Changing Channels of Product Distribution
- The Implications for Airlines and Regulators
Prepared for:
Aviation in Transition: Challenges & Opportunities of Liberalization
ICAO Headquarters, Montreal,
23 March 2003
1
The Airline Environment is Changing
Low Cost Airlines
– ‘Simple’ product requiring innovative distribution
– Facilitated by ‘Leapfrogging’ IT
– Passengers adoption of internet and e-tix has surpassed expectations
Full Service Airlines
– Complex product offering
– Desire to target multiple market segments
– Focus on FFP, CRM
– But increasingly determined to fight LCC
GDS
– Largely ‘disinvested’ from airlines
– However, airlines retain a commercial relationship as marketing partners
– GDS have recognised the power of internet and are buying into on-line
travel agencies and servicing airline portals
2
Sales Channel Sophistication
Airlines are determined to reduce costs, monitor
channel performance and match channels to market
segments
Full service complexity: online booking, intranet, call
centres, syndicated portals
Low cost simplicity: 90%+ online booking
Full service airlines responding with portals…but do
they match the costs of online booking?
3
Agent Productivity and Corporate Sales Driven by New
Developments in IT
Airline Agent IT Products – agent differentiation
– incentive schemes
– decision support system
– use of detailed data
Airline Corporate Accounts IT
– booking tools
– monitor budgets and compliance
– market knowledge systems
– ultimately airlines seek integrated direct connectivity with corporates
4
‘Pull Factors’ Driving End Traveler Appeal
Airlines are using IT to optimise commercial activities
including networks, FFP, CRM and Pricing
Pricing sophistication driven by prevalence of channels
aimed at price sensitive segments:
– Airlines enter into favored deals with preferred/owned channels
– Opaque and NYOP used to sell ‘excess’ capacity
– Potential downside of internet booking may be a general decline in
yield due to ‘perfect competition’
Pricing is likely to attract the increasing attention of the
regulators
5
The Regulatory Challenge
The main regulatory focus is on GDS and the internet
Distribution regulation previously focused on GDS.
– Disinvestment of GDS potentially reduces market power
– Opportunity to increase airlines’ negotiating power
– GDS still have substantial power and are buying into internet
Need for internet distribution rules
– Desire not to stifle internet sales channel ‘in its infancy’
– Initial issues for regulatory consideration focusing on:
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6
Consumer protection
Airline ownership
Protecting on-line agencies
Availability of fares
Degree of airline control over sales
Other Less Crucial Areas That May Require Regulatory
Review
MIDT: Contention that access to data and systems
benefits major airlines
Corporate Connections: Extent of control required
over in-house agencies
Pricing:
– Issue of ‘opaque’ vs. ‘NYOP’
– ‘GDS-type’ control over availability of fares
7
Overall Conclusions
IT created an exciting array of distribution tools
Airlines’ behaviour is increasingly complex
Possible reduction in need for ‘traditional’ regulation
However great unknown is potential market power of
internet booking tools
Equally, increasing passenger and airline maturity may
obviate need for regulation and allow ‘the market to decide’
8
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