"Many US carriers have been distribution agnostics"
Published: 09 Oct 2008
By EyeforTravel.com Correspondent, recently in Las Vegas
The power of the web-based channels has changed the air travel purchase process.
Air travel purchases are now driven by low touch simple transactions via the web and the pricing parity across all the channels has created partial commoditisation of air fares.
Commenting on how has this impacted revenue management, Dr. Bill Brunger, Internal Consultant, Continental Airlines, says the Internet has certainly changed the air travel purchase process – increasing the ease and speed of searches, and not only creating additional transparency of fares, but also of other product attributes.
"The price transparency has certainly contributed to a partial commoditisation of air fares – it is very simple for a potential customer to find the lowest fare in the market with a few clicks of the mouse, or to sort similar service alternatives from lowest to highest fare," said Dr. Brunger. "That said, the Internet also delivers more complete product information – particularly with respect to schedule. For example, the ubiquitous "fare/service matrix" that was pioneered by Orbitz.com, allows a customer to compare the lowest price across carriers, but also to quickly recognise the difference between non-stop and connecting flights offerings."
For revenue management, fare transparency means that customers will find any low fare offering on your or another airline. This forces airlines to redouble efforts to stay competitive, i.e. to offer an appropriately competitive array of fares in the marketplace – Share can shift much more quickly than it did in the pre-Internet age.
"Transparency also offers a major RM opportunity – the power of Internet search helps customers to find lower fares on marginal or off-peak flights. My doctoral research indicated that while Online Travel Agency customers found lower fares than those who booked through traditional agencies, they also tended to purchase seats on less "valuable" flights, as measured by Expected Marginal Seat Revenue. But it all seems to mean that Internet transparency is useful to airlines in that it encourages customers to book on flights which would otherwise be less full – and selling marginal seats is one of the core missions of Revenue Management," said Dr. Brunger.
According to Dr. Brunger, the Internet has also enabled new levels of involvement in the search process and, in many cases, fostered new kinds of social interactions, like online travel clubs.
"Interestingly, most Internet travel buyers describe their own travel search process at either of two extremes – either they rely on the search engines, performing few, fast, efficient searches and purchasing quickly, or they get deeply involved in the search process, using the process to help them figure out where they want to go and how they want to shape their trip. For airline management, this sense of involvement in the search process is a major opportunity from the customer relationship management point-of-view," he said.
When it comes to measuring performance across various channels and streamlining processes to effectively implement revenue management, Dr. Brunger says the Internet has changed the industry cost structure very fundamentally.
"Internet bookings are much less costly than pre-Internet bookings were. But the effect has been general – costs across all the channels, even at traditional agencies and airline reservations offices, have come down. There is some cost advantage still to encouraging Internet bookings, particularly through airlines' proprietary website, but my dissertation research indicates that it may be smaller than the negative yield effect from transparency," he said.
According to Dr. Brunger, many US carriers have been "distribution agnostics" - generally treating all distribution channels equally, making equivalent fares and inventory available through each of them.
"In light of the costs, this seems like an economically prudent approach. It then becomes the customer's choice how he approaches the purchase process," he said.
Ritesh Gupta
EyeforTravel.com
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