Direct versus indirect: It doesn’t have to be a one-size-fits all

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When a customer books a flight via an airline’s website, it gets marked as a direct booking, but savvy e-commerce and distribution professionals are digging much deeper to improve profitability. The question then is: are some airlines losing sight of a bigger opportunity?

Take for example a lead emanating from a meta-search engine, or any other traffic generation site, which could result in a direct booking. Of course, one could argue that such customers shouldn’t be referred to as direct because of the cost incurred in the final analysis. There are also issues around customer ownership. After all, this could be a brand agnostic visitor or a traveller who likes to explore a few options before making a decision.

But as airlines are increasingly looking at the cost of distribution through each channel, bringing down the overall cost for a direct booking is high on the agenda.  Rather than getting stuck in a debate about direct and indirect distribution, the idea is to make the booking process easier and facilitate conversion as quickly a possible. There have, for example, been initiatives where airlines have worked with meta-search engines to set up a direct booking option.

Airlines not only have to work on strengthening their brands and inspiring customers to book via their sites, they also have to be alert enough to ensure that they work on technology to distribute their content aptly. This may even mean dealing with a few intermediaries in a special way to strengthen their overall distribution mix.

Another thing to think about is that airlines cater to different segments in both the B2B and B2C arena. So they have to sharpen their approach to service each customer segment appropriately.

For Lawrence Fong, manager eBusiness, Cathay Pacific Airways, more differentiated IT systems must be developed to cater for the different content, features and fares required by different users. Cathay, for example, has separate portals for business travellers and retail agents, in addition to having a website for general consumers.  EyeforTravel’s Ritesh Gupta talks to Fong about growing trends in airline distribution.

EFT: If you were to pick out one disruptive change in airline distribution, what would it be? 

LF: The rise of Internet and mobile devices. It has impacted the business model and changed customer behaviour hugely– from the way they collect product information to the actual purchase process. Customers now have more options for who, when, where and how to interact. As a result this poses more opportunities for airlines to reach customers directly.

The online and mobile channels will continue to gain in importance in the future as technology advances and complements the shopping experience, hence pushing for more specialisation and innovation of the various distribution channels to create and enhance their distinct values for customers.

EFT: How do you think the industry has collectively moved its focus from distribution to retailing? What is the role of airlines and intermediaries at this stage?

LF: The industry saw the ancillary revenue opportunities arising from retailing. Capitalising on these was inevitable in order to maintain growth, given the intense competition in the air travel market.

Travel agents have long been able to combine air ticket sales with retail elements such as hotel accommodation, travel insurance or group tours. Airlines, on the other hand, have been active in investing in this arena in recent years to enable themselves to capture these opportunities.

EFT: What major trends do you forecast for 2013 in airline distribution? 

LF: In my view the trends will be as follows:

·        Online distribution continues to grow with more players and newer technology to make searching and purchasing easier.

·        Mobile channels will further increase in importance in engaging with customers, distributing product information and creating sales.

·        More personalised, integrated offers will be available for customers on the Internet.

·        Conventional travel agents will further differentiate and focus on their competitive edges to fend off competition.

EFT:  At this juncture, what do you recommend when it comes to optimising the effectiveness of all distribution channels?

LF: As e-commerce (and m-commerce) will be an area demonstrating significant growth, enhancing the distribution capabilities and customer experience to handle growing needs are vital for these channels. However, offline travel agents will continue to play a key role in creating values such as in complex transactions or upselling. It will be sensible for airlines to recognise and create a positive environment to foster these activities.

EFT: What impact has e-commerce had on airline business models? 

LF: It has greatly strengthened airlines’ capabilities to reach and sell to customers directly. The online channel accounts for a substantial portion of revenues and Cathay has doubled its online share in the past few years. Another contribution is that e-commerce effectively reduces the cost of distribution arising from fees and commissions to the intermediaries.

EFT: It is mandatory for airlines to embrace a mix of direct and indirect, online and offline channels. Do you foresee any major change in the multichannel strategy?

LF: The multi-channel strategy will remain for some time although the mix is gradually shifting towards direct channels as booking online becomes increasingly safe, easy and fast.

EFT: The indirect channel clearly allows for higher yield business. What do you make of issues pertaining to the cost of third-party distribution?

LF: The various channels should be rewarded for the values they create. Though the indirect channels bear higher costs and airlines endeavour to contain their costs of sales, there are many aspects where indirect channels complement the direct channels. The landscapecould be changing as direct channels continue to develop into more mature ones.

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