For years, network airlines have relied on travel agencies to sell tickets to passengers and the trend continues. Even low-cost carriers have been focusing on strengthening their offline agency distribution partnerships in order to capture a bigger share of the managed corporate travel market. EyeforTravel’s Ritesh Gupta finds out where offline agencies are placed today in airline distribution.

Offline agency distribution remains an important channel for network airlines, and has been gaining popularity with low cost airlines too. The majority of airline passenger revenues for network airlines are from tickets sold through travel agencies - both traditional brick-and-mortar agencies as well as online travel agencies (OTAs).

Even as network airlines attempt to sell more tickets directly via their call centres, websites and ticket offices, these sales, for the most part, remain lower than indirect channels. For instance, in the case of US-based American Airlines, last year it emerged that around 50% of the group’s revenue is generated by brick-and-mortar travel agencies, and another 10 to 15% comes from online agencies.

“Offline travel agents continue to play an important part in distribution. The majority of the world’s managed business travel is still booked with either an offline travel agent or a travel management company and that is a significant driver in making this the highest-revenue distribution channel for airlines. Outside of business travel, offline agencies also play a vital role in helping airlines to access fast-growing markets in the Middle East and Asia,” says Spain-based Cyril Tetaz, head of marketing, distribution marketing at Amadeus.

Standing out with service  

The personal touch is one of the big advantages of offline agents; they have the ability to really understand what the traveller is looking for and cater to their needs.

“Services such as trip planning, finding complex routings or integrated travel booking of multiple forms of transport, accommodation and leisure activities are some that of the things that set offline agencies apart,” says Singapore-based Ho Hoong Mau, division head, airline distribution at Abacus International. “The ability to source and organise experiences that are more unique and restaurants and shows that are difficult to book will also be seen as added value,” he says.

Additionally, there are some offline agencies that are wholesalers and have a significant reach through their sub-agencies network.

“Such offline wholesalers fulfil an important role in many large markets such as India and Indonesia as they allow consumers in smaller secondary cities or towns to be served by an efficient agency network. In many of these places, there is a need for a higher level of service due to the relatively lesser sophistication or exposure amongst the consumers,” Hoong Mau explains.

Many of offline agencies are also finding success online and by adoping technology quickly they are able to extend this personalised service to their online customers. According to Hoong Mau the continued, sharp growth in the online and mobile space – Abacus sees double-digit growth in online bookings this year – there is a need for agencies to address and capitalise on this rising segment.

Agencies boost low-cost carriers too

Business travellers are particularly dependent upon travel agencies. For majority of network airlines, business travellers account for a disproportionately high share of total passenger revenue. Overall, airline revenue from the GDS channel is higher than direct channels mainly due to the greater proportion of high yield business bookings. 

Low cost airlines, too, across various markets have been attempting to reach out to business travellers via indirect channels.

In its results for the six months ending March 2012, easyJet shared that there is increased penetration of business passengers and strong revenue per seat growth on key business routes. As such by 2012 easyJet’s goal is looking to drive additional revenues of £100 million from passengers travelling on business. It aims to do this by delivering improvements in product and distribution. The airline says it has now signed new deals with all the major GDS providers.

In Germany, low cost airline Germanwings has also ensured that its flights are made available to GDS’ network of travel agency customers.

“Offline agency distribution is an important channel for Germanwings. We have made a big step towards the offline agents offering fully integrated and ticketed GDS distribution,” says Stefan Betz, head of sales and distribution at Germanwings. “It was a major challenge for us as a low cost airline to enter this highly complex area. But we have found smart solutions to deal with it as a lean organisation and to keep complexity low. This effort is rewarded by the offline agencies.”

Agencies make bookings, issue tickets and service post-sale for Germanwings flights and Lufthansa-Germanwings joint itineraries. The distribution solution enables Germanwings to issue tickets on Lufthansa’s ticket stock and start interlining with the full service carrier. 

Connecting with agencies

GDSs enable agencies to search for flights, fares and seat availability on airlines that participate, and to make reservations and issue tickets for airline travel. Generally agencies have an incentive to make as many reservations as possible through the GDS, rather than directly with the airline.

Meanwhile, airlines have been working on plans to deal directly with travel agencies. Airlines have been talking about supporting a single connectivity distribution strategy through multiple indirect channels, including the GDS and other third parties, in a similar way to how airlines distribute through their direct channels.

According to Hoong Mau every airline as well as every other party in the distribution chain has differing requirements; it would be a challenge to find a solution or a strategy that meets everyone’s needs.

“However, it is clear that the aggregation of content has its value as we have seen how fragmented and disparate connections to individual airlines in the 1980s led to the formation of GDS to drive aggregation and increase productivity,” he says, adding that if talk about driving a single connectivity platform actually leads to fragmentation, it cannot be good for the industry. Indeed market forces will limit such growth.

Consider American Airlines. The carrier has highlighted that its direct connect does not have to face the same entry barriers from fixed costs and network effects as a GDS entrant. But the current scenario in which GDS’ have their agreements in place, at times described as ‘anti-competitive’, ha created major hurdles. Airlines also say when an agency opts to tie-up with a GDS, it often has an incentive to choose the GDS that charges the highest booking fees. GDSs charge airlines a fee for each reservation that agencies make.

Airlines say by opting for direct connections they aren’t planning to bypass GDSs – after all GDSs have a role to play in aggregating content on behalf of travel agencies. And they are open to the possibility of GDSs adding their direct connect into the list of content sources that they aggregate.  But they believe time has come to pursue mutually beneficial relationships with travel agencies that involve non-GDS content aggregation technology.

For their part, GDSs say they have a key role to play in helping travel players determine the best technological solutions. Through their offerings, they can help airline partners drive merchandising strategies for ancillary services sold by travel agents through their systems.

“Airlines can look forward to a customisable solution that not only caters to the varied ancillary needs from their customers, but also allows them to differentiate themselves and drive better revenue streams,” says Hoong Mau. 

As indicated by Abacus, referring to the Asian market, travel agency channels will continue to maintain their roles due to prevalence of wholesale models in Asia, the need for aggregation of the huge amount of information out there and management help in the complexity of travel.

The fact both airlines and GDSs are trying to reach out to offline agencies with new, interesting solutions exemplifies the significance of their responsibility.

Also, the role of offline agencies has evolved greatly. And their role will continue to exist as long as they can provide services that add value for the traveller.