What the heck is American Airlines up to?
13/01/11 06:55 Filed in: American Airlines | Orbitz battle
What the heck is American Airlines doing?
American is the self-appointed point man for an airline industry that no longer wants to pay booking fees to global distribution systems (GDSs), which display airfares in an open marketplace, allowing consumers to comparison shop. But every time someone books a ticket, the airlines have to pay a booking fee to the GDSs. The airlines want to cut that cost out. American is leading the charge. It wants to market one-to-one to customers, offering specific products tailored to the individual customer - offering one thing to premium travelers and something else to the occasional traveler. Such one-to-one marketing is the norm today, but in this instance it threatens consumers’ ability to comparison shop for fares through the GDSs, which have brought transparency to airline pricing for nearly 50 years, listing virtually all airlines---hundreds of them, all over the world--and their fares and schedules.
For their part, airlines want consumers to shop for airline tickets in the same way they once shopped for a refrigerator - going from store to store to compare prices. It would be nice to look at a refrigerator at Sears and know what Loews and Home Depot charge for that same appliance without having to go from store to store, Ben Baldanza, CEO of Spirit Airlines, told Congress last July in a hearing about airline pricing transparency.
The problem with Baldanza’s metaphor is that it was true in 1990 but not today. Any consumer shopping for anything can go online, Google the product, get the pricing and the store with best price (online or brick-and-mortar) as well as a rating for the quality of the retailer and the product itself. The Internet brought pricing transparency to the broader marketplace 30 years after the GDSs, created by the very airlines who now battle them, brought it to airline consumers.
The relationship between airlines and the GDSs is now a bitter one. Over the past several years airlines have successfully cut the fees they have to pay GDSs and are trying to limit the information they display in them. Airlines want to sell in their own online stores where travelers can see only that airline’s prices and products or the fares of their alliance partners.
The airlines laid out much of their rationale in a manifesto called “Distribution 2.0: Innovating the Airline Indirect Channel,” published by the Open Axis Group (www.openaxisgroup.org), which is made up of major airlines, and the Airline Tariff Publishing Company (ATPCO). In that document, they stress their commitment to pricing transparency, but their efforts to shift to the direct channel make comparison shopping tougher.
Airlines are clear about one thing, however - their desire to shift sales away from indirect channels, such as travel agents, an online travel agency (OTA) or travel management company (TMC). The travel agency distribution model, for example, once accounted for 80 percent of airline bookings, but is now down to roughly 50 percent. If American has its way, that percentage will dwindle still further, replaced by “direct connects” – which means consumers will go directly to American’s website or travel agencies, OTAs and TMCs will connect directly to American’s website rather than using the GDSs.
American says “direct connects” facilitate traveler-authenticated marketing. American and other airlines want to take their menu of services and offer what they think fits the customer best based on what they know about that customer. If you’re a premium traveler, for example, you check your bags for free and get an upgrade. If you’re a not-so-frequent traveler, you pay to check your bag and the privilege of choosing a seat. Did you have a bumpy landing? Maybe the airline wants to offer you a free trip or a $25 credit.
American, while saying it is all for pricing transparency and is willing to work with the GDSs, says that it does this kind of traveler-authenticated marketing best and the GDSs can’t do it. Not so, say the GDSs, which point out that they can provide all of this functionality as well. In fact, Some GDSs are getting the information they want on their own. Sabre, for example, did an end run around airlines by scouring airline websites for their ancillary services and fees and importing them into Sabre’s system, making it possible to compare the total price of an airline ticket, not just the base fare. The GDSs say they are just waiting for the airlines to turn on the spigot so the information can flow into the GDSs. But no airline wants to be the first to do this, since it would put it in a position no airline executive wants to be in - a competitive disadvantage.
American is the self-appointed point man for an airline industry that no longer wants to pay booking fees to global distribution systems (GDSs), which display airfares in an open marketplace, allowing consumers to comparison shop. But every time someone books a ticket, the airlines have to pay a booking fee to the GDSs. The airlines want to cut that cost out. American is leading the charge. It wants to market one-to-one to customers, offering specific products tailored to the individual customer - offering one thing to premium travelers and something else to the occasional traveler. Such one-to-one marketing is the norm today, but in this instance it threatens consumers’ ability to comparison shop for fares through the GDSs, which have brought transparency to airline pricing for nearly 50 years, listing virtually all airlines---hundreds of them, all over the world--and their fares and schedules.
For their part, airlines want consumers to shop for airline tickets in the same way they once shopped for a refrigerator - going from store to store to compare prices. It would be nice to look at a refrigerator at Sears and know what Loews and Home Depot charge for that same appliance without having to go from store to store, Ben Baldanza, CEO of Spirit Airlines, told Congress last July in a hearing about airline pricing transparency.
The problem with Baldanza’s metaphor is that it was true in 1990 but not today. Any consumer shopping for anything can go online, Google the product, get the pricing and the store with best price (online or brick-and-mortar) as well as a rating for the quality of the retailer and the product itself. The Internet brought pricing transparency to the broader marketplace 30 years after the GDSs, created by the very airlines who now battle them, brought it to airline consumers.
The relationship between airlines and the GDSs is now a bitter one. Over the past several years airlines have successfully cut the fees they have to pay GDSs and are trying to limit the information they display in them. Airlines want to sell in their own online stores where travelers can see only that airline’s prices and products or the fares of their alliance partners.
The airlines laid out much of their rationale in a manifesto called “Distribution 2.0: Innovating the Airline Indirect Channel,” published by the Open Axis Group (www.openaxisgroup.org), which is made up of major airlines, and the Airline Tariff Publishing Company (ATPCO). In that document, they stress their commitment to pricing transparency, but their efforts to shift to the direct channel make comparison shopping tougher.
Airlines are clear about one thing, however - their desire to shift sales away from indirect channels, such as travel agents, an online travel agency (OTA) or travel management company (TMC). The travel agency distribution model, for example, once accounted for 80 percent of airline bookings, but is now down to roughly 50 percent. If American has its way, that percentage will dwindle still further, replaced by “direct connects” – which means consumers will go directly to American’s website or travel agencies, OTAs and TMCs will connect directly to American’s website rather than using the GDSs.
American says “direct connects” facilitate traveler-authenticated marketing. American and other airlines want to take their menu of services and offer what they think fits the customer best based on what they know about that customer. If you’re a premium traveler, for example, you check your bags for free and get an upgrade. If you’re a not-so-frequent traveler, you pay to check your bag and the privilege of choosing a seat. Did you have a bumpy landing? Maybe the airline wants to offer you a free trip or a $25 credit.
American, while saying it is all for pricing transparency and is willing to work with the GDSs, says that it does this kind of traveler-authenticated marketing best and the GDSs can’t do it. Not so, say the GDSs, which point out that they can provide all of this functionality as well. In fact, Some GDSs are getting the information they want on their own. Sabre, for example, did an end run around airlines by scouring airline websites for their ancillary services and fees and importing them into Sabre’s system, making it possible to compare the total price of an airline ticket, not just the base fare. The GDSs say they are just waiting for the airlines to turn on the spigot so the information can flow into the GDSs. But no airline wants to be the first to do this, since it would put it in a position no airline executive wants to be in - a competitive disadvantage.