, the European majors revealed that they would follow suit. The initiative, led by British Airways, will see a group of 10 European airlines join forces to create a new website. The two moves may not be unrelated.
The European launch is, to an extent, seen as a defensive measure. The potential threat is that US airlines will use the new reach provided by the Internet to encroach on the home markets of Europe's flag carriers. US online travel agencies, such as Travelocity and Expedia, meanwhile, are also beginning to crank up their presence in Europe.
When a group of four US majors announced plans to launch a joint website, dubbed T2, last November, some European airlines had considered the possibility of joining them. Instead they have launched their own site. Virtually all of Europe's majors have shown an interest in the scheme, albeit with some caution from Lufthansa - perhaps due to the role played by rival BA.
To date, there are said to have been only tentative discussions about the joint European website and no firm launch date has yet been set. But most commentators agree that speed is of the essence if organisations such as Expedia are to be kept at bay.
According to Jaap Favier, analyst at Forrester Research, the US online travel agents "have been doing it the smart way" by making sure that they are in tune with local languages and payment cultures. Since its launch in the UK, Favier says that Microsoft-owned Expedia has taken business away from other online travel Internet sites. The US travel business already has a German site and is working on others in the region. "This company is a real danger to the airlines," says Favier. "The public may not know about it yet, but this will soon change if Microsoft starts to advertise aggressively."
The US airline venture, T2, appears to be a less immediate threat. Airline sources say that delays in its launch are linked to the fact that US carriers are not keen to see their customer loyalty packages available on the joint site. Or to put it in Internet-speak, a case of "channel conflict". The Europeans have had chance to learn from this potential conflict and Favier believes that they will agree instead to keep either extra bonus kilometres or service extras for business passengers - and possibly both - on their own captive websites.
Financial gains
The new site should provide airlines with an opportunity to claw back some of the discounts now going to online consolidators. Chris Tarry, aviation analyst at Commerzbank, reckons that BA alone could net £150 million ($240 million) a year by offering tickets itself on the new joint Internet site, rather than going through the "bucket shops". That calculation is based on a premium of only £20 over the virtual consolidators.
Neither can the airlines have failed to see the potential for future lucrative sell-offs if the joint web ventures are one day in a position to be floated. Quite apart from the current boom in dot.com share prices, the tidy profits that airlines themselves have been making following the flotation of the traditional computer reservation systems (CRS) have provided a timely reminder of the possible gains to be made. "Its the CRS story all over again," says Favier.
He believes that Madrid-based Amadeus is well positioned to offer its technology as the basis for the European venture. It is still part-owned by several of the region's national carriers and has experience in dealing across a range of European countries. Unlike Sabre, with its Travelocity product, Amadeus, too, has avoided any aggressive pursuit of its own consumer business. Favier also argues that, for its part, the European CRS are eager to diversify.
Whichever CRS wins the contract - and the announcement is believed to be imminent - analysts agree that the days of charging $10 for each transaction are over. A figure in the $2-3 range is posted as a better online benchmark.
Favier argues that the joint website is not necessarily the ideal solution for airlines. That would be to steer customers direct to their own dedicated site. The next best option would be to capture them on an alliance website. Only failing that should they turn to a joint site with rivals. But while it may be only the third best option, it is still better than losing out to new online predators.
Source: Airline Business
