The web has clearly revolutionised the world of airline marketing, but many carriers are still learning how to correctly blend the online sales channel to find the best recipe for extracting both high volumes and more profit as the rules of the distribution game change
It is a basic thing, but you will only sell stuff if your shop is open. So, it was with extreme pain that Ryanair was actually forced to close its "shop" for three days at the end of February. You can only imagine how blue the air was at its Dublin headquarters when its management team was told the switchover from its original Navitaire Open Skies reservations system to the upgraded New Skies version would require its entire internet and call centre booking system to be shut down for several days.
Although this is an unwelcome blip on Ryanair's financial radar in 2008, its new reservations platform should offer plenty of new ways to extract more of the all-important ancillary revenues. Probably more than any other carrier Ryanair has made the most of the internet to sell its product. In the web race it is a purist, shunning virtually every other sales channel to the point where it now sells 99% of its tickets this way.
If airline sales executives were asked 10 or 15 years ago if they could have a large sales channel that they controlled, and where customers could effectively serve themselves, they would have grabbed it with glee. Back then the channels were dominated by travel agents, airline call centres and downtown and airport ticket offices. It was a complex sales world, full of agency commissions and opaque incentive schemes, but one that was pretty predictable. In many markets this cosy structure has been torn down by the influence of the web, with the others to follow in the fullness of time.
The web not only offered control over customers, it offered the prospect of regaining control over the inexorably rising cost of sales. In the tough post-2001 business climate, and in the face of low-fare competitors that were outperforming them by miles on costs, network carriers targeted the travel agents, and the global distribution systems that offer their products, as parts of the value chain over which they had no control. Low-cost players didn't bother with them they had the web to do their business.
The network carriers weren't far behind, joining the rush to drive sales online. It was a panacea to their distribution woes: an almost free way to sell the product and at the same time avoiding the expensive middlemen.
Last year's Airline IT Trends Survey, conducted by this magazine and SITA, showed that online sales, both direct to airline sites and via online travel agents, reached 35% of the industry total. The 2008 poll will likely show them growing further, but the rate of growth appears to be slowing.
For many carriers the web is becoming a much tougher medium to manage than they imagined. The illusion that the web would solve the distribution cost puzzle is banished. There has certainly been a giant channel shift and consumers have benefited from greater transparency and lower fares. However, airline profits have not generally followed suit.
Also banished is the notion that airlines would in fact get back control. It started well enough when all airlines demanded of the web was that it sold tickets. Now much more is required as the technology struggles to get to grips with the desire for more ancillary revenues and the introduction of hybrid business models.
The online travel agencies also got into the act, selling an airline's tickets, often uninvited, outside the influence of the original supplier. In addition, there is a growing realisation that the infrastructure to manage the IT needed for this web world cost a hell of a lot more than anyone ever thought.
Indeed some airlines already concede that the cost of making a booking via their websites is not so much cheaper any more than that charged by the GDSs. And, as the GDSs are at pains to point out, the bookings they handle come with a yield premium of up to 70% compared to web sales. This explains why many low-cost carriers are being lured into the GDS fold.
Surely the conclusion is that the new sales world is just as complicated as the old one. Only the rules of the game have changed. The main problem is many still don't fully understand the rules, especially as they seem to change with alarming regularity. It is as marketing has perhaps always been: an elaborate, sometimes educated, guessing game.
Source: Airline Business
