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May 2019, London
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Branded airline fares and the trouble with OTAs
Delta Airlines recently flagged up the challenge of selling branded fares through non-direct channels, and this is a wake-up call for all. Tom Bacon reports
Branded fares are common in the airline industry today. In the new world of travel merchandising, which includes a slew of ancillary options, branded fares are a rebundling of popular features that are sold as an upsell. In the US, the largest three legacy carriers - American, Delta, and United - all offer versions of branded fares. Even Southwest Airlines, which is known to rely less on ancillary fees, offers branded fares on its site.
As Delta Airlines recently stated, however, the sale of branded fares through non-direct channels (other than on the airline’s own website) is more difficult. Delta announced that they would pursue initiatives that would make these sales easier, and that by doing so, they could increase revenue by potentially hundreds of millions.
Of course, this is not really new. In 2008, Frontier Airlines became the first to offer branded fares in the US. In fact, branded fares were launched by Frontier just months after US airlines began to impose baggage fees. And, in fact, its branded fares, which I was involved in launching, included two fares that re-bundled the baggage into higher fares. It was very clear from the start that we would have trouble distributing the fares through third-party channels.
It was very clear from the start that we would have trouble distributing the fares through third-party channels
The basic problem is that airline reservation systems were built with a focus on the lowest economy fare. Airlines might file dozens of fares for each market but the reservation systems are designed to find the lowest one based on only two criteria:
- Rules: Airlines file rules or restrictions along with the fares that specify when a certain fare applies. Some fares, for example, have certain restrictions – such as the requirement that they are purchased 21 days or more in advance. Some fares only apply to round-trip purchases. Systems automatically read the rules along with the fares and find the lowest fare that meet the restrictions based on when and how the booking is made.
- Availability: Fares are also filed with a ‘fare class’, which specifies where each one falls within a particular hierarchy of fares. This allows airlines to systematically block off low fares (deemed lower priority) as the plane fills up. The systems present the lowest fare among those in the remaining available fare classes at the time of booking.
Branded fares are, by definition, upsells – higher fares with more so-called amenities. Unfortunately, however, airline reservation systems, built decades ago, don’t recognise ‘amenities’. So, they focus on the lowest fares and, by default, ignore the higher ‘branded fare’ upsells also filed by the airlines. Historically, airline reservation systems have contributed to the commoditisation of air travel – the customer’s overwhelming obsession with price.
Airlines play catch up
As Frontier did ten years ago, other airlines have redesigned their own websites to feature different bundles. On the airlines’ own websites, searches are met with a menu of fares for each flight, each fare representing a different bundle of features. But these format changes don’t automatically apply to third-party channels.
In fact, on a recent search for flight options between Chicago and Atlanta, a market all three mega-US carriers serve, the fares on one online travel agent (OTA) site were displayed based on the lowest (fewest amenities) fares. On selecting a specific fare, the display (for each of these three carriers) then showed the lack of amenities associated with that fare and, somewhat cryptically, said that if selected ‘you may be able to upgrade your fare before checkout’.
Historically, airline reservation systems have contributed to the commoditisation of air travel – the customer’s overwhelming obsession with price
In addition, these sites do not identify the additional amenities available or the incremental cost. Every OTA plays things differently, and on another site there was a similar focus on the lowest fares but, more helpfully, the option to purchase the first of the multiple upsells when selecting that flight.
IATA’s New Distribution Capability (NDC) was launched to help airlines present more fares and more associated content to customers on such third-party sites. It remains used in a limited fashion and was not mentioned in Delta’s statement. Still, NDC is the principal tool for airlines to bridge the gap identified by Delta.
Branded fares, and upsell in general, are an important part of airline merchandising. However, their limited availability in third-party channels remains a major challenge to achieving revenue objectives. Delta is certainly not alone in needing to focus on this gap.
Tom Bacon has been in the business for 25 years. When he isn’t penning his regular column for EyeforTravel, he is an industry consultant in revenue optimisation, and leads audit teams for airline commercial activities including revenue management, scheduling and fleet planning. Want to find out more? Email Tom or visit his website