The Global Airline Distribution Industry has recently seen several emerging trends. eTraveblackboard speaks with Mr. Ho Hoong Mau, Division Head, Airline Distribution Division, Abacus, for greater insights.
Trend 1 Airline adopts multi-channel distribution
A multi-channel strategy is here to stay as airlines are trying out different permutations of channel/revenue mix to maximise their yields.
In mature markets such as the United States and Europe, travel management companies (TMCs) are still relevant and key to the recovery of the business traveller segment and this segment clearly works closely with GDSs to leverage various productivity solutions that help companies track travel expense, policy mandates adherence, etc. In the online segment, the last two years clearly show Online Supplier Direct (OSD) losing ground to Online Travel Agents (OTAs) like Expedia.com, Travelocity in US and Europe. This is because the OTAs had cut their service fees back in 2009 to lure businesses. They also offer the widest range of travel choices as compared to direct suppliers. According to comScore, unique visitors to OTAs outnumber airline websites 2:1 globally.
In Asia, travellers’ bookings via airlines directly are still relatively small and hence there is certainly room to grow. It is partly triggered by the proliferation of LCCs in Asia and this has started to widen the travel pie as well as conditioned consumers to do DIY web bookings (especially in markets like Malaysia and Singapore, home to several growing LCCs). As Online Supplier Direct grows in Asia, it will mostly be at the expense of airline call centres and ticket offices. Travel agency channels will continue to maintain their roles due to prevalence of (1) wholesale models in Asia, (2) the need for aggregation of the huge amount of information out there and (3) management help in the complexity of travel. Likewise, the consumers’ high propensity to purchase at Travel Fairs and travel in package tours, growing business travel (where TMCs dominate) and growing emergence of Asian OTAs help to ensure a healthy and competitive travel agency channel.
Each airline is still trying to figure out the channel strategies that best suit them. Take for instance, the online direct channel. In terms of calculating the return of investment, advertising costs and not just web IT costs have to be taken into consideration. In many cases, the cost of advertising to drive traffic (eyeballs) to online mediums (e.g. the airline’s web portal) is very significant. There are also credit card merchant fees to take into consideration as airline portals have to fully absorb such fees and the fees are typically a percentage of transaction value – hence, high value transactions will drive ever higher credit card fees.
Airline yields via travel agencies are usually higher, and at the other end of the spectrum airline direct promotions are generally low yield. It has been observed that full transparency of fares in any shopping channel typically drives down yields. Hence, airlines need to evaluate carefully what is the true ROI of each channel.
Trend 2: Greater use of Mobile in Travel
There has been burgeoning trend of mobile users leveraging ever improving applications to facilitate real-time planning of trips, managing post-booking information & updates (flight schedules, gate changes etc), sharing trips, curating places etc. The million dollar question that airlines are asking themselves is how to capture the increasing numbers of mobile users?
The growth of mobile has moved many airlines to consider customising their websites for mobile surfing and developing applications for the top 3 smartphone platforms: Blackberry, iPhone and Android, led in fact by Google Android. Even here at Abacus, we recognise the importance of the mobile space with solutions such as Abacus Mobile and Abacus VirtuallyThere, whereby agents have the convenience and ability to make bookings and interact with their customers even when out of the office.
In terms of basic feature phones, it might surprise many that Samsung is the top handset brand in USA, Nokia is top in Western Europe while Sharp is top in Japan. This is important because there are two big myths currently in Mobile (1) it is a fallacy that only subscribers with smartphones can access the web; actually, many feature phones are able to access the web (2) the proliferation of mobile native apps did not kill mobile web access, most people still access mobile web for search, news, information, social media etc. The allocation of resources has to be balanced between developing native apps and ensuring great friendly mobile web access. The new HTML 5, I believe will help to steer the direction in this.
In different markets, the varying popularity of different mobile phone platforms would mean that airlines have to cater their approach accordingly, with no standard approach. In Indonesia for example, the Blackberry is far more prevalent than the iPhone. Hence, it is important evaluate the market dynamics carefully and not be lulled by media hype into channeling marketing/development budget onto a singular platform exclusively.
The opportunities to tap mobile is immense: In India for example, there are almost 800 million mobile phone subscribers compared to 100 million internet users – an almost 8:1 ratio. Most of India mobile phone users are adopting basic feature mobile phones – hence adopting the right strategy of marketing through a mix of sms messages supported by Call Centres can hit a wide group while specific targeting is also possible with the right smartphone applications. This however is changing – as personal computer penetration is low, mobile Internet will be a popular choice with the sharp growth of new mobile devices in India. By 2015, we expect to see 265 million Internet users in India and 871 million mobile phone subscribers, with a 79% penetration rate by 2020. Social networking is big in India, and 56% of all mobile users engage in mobile social networking. With the rapid penetration of smartphones in the Indian market, this will provide for an ideal environment to launch mobile-based travel services.
Airlines are beginning to experiment and determine how best to leverage the mobile channels. Many airlines including Singapore Airlines have created a mobile version of their websites and mobile applications to engage Smartphone users. We will continue to see more airlines delving in this space.
Trend 3: The increasing focus on Ancillary Revenue
Airlines are now not only concerned in selling air tickets. From lounge access, special food options, greater leg room, transportation of pets, extra pillows, etc, all of these are potential assets and service options which airlines are looking to monetise and unbundled from their usual service offerings. This trend resulted in airlines globally bringing in over US$22 billion in ancillary revenue in 2010.
In the United States, airlines collected over US$3 Billion in checked bags ancillary revenue in 2010 and these became an important source of revenue stream for airlines while they keep their base fares competitive. AA and UA had also begun to monetise the value of “early boarding” by selling such services to their non-Elite passengers – with more checked bag fees, more customers are carrying hauling their bags on board and hence over-head compartment space becomes a premium. Even Singapore airlines, a strong proponent of bundled services, have started to charge extra for seats in economy class with greater leg room.
In terms of tapping ancillary revenue, the LCCs are clearly the leaders and LCCs as a group secure a higher average ratio of their total revenue from ancillary sources. For example, Tiger Airways in February 2011 reported that 20% of their total revenue came from ancillary sources and this ratio is expected to rise even further in the future.While the trend is clearly a strong rationale for airlines to tap ancillary revenue sources, it is by no means clear that airlines currently on bundled services model will full jump onto the bandwagon. Even amongst the LCCs, we see airlines differentiating themselves by adopting different models. A great example is Southwest (the mother of LCCs) adopting a ‘Bags Fly Free’ philosophy. There is no consistent industry consensus, with airlines watching their competitors while simultaneously experimenting on what works best. The full service carriers also have to be careful not to alienate their elite customers by diluting their premium products by selling to all comers or triggering a backlash (or twitter storm) by posting too many “hidden charges” which were assumed to be bundled free previously. The battle between bundled fees and unbundled fee models will continue into the foreseeable future.
Source = e-Travel Blackboard: J.C