— Recent winter storms have snared fliers from Atlanta to Boston, but a much larger tempest is brewing on the air-travel horizon.
The blizzard-induced snafus, of course, will pass. The latest flare-up between the airlines and the intermediaries who sell many of their tickets, on the other hand, is likely to last long after the snow has melted — and affect far more fliers.
A disagreement deferred
By now, the dispute is well-documented, with the lines firmly drawn between American Airlines, which pulled its fares from Orbitz just before Christmas; Expedia, which responded by dropping American’s flights; and Sabre, the reservation-system operator for travel agents, which announced its own plans to downgrade, and ultimately drop, the carrier’s listings. (Last week, a Texas judge issued a temporary injunction prohibiting Sabre from doing so.)
And yet, despite the rhetoric, most observers expect the various parties to reach a compromise, most likely one that will involve a reduction in the fees the airlines pay Sabre and other global distribution systems (GDS) to disseminate their fares and schedules to third-party websites and brick and mortar travel agents.
“Distribution costs are driving a lot of the near-term action and vitriol, but both sides still need each other,” said Douglas Quinby, senior director, research for PhoCusWright Inc. “The disagreement will be deferred for another day.”
What won’t be deferred are American’s and other airlines’ efforts to determine what fares get displayed where and to drive more business to their own websites. The latter, in particular, portends potentially major changes in the way people search for air travel, where they buy it and what those purchases entail.
On Tuesday, American reached a deal with Priceline to use its direct connect technology to search and book fares.
“The airlines are trying to do to the online travel agencies what they did to brick and mortar travel agents,” said George Hobica of AirfareWatchdog.com. “They want to reduce fees; they want to avoid being compared, and they want to increase ancillary revenue.”
‘Amazoning’ the travel experience
On a deeper level, they also want to transform a business model that has come to view seats as interchangeable commodities sold on price into one where they’re merchandised to individual travelers based on their particular preferences.
“Is this traveler going to Orlando for a week with his family or to Cleveland midweek for business?” posited Quinby, “and what offers do we want to present based on that information?” For the former, he suggested, the pitch could include an offer to pre-reserve a kids’ movie or a discount on checked-bag fees; for the latter, an aisle seat or upgrade offer.
In that sense, the battle is as much about traveler data as it is travelers’ dollars. In a merchandising-driven market, information truly is power and the more a provider knows about who’s buying its products, the more successful it’s likely to be.
“Basically, both airlines and agencies want to Amazon the travel shopping experience,” said Quinby. “The real question is how are we going to get there and who’s going to lead the charge?”
Obstacles and opportunities
That’s still a big unknown for several reasons:
The airlines still need the GDSs: Well over half of all airline sales still come via intermediaries, many of which are either GDS subsidiaries or heavily reliant on their technology. Neither American nor Delta, which recently cut ties with several small online travel agencies (OTA), has the technology in place to successfully merchandise 100 percent of its inventory.
The OTAs and GDSs aren’t lying down: From package deals to flexible-date searching, the former have proven to be among the most nimble and innovative travel sellers around. The latter, meanwhile, are developing their own ways of selling ancillary services. Last week, Travelport, owner of the Galileo and Worldspan GDSs, signed a deal with Air Canada that will allow it to display the carrier’s tiered fares and optional services.
Consumers still have a say: Fifteen years after the launch of Expedia and Travelocity, many travelers consider comparison shopping between multiple carriers a birthright, something no airline website will ever offer. Likewise, as much as the airlines would like to move beyond the seat-as-commodity model, price remains the prime factor for the majority of travelers, many of whom, it should be noted, still consider à la carte fees nothing more than nickel and diming.
The hassle factor: Depending on who’s manning the microphone, pushing travelers to the airlines’ proprietary websites will either counter rising fares — by lowering distribution costs — or lead directly to them — due to decreased competition. Either way, it will certainly mean more work for would-be travelers, who’ll have to visit multiple sites, individually calculate any add-on fees and hope fares don’t change during the process.
Will it work? Proponents of cutting out intermediaries via so-called “direct connects” point to the success of Southwest Airlines, which sells all but a fraction of its tickets on its own website. However, Southwest’s business model is based on offering a simple product — one class of service, fewer fare buckets, etc. — and charging fewer ancillary fees, e.g., Bags Fly Free, not more. Clearly, that’s not the model the legacy carriers are pursuing.
The larger question, perhaps, is whether the industry and/or travelers are ready for an Amazon-like experience when shopping for travel. “Is American’s desire to offer [ancillary products and services] based on their perceived value a sustainable business model?” asks Norm Rose, president of Travel Tech Consulting Inc. “Outside the airline industry, it’s a no-brainer — of course, you want to do that — but in air travel, it’s a radical concept.”