Sales engine

New technology and airline innovation are turning the web from a cost centre into a sales engine.

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By  Colin Baker Published  May 15, 2006

|~||~||~|The Internet has, without a doubt, changed the face of the airline industry. It is no coincidence that the low-cost carrier sector has developed in parallel with the growth of the web, and that both have grown at a pace that has often been breathtaking. The pace of change has meant that airlines have not always had much time to really plan their web strategy, particularly those mainline carriers that have often entered the web world as a defensive measure in response to the challenge posed by budget carriers. As a result, the cost savings through cheaper distribution have sometimes been wiped out by yield erosion. “Airlines compete on price, schedule and service. Two of these got forgotten by some airlines when they developed their web sites. They were competing only on price,” comments Ian Wheeler, vice president, marketing at airline IT provider Amadeus. “In the first instance, airlines saw the web almost as a distressed inventory exercise. It was naturally a low-yield product,” comments Murray Smythe, vice president for Europe, Middle East and Africa at Sabre Airline Solutions. Today, however, airlines have smartened up, and are using the web more intelligently. “Airlines are trying to use the web in a more sophisticated way,” says Smythe. “They are making the whole product available, and are carefully managing the price/yield process.” The level of web development varies around the world. Smythe says that while the majority of North American traffic is now online, Europe is something of a two tier market, with low-cost carriers seeing around 90% of bookings online, while for many mainline carriers it is still generally less than 10%. In the Middle East, Smythe says that airline web bookings are in the sub-5% range. “This is partly due to levels of Internet usage and demographics, and partly due to the fact that carriers in the Middle Eastern tend to rely on a significant amount of through traffic, so cannot rely on a national audience. “If you are in Madrid and are looking to fly to Australia, your first stop won’t be Gulfairco.com,” says Smythe. That said, Smythe thinks that there is a “huge opportunity” for carriers in the Middle East when it comes to the web, especially for network carriers with strong brands. Members of the Arab Air Carriers Association (ACCO) have been talking about setting up their own web portal along the lines of Opodo in Europe and Orbitz in the US, but nothing has come of it so far. “There is a clear need for an online brand in the Middle East. Middle Eastern carriers struggle to access diverse global markets through the web,” warns Smythe, adding that it could be an individual entity or a group of airlines collaborating. The more sophisticated web pages that are springing up offer airlines opportunities that they didn’t have in the past. Smythe notes that Sabre Airline Solutions is supplying Scandinavian low-cost carrier Sterling with non-air travel content, making use of other Sabre subsidiaries, which include Travelocity. “Once they have got a customer online, airlines can now keep him online and keep other transactions online,” says Wheeler at Amadeus. And keeping passengers on the internet and away from the telephone has plenty of advantages. “Every time a customer wants to make a service call, such as changing a ticket, if they have to go to a call centre, they destroy cost savings,” he warns. He says that airlines will soon be able to issue vouchers over the web as part of a sales promotion or to passengers that have changed their tickets. Amadeus expects to launch its e-voucher product later this year. This is tied in to the development of what Amadeus calls its e-service business, which will enable passengers to carry out tasks on the web that normally involve contacting a call centre, such as refunds. These calls can cost the carrier up to $10, according to Wheeler. Technology is also enabling airlines to do more for their most valuable customers — frequent flyers. “Frequent flyers can view a calendar that shows them when they can redeem their frequent flyer points,” says Wheeler, noting the annoyance that this customer segment often experiences when going through the booking process only to be told that they can’t redeem their points on the flight they have selected. Smythe notes that some airlines are encouraging their frequent flyers to use the web more than others. “Some airlines are making it easier for frequent flyers online, and making it harder for them to use other means.” He notes that bookings through redeemed points “are very low-yield in themselves”, but adds that airlines have to be careful how they treat frequent flyers. As they become more sophisticated, airline web sites are starting to look less like pure airline web sites. “The technology is important, but the real issue is content,” explains Smythe, pointing to hotels, car-hire and other parts of the travel experience. “If you look at the likes of easyJet and Ryanair, their web sites look more like travel shops.” Smythe says the logical next step lies in the realm of dynamic packaging, i.e. allowing customers to build their own package over the web. “This really means that consumers can do what travel agents do today,” says Smythe. On the web, dynamic packaging would offer customers the advantage of a discounted price if they bundle different elements of their travel together. Other the last couple of years or so, there has been a clear trend towards airlines offering other travel services such as car hire through their web sites. However, this has tended to be channelled through car hire or other service providers. “You have has this ability, but it has tended to be links to third parties, rather than linked to your booking engine,” explains Wheeler. “What we are seeing now is a more integrated approach, using the passenger name record (PNR).” As it becomes more sophisticated, the web is clearly becoming a much more significant sales channel for airlines. Research from Amadeus suggests that over the next 2-4 years, 95% of carriers expect 40-50% of their business to be online. Smythe says that airlines will not be pushing all their inventory through web sites any time soon. He points out that for most carriers, the global distribution system (GDS) is still the most high yielding channel. “This is particularly the case with the corporate markets, the itineraries are just too complicated,” explains Smythe. And carriers may not want to funnel all their traffic through their web sites for other reasons. “If the booking is too complex, with multiple airlines and cities, then it becomes more logical to provide a service through another channel. It can become too hard to pull all the different travel elements together, and it will probably be better to send the customer somewhere else, such as an online travel adviser.” Smythe says that this is one reason that Sabre has been investing in online travel portals. The travel IT provider has recently purchased Lastminute.com in the UK and Zuji, Asia’s answer to Opodo and Orbitz. Henry Harteveldt, analyst at Forrester Research, agrees that there still seem to be limits to web penetration. “Bookers and lookers tend to buy more complex products offline, but three reasons will send even the most die-hard of bookers from the Web to the phones,” he says. “Distrust and confusion; an inability to accomplish their goals; and purchase and payment insecurities. “Travel companies can address these web shortcomings by using booking tools that provide more user control, real-time online assistance, and consumer comments on community sites to guide web site and other technology improvements.” Airlines are, however, becoming more adapt at catering to different types of passenger on the web. “Carriers are doing more to segment the market,” says Smythe. Wheeler points to Air Canada as an example. The fare structure has been simplified so that there are just five fare types. “If you look at the lowest fare, you will also be able to see the other four fare types,” says Wheeler. Air Canada has five fare classes, ranging from Tango (the brand of its former standalone low cost unit) to executive class. A quick click on the web page will allow you to see the cost of changing the ticket, as well as seeing how many frequent flyer miles will be gained, the chances of an upgrade and (in Tango class only) the charge for selecting your seat in advance. Against this background, Amadeus says a study last year of eight of its customer airlines, Air France, bmi, Finnair, Iberia, Icelandair, Luxair, Qantas, and Wideroe, showed that they had managed to increase online yields by 8%, giving a 30% increase in revenues, after adopting the company’s e-merchandise solution. However, the web continues to be a tool for consumer power. A small Icelandic company called dohop has launched a website, dohop.com, that enables passengers to do their own interlining online, using both low-cost and traditional carriers. Low-cost carrier Iceland Express has already used dohop on its web site to give its customers a broader range of destinations and connecting opportunities, and sister carrier Sterling is in the process of following suit. “We will add around 300 to 400 city pairs,” explains Sterling’s director of marketing and sales, Stefan Vilner. Although passengers will be responsible for collecting their baggage and checking in to the next flight, they will be able to take out insurance, expected to cost around eight Euros, that will ensure they are put on the next available flight to get to their destination. The Dohop concept can be traced back to December 2003 when founder and general manager, Frosti Sigurjonsson, became frustrated trying to find flights from Reykjavik to Nice. As a result, he decided to develop a universal flight search engine that could search all airline timetables and take the headache out of matching flights into itineraries. Dohop’s own web site, launched lat last year, includes more than 600 low-cost and network airlines and caters for the European, US and Indian markets. Iceland Express launched the customised version for its own web site in march this year. “We see the dohop solution as an interesting ‘low-fat’ alternative to the legacy airlines’ bulky integrated booking systems and we think it’s very much in line with the low-cost concept,” says Iceland Express CEO Birgir Jónsson. “Even though we don’t, as yet, have direct flights to Iceland from, say, France, Italy or Poland, we can help our customers in these countries find practical connecting flights to airports that we do serve,” he adds. If nothing else, dohop shows that the web will continue to challenge the traditional airline way of doing things. What is good for the consumer, should, in the long run be good for the airline as well, as long as yield management is able to adapt to changing circumstances.||**||

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