Airlines don’t want to be Apples

Since the early part of the last century, airlines have become better and better at moving people from A to B. However, the costs related to providing this service has grown year after year. Currently, the cost of transporting an individual is approximately 24 percent higher than a base fare.

Although the airline industry is important to the health of the global economy, the industry is not driving value from its business model. To put it another way, there is a mismatch between the value that that industry contributes and the reward potential for those looking to invest in it.

Following years of cost-reduction strategies, the model had to change. Now airlines are actively selling ancillary services and products to enhance their revenue stream. Pre-reserved seats, baggage check, priority boarding and check-in, lounge access, priority seating, on-board WIFI, in-flight meals, onboard entertainment, third-party promotions, and trip insurance. This is planned to account for > $50 billion in sales for the airline industry worldwide. In effect, they are shifting from service provider to retailer.

Successful retailers develop and implement merchandising plans. They closely study customers and make fine tune product portfolios to get more revenue from profitable segments. And like anyone selling in a marketplace they think a lot about differentiation and positioning, about how to develop brand loyalty and about the customer experience.

This is now so important to the long-term viability of airlines, that we are starting to see more aggressive tactics, by some airlines, to move customers away from consuming their products through channels where they have difficulty to differentiate, such as GDS’s or corporate booking tools. Offering the best fares or some ancillaries only on their own brand website is a clear tactic to try to control the point of sale and avoid an “apples with apples” comparison for the shopper.

Unfortunately, while this makes sense for the airline, it means the user could have to visit multiple different sites to really compare what options are available.

From Traveldoo’s perspective, it presents a fundamental challenge, how to offer travellers a single place to compare suppliers, when those suppliers don’t really want to participate in such a view.

Various initiatives, some of which Traveldoo is actively participating in, are underway to address the confusion. Industry-standards organizations, such as ATPCO and IATA, and technology solutions providers are looking at new standards and formats on top of which a new generation of supply chain could be built.

However, it is hard to be optimistic about the outcome when we consider that any attempt to introduce a new standard way to offer and compare ancillaries will come up against the airlines fundamental objection to being “commodified”. This is a dynamic which will continue to play out in the coming years. Traveldoo will continue to champion the needs of the business traveller in the process.

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