Professional Documents
Culture Documents
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Search Share
Southwests site the most popular among U.S. airlines and the only airline to crack the top 10 among all travel sites
Why is Southwest so dominant? 30%
Its the busiest U.S. domestic carrier, Most Popular Airline Websites in the U.S.
so its position atop the rankings is no 25%
shock. But even given the traffic it
carries, its share is disproportionately 20%
large: it carries a bit more domestic
traffic than Delta (and much less traf- 15%
fic overall) and yet Southwests web-
site is twice as popular. The main 10%
reason for this is that Southwest does-
5%
nt distribute its inventory widely
outside its own website and call cen- 0%
ters: most passengers have to go di- Southwest Delta American JetBlue United Continental US AirTran Alaksa Allegiant
rectly to the airline. Why dont all
airlines pursue a similar strategy? One Airways
reason is that although distribution 16%
costs narrowly defined stay low, Most Popular Travel Websites in the U.S.
Southwest has to spend an enormous 14%
amount of money on advertising to 12%
build its brand so that customers
know to seek it out. And even so, it 10%
probably misses out on some traffic 8%
(and thus revenue). But its possible
thatas with a lot of things at South- 6%
west (think bag fees)what South-
west does makes sense for Southwest 4%
but wouldnt make sense for other 2%
airlines.
Source for data in these two graphs: 0%
Google MapQuest Expedia Southwest Priceline Travelocity Trip Yahoo! Orbitz Yahoo!
Hitwise, based on searches for the
week of June 26, 2010. maps Airlines Advisor Maps Travel
3 special report
Airlines Ask: Whats the Distribution Solution?
CONTINUED FROM p. 1 unexposed to the airline industrys most innovative Manhattan, no commissions to agents and no trans-
the airport and lots of new revenue when travelers sales and revenue-generating techniques. Fortu- action fees to GDS companies. No wonder distri-
purchase their tickets via supplier direct, i.e., nately, this asymmetry is on the verge of disap- bution costs fell so steeply.
airline websites. But very little ancillary revenue pearing. For airfare shoppers, the allure of airline web-
has thus far been generated from indirect pur- sites was further enhanced by mileage bonuses,
chases, i.e. those via GDS-equipped travel agents. Looking Back: A Powerful New Weapon special web-only fares and useful features like
This isnt just about selling food or taking money flight status updates. Over time, airline websites
Distribution began to evolve rapidly with the
for bags. The very way in which airlines are mar- became progressively more functional, offering
advent of the internet in the mid- to late-1990s.
keting and merchandizing their fares varies widely services such as tour packages, the ability to re-
Carriers now had a new medium to sell directly to
based on whether the buyer is using direct or indi- deem award tickets and online check-in. Airline by
the public far more effectively. Not that they didnt
rect sales channels. Airlines, for example, are in- airline, market by market, region by region, the
sell directly beforesince the industrys early
creasingly grouping fares with similar rules and industrys cherished goal of reducing the influence
days, airlines operated call centers and city ticket
perks into families and assigning each family a of costly middlemen advanced. Some industry
offices that interacted directly with travelers. But
recognizable brand name. But thats much easier observers even predicted the demise of travel
these channels required a substantial amount of
for an airline to display on its own website than on agents and their electronic airfare supermarkets
labor and real estate, which wasnt cheap. In any
the GDS screens that travel agents viewor on an altogether.
case, travelers were far more inclined to buy their
online travel agencys multi-airline fair matrix. To tickets from travel agents, who used unbiased elec- Alas, that didnt happen, and it likely never will.
put it simply, the business model for selling airline tronic airfare supermarketswhat today are called
tickets and services has evolved rapidly in recent global distribution systems (GDSs). For a long
years, but mostly with respect to the tickets and Agencies Fight Back
time, travel agencies were responsible for about
services that are being sold directly. Indirect sales, four-fifths of all airline tickets sold. Despite all the progress made by airlines, travel
notwithstanding the fact that many take place agencies were able to use the internet to their ad-
The internet didnt make direct airline sales vantage too. Many built websites of their own,
online, are much as theyve always been: travelers
channels any less biased. Their websites, after all, promoting their key advantageimpartiality
see the lowest base fares, or perhaps refundable
werent usually programmed to sell competitors while new exclusively online agents like Expedia
fares if they requested those.
products. But the new medium did enable airlines and Priceline emerged. These two sites in particu-
Indirect sales remain critical to all but a few low- to offer more conveniencetravelers could now lar became enormously popular, encouraging a
cost carriers (many of whom themselves are in- shop from their personal computers in their homes group of major U.S. airlines themselves to estab-
creasingly opting to distribute through intermediar- or officeswith negligible costs: no salaried call lish an unbiased online travel agency (OTA) called
ies), leaving a wide swath of airline customers center operators, no real estate leases in midtown
CONTINUED ON NEXT PAGE
Pro-Social Behavior
Airlines tweeting to followers and finding fans, but will social media move beyond a niche
Anyone who doubts the power of social media (of no more than 140 characters, like all tweets) to help it manage social mediaa sign, perhaps,
need only think back to last summer, when a Cana- with information about where in New York City to that social media are evolving from early Wild
dian country music singer frustrated with a lack of go to claim the tickets. Thousands of people bat- West days to something more structured, if still not
response from United Airlines about a broken tledpeacefullyfor 1,000 free tickets. More exactly formal.
guitar got the airlines attentionand the attention than 1.5m people follow JetBlue, which more com- The airlines mentioned here are all in mature
of more than eight million other peopleby pro- monly offers cheap ticketsas little as $10 markets, as are others active in social media such
ducing a music video about his experience and bookable online for an extremely limited time as WestJet, Virgin America and some European
posting it on YouTube. (sometimes just an hour or so) to specific destina- carriers. Airlines elsewhere in the world, with a
United Breaks Guitars remains that airlines tions, often for midweek travel. few important exceptions such as AirAsia, have
most notorious experience with social mediaa For airlines like JetBlue and the few others like been less quick to embrace the trend. Most hedge
category that includes YouTube along with Face- United that also promote certain deals only on their bets, with a presence but not many resources
book and Twitterbut more quietly, United is also Twitter, its a distribution strategy but also a reve- devoted, while Ryanairever the contrarian
among airlines using social media to not only ad- nue management strategy. Airlines typically seg- proudly has no social media presence whatsoever
dress issues like broken guitars, but also to distrib- ment more price-sensitive leisure travelers by of- (after dabbling in Twitter early on). Are they all
ute its seats. fering lower fares far in advance of travel dates missing out?
Most major airlines and many smaller ones now based on historical booking patterns while holding They might not be crazy. JetBlue has dozens of
have some kind of social media presence, but their more expensive seats for last-minute (and usually staff members working on social media, raising
efforts vary widely from static Facebook pages less price-sensitive corporate) bookers. If those questions about just how low cost a venue it is
liked by fans and providing occasional infor- bookings dont materialize, airlines now have an- after all (although they spend much of their time
mation to actively learning about and resolving other way to distribute that distressed inventory in working on customer service issues, not distribu-
customer service issues toin a few cases a semi-stealth way without broadly publishing the tion). And many airlines full-content deals with
distribution. bargain fares and perhaps leaving money on the GDSs prevent them from truly offering fares that
table with people willing to pay more. arent available elsewhere.
According to a tally by blogger Stephen
Michaelson, no airline has nearly as many Twitter Southwest doesnt distribute its inventory via Most of all, airlines social media fortunes will
followers as JetBlue. Thats what happens when social media, but it does have the most Facebook probably vary with social media itselfwhether
you offer deals like free round-trip tickets to your fans, according to Michaelson. It hired a company users will begin to tire of the platforms once the
followers who sign up to receive your messages called Radian6, a social media consultancy that novelty wears off, or whether what weve seen so
also works for companies like Microsoft and Pepsi, far is just the beginning.
special report 4
Hey Good Looking, Whatcha Got Booking?
CONTINUED FROM PREVIOUS PAGE to withhold their best fares in exchange for lower perks, which can then be passed on to their corpo-
Orbitz in 2001, complete with cost-lowering direct commissions. There were occasional flare-ups rate clients. TMCs also supplement their client
IT links to airlines. The idea was to stem the flow between the two sidesAmericans decision to fee income with incentive payments from airlines
of customers to independent OTAs, which still withdraw international fares from Expedia in 2007, for hitting revenue or share targets.
asked for commissions and depended on fee- for examplebut selling through all the major
charging global distribution systems. Companies OTAs is today an almost universal practice among
Muscle in the Middle
that own the GDSs, meanwhile, also started OTAs. the worlds major airlines, with the exception of
some LCCs like Ryanair and Southwest. Few car- For all their muscle, the TMCs still couldnt
Sabre launched Travelocity, and Amadeus
riers even bother offering mileage bonuses to cus- provide their corporate clients with what they
launched Opodo. Soon Travelport, owner of the
tomers booking on their own websites anymore, need without depending on global distribution
Galileo and Worldspan GDSs, bought Orbitz. A
systems, those electronic supermarkets filled with
separate group of websites called aggregators or In the end, the two sides reached a grand airline and other travel inventory from all corners
meta-search engines searched everywhere
airline sites and non-airline sites aliketo find the bargain: Airlines would get lower fees and of the earth. These technologically sophisticated
best fare for a given itinerary in exchange for a other concessions in exchange for promising GDSs can also, incidentally, handle the complex
itineraries that corporate travelers often require.
finders fee from the selected site. Some airlines that all fares and schedules would be made As such, they and their transaction fees remain
like Ryanair, however, adamantly resist thirdparty available. key components of todays airline distribution
attempts to even touch their websites.
even after OTAs began re-claiming some shoppers chain.
Many smallish offline travel agencies did indeed by waiving their booking fees. Oddly enough, the GDSs were originally cre-
collapse after airlines felt strong enough to stop
ated by airlines themselves, starting with Ameri-
paying base commissions, that is, a fixed per-
cans debut of the IBM-built Semi-Automated
centage of the ticket price. Others survived by What About the Big Spenders?
Business Research Environment in the 1960s.
consolidating. But big agencies and the new breed The wrangling and eventual truce between air- Now known by its more familiar acronym,
of OTAs remained popular with passengers and lines and OTAs ultimately resulted in lower distri- Sabre and other systems began their lives as in-
powerful enough to continue extracting commis- bution costs for airlines. But this still only covered house reservation tools but were ultimately given
sions from airlines, albeit lower ones than in the one segment of the flying public, and a more price- to travel agencies, carefully programmed to disfa-
past. The largest and busiest agencies also supple- sensitive segment at that. Travelers using airline vor rival airlines. But when this practice was
mented their income with incentive payments from websites and OTAs to book their tickets are in abruptly outlawed by U.S. regulators in the
both airlines and GDSs for steering volume and large part leisure travelers. But for many airlines, 1980s, these systems lost their usefulness as core
revenue their way. Agencies also sold ads on their its the business traveler that ultimately drives the assets and were sold off, only to become airline
websites and in some cases bought heavily dis- most revenue. And their buying habits are far more adversaries in the sense that they levied ever-
counted airline tickets in bulk from airlines, subse- complex. increasing transaction fees on their old parents.
quently marking them up and re-selling them to
While many small and independent businesses Nor could airlines do much about it given exist-
passengers. That technique, however, proved less
self manage their travel and happily book wherever ing regulations that standardized GDS pricing and
popular than originally envisioned, although it did
they can find the best fares and schedules, large participation rules across the industry.
work well for selling hotel rooms. Agencies also
corporations tend to buy travel in a different way. But sure enough, airlines did manage to exert
began charging fees to their customers, although
For starters, theyre sometimes large enough to some pressure on GDSs by using the internet to
major OTAs eliminated those in 2009.
negotiate exclusive contracts with airlines, estab- sell more tickets directly, just as they exerted
Airlines and OTAs eventually reached a truce, lishing a unique set of non-public fares, discounts pressure on travel agencies. A self-distributed
recognizing that each needed the other. While the based on volume or revenue and perks for employ- ticket went through an airlines internal reserva-
most dynamic online activity by airlines and OTAs ees such as upgrades or lounge access. Large cor- tion system which, though often built by the same
took place in North America and later Europe, porations also tend to send employees on complex GDS companies, didnt carry the same transac-
carriers from around the world soon signed distri- itineraries involving multiple flight legs, multiple tion fees, never mind agency commissions. Pre-
bution pacts with OTAs, sometimes promising not airlines and multiple currencies, something airline internet, only about a fifth of bookings were di-
websites often cant handle. They also have poli- rect, with the rest through GDS-using travel agen-
cies in place that govern, for instance, which em- cies. But as that figure increased, GDSs felt the
ployees can fly premium class and when. In addi- pressure.
tion, corporations and their internal travel depart-
A big change occurred in 2004, when the U.S.
ments require extensive accounting trails of their
and Canada reversed course and deregulated the
travel expenses and data reports that their finance
relationship between airlines and GDSs. Free to
departments can analyze.
play hardball, airlines withdrew many of their
To manage all of this, these corporations rely best fares from the GDSs and demanded lower
heavily on help from a special breed of travel booking fees. The GDS companies, in turn
agencies: travel management companies (TMCs). seeing their supermarket shelves deprived of
The biggest of these, including American Express, popular productsreminded airlines about those
Carlson Wagonlit and BCD Travel, serve as more big-money corporate travelers who wont book an
than just passive booking agents for their corporate airline if its inventory isnt available in their sys-
clients but also as travel consultants, helping them tems. They also stressed their selling power in
design policies, manage data and, most impor- markets where a particular airline wasnt neces-
tantly, save money. The large TMCs are them- sarily a dominant provider: American, for exam-
selves influential enough to shift substantial reve- ple, needed extra help selling in a market like
FAMILY FEUD: Fare families like those offered by Alaska nue and market share from one airline to another, Chicago where it competed neck-and-neck with
Airlines and others dont translate well to travel manage- earning them exclusive airline contracts of their
ment companies GDS displays or online travel agencies United.
multi-airline fare matrices. But that could change. own. These too contain preferential fares and
CONTINUED ON NEXT PAGE
5 special report
Its Not What You Sell
CONTINUED FROM PREVIOUS PAGE ment companies, although the largest of the breed use your GDS rather than a rivals. In addition,
In the end, the two sidesactually each individ- retained negotiating leverage to avoid certain GDS companies are eager to sell other high-
ual airline negotiating separately with each indi- charges or incentive reductions. Of course many margin products like internal reservation systems
vidual GDS companyreached a grand bargain: travel agencies, TMCs or otherwise, had little and airfare search programs, perhaps lowering
Airlines would get lower fees and other conces- choice but to pass on these new charges to their GDS fees to carriers that agree to buy them.
sions in exchange for promising that all fares and customers, i.e., the actual ticket buyers. JetBlue, AirTran, WestJet, easyJet, Air Berlin,
schedules would be made available. The exact Along the way were various disputes ranging Vueling, Norwegian, AirAsia and Virgin Blue are
terms of each contract varied but this lower fees from Air Canadas fierce battles with the GDSs to all now GDS participants, in some cases passing
for full content principle became the defining worries among corporate travel buyers about Ama- on the associated booking fees to travelers. The
characteristic of airline-GDS relations and remains deus and the fact that three airlines (Lufthansa, Air GDS-LCC relationship has become so important,
so today. A corollary to this was a new home and France/KLM and Iberia) still owned part of it. But in fact, that the former have developed new work-
away GDS pricing model, whereby airlines paid overall, airlines got what they wanted from their around technology to accommodate even carriers
less in markets where they were already strong negotiations with both GDS companies and travel not using IATAs billing and settlement plan
(British Airways in London, for instance) and agents: significantly lower costs. GDSs, of course, (BSP) or the Airline Reporting Corporation
more where they needed extra help (British Air- also lowered their own costs as computing power (ARC) settlement plan, once a prerequisite. At the
ways in Paris, Los Angeles or Tokyo). got cheaper and companies merged. This helped same time, LCCs are increasingly joining these
The story doesnt quite end there. The new ar- deflate airline distribution costs as well, while settlement plans and installing more advanced
rangement between airlines and GDSsoften leaving GDS companies with solid profit mar- internal reservation systems more accommodative
cemented in multi-year contracts that are still in ginscertainly higher than those earned by most to GDS distribution. Newer versions of Navi-
place todayalso presented some unsettling devel- airlines, anyway. taires reservation system, extremely popular with
opments for agencies. They would now have to GDS fees have reached low enough levels, in LCCs, can handle GDS distribution as well. In
pay fees for accessing airline content through the fact, that even LCCs traditionally loathe to engage the end, its no surprise that LCCs are becoming
GDSs, unless they participated in a so-called opt- third party distributors are now signing up in more willing to sell through GDSs, not just be-
in offered by systems like Sabre, Galileo, World- droves. Even the mighty Southwest is now selling cause of todays lower fees and a new ability to
span and Amadeus. This protected the agencies tickets through the Galileo and Worldspan sys- negotiate favorable deals but also because chas-
from the airline fees but often entailed a new fee, temsand probably got a good deal to do so. After ing big-money corporate revenue is now a neces-
albeit a smaller one, from the GDS. GDS incentive all, from a GDSs perspective, stocking the largest sity in the era of expensive fuel. When oil is 20
payments to agencies were in some cases reduced U.S. domestic airline on your supermarket shelves bucks a barrel, saving a few dollars by avoiding
as well. And this applied even to travel manage- can go a long way toward getting travel agencies to
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