Online is not the panacea for all distribution problems
Published: 30 Apr 2008
TDS Asia 2008 Special
One of the most cost-effective methods of distribution – from a cost per transaction perspective – is online since the GDS and travel agent commissions do not apply.
However, there is a need to consider the 'hidden' costs of online sales - consumer advertising, web search engine optimisation and IT personnel, according to Lesley Hagan, formerly Head of International Distribution at Oasis.
"There is no doubt that online distribution is the dream of every airline company – it is a very cost-effective method. However, it is not the panacea for all distribution problems and the online market should be viewed as one of many channels and directed at a specific audience. The GDS will remain the distribution method of choice for travel agents and where a substantial amount of business is generated through travel agents, this will remain so. Although some GDSs have customised offerings for LCCs to enable them to sell via the GDS, these are hybrids or links between the GDS and Internet which have been resisted by some in the travel industry," Hagan said recently in an interview with EyeforTravel.com's Ritesh Gupta.
With reference to the potential of audience in Asia, Hagan said that the high degree of differences in online maturity is evident across the globe. Asia has the largest number of Internet users worldwide and increased almost 400% since 2000 although Internet penetration by % of population is only 13%. (penetration by population in Europe is 43% and North America 71%.) This means that there is huge potential in the area, added Hagan.
Hagan also spoke about airline distribution, profile of traveler and much more. Excerpts from the interview:
Ritesh Gupta: During our conference last year, a senior executive GDS stated that while every airline is considering customer direct – experience has proven this is difficult and not suitable for every airline. In future we expect airlines to use online as one of the several channels to get to their customers, especially for domestic, but there is no evidence that any conventional airline in the region have significant volumes except LCCs. How do you assess situation going forward in Asia?
Lesley Hagan: There is no doubt that online distribution is the dream of every airline company – it is a very cost-effective method. However, it is not the panacea for all distribution problems and the online market should be viewed as one of many channels and directed at a specific audience. The GDS will remain the distribution method of choice for Travel Agents and where a substantial amount of business is generated through travel agents, this will remain so. Although some GDSs have customized offerings for LCCs to enable them to sell via the GDS, these are hybrids or links between the GDS and Internet which have been resisted by some in the travel industry.
Ritesh Gupta: Do you think we need to understand that travelers are not a LCC customer or a traditional customer, but rather the modern traveler who mixes and matches based upon the requirements for that journey and their perception of the value of the product on offer. In this context, how do you think airlines need to approach their distribution going forward?
Lesley Hagan: Definitely. Effective distribution is all about promoting your product in a manner that will be attractive to the consumer. There is little point in providing an 'all singing, all dancing' distribution tool with 'bells and whistles' if the consumer wants something that provides relevant information in a clear manner and is simple, quick and easy to book. Airlines need to ensure that their distribution is targeted to the audience. This will entail using different distribution channels for different market segments.
Ritesh Gupta: Galileo last year stated that the GDS remains an efficient content aggregator. The GDS has expanded with new tools to include new content, such as LCC, merchant hotels, etc. How do you envision the role of GDS going forward?
Lesley Hagan: The GDS will be the tool of choice for travel agents for the foreseeable future due to the ease of use it provides, streamlining of procedures, connectivity with back office systems etc. In order to capitalise on the increase in the number of LCCs who may wish to participate in GDS, there needs to be a shift towards providing the booking functionality of flights and the sale of associated products offered by the LCC to be available through the GDS 'green screen' rather than an internet interface. This has been successful with Galileo & easyJet, and Galileo & Air Canada and I'm sure we will see more of this in the future.
Ritesh Gupta: Asia includes the fastest growing mobile markets in the world. China, India and Indonesia added nearly 150 million new mobile subscribers in 2006. To what extent travel suppliers and intermediaries are receptive to mobile as a channel for information and booking? What new trends have you seen in this arena?
Lesley Hagan: Back in 2000, I was working with an online travel agency, ebookit.com. At that time, we had the capability to search and make a reservation using mobile technology through a mobile phone. In the last eight years, although mobile phone use has increased, the amount of travel e-commerce being conducted through this medium has been minimal.
Ritesh Gupta: Do you think agree that the trend in Asia is following that of Europe and the US to drive more transactions reliably as well as more relevant to the customer. Also, online customer self service functionality is being driven via different communication/technology tools – computers, SMS, PDAs, Kiosks, etc?
Lesley Hagan: Customers in Asia are becoming more used to using the web so, yes, the trend is growing for consumers to purchase through the Internet. This is predominantly driven by the younger generation.
SMS is used to communicate important information to customers and can also be used to promote sales of ancillary services. As with all technology, it cannot be rolled out and be successful in all markets due to cultural differences. Care must be taken to ensure that the distribution channel is acceptable to the market.
Comments
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tromba said on 1 May 08:
This is a very good interview that makes some solid points.
But, I was reminded of many discussions, speeches and articles more than a dozen years ago when online commerce -- including travel -- was just getting started. The buzz word way back then was "disintermediation", a mouthful of an academic way of saying "cutting out the middle man".
The notion back then, and I would argue that it still is today, is that online sales will eliminate the need and the cost of having somebody between the seller (airline) and the buyer (the traveler).