Behind the ease of booking a flight seat online lies mounting tension between two industries.
Airlines are increasingly moving toward offering customers bundles of travels perks, everything from extra legroom to pre-boarding privileges to more frequent-flier points, for additional fees. In an industry with low margins, airlines are trying to eke out revenue by differentiating their bundled services.
The problem is, bundles are hard to buy on third-party travel sites.
And that’s the root of a new push by airlines such as Air Canada to draw customers toward their own e-commerce sites, where the bundles are laid out in more detail, and away from third-party reservation sites. For each customer that does book directly, airlines save the $15 or so in fees that third-party reservation bookings charge. Particularly for cheap fares under $200, that $15 makes a substantial difference to airline profit margins.
But airlines still need to list their fares on popular sites such as Expedia and Travelocity. As one reservation-company executive noted, fees to third-party reservation systems typically cost airlines only around 1 per cent of operating expenses. However, the tickets sales through those reservation systems account for 70 per cent of airlines’ revenue.
If airlines pulled out of those booking sites, they would simply lose that business.
“Customers just wouldn’t see me. I just wouldn’t exist,” said Graham Wareham, senior director of distribution at Air Canada.
Orbitz, Expedia and others, which list schedules and comparative airfares, generally don’t include bundles because there’s so little uniformity between them among the hundreds of airlines listed on the sites.
“We’d most definitely like to be able to help the airlines to market their products on our sites in the way that they’d like to,” said Brian Simpson, operations and media relations manager at Travelocity.ca. “The challenge is that there is not really any standardization across carriers. There is no standard for offering those types of bundles.”
He and others see this as an evolution. “One of our goals is to make merchandising and the purchase of package options easier, and we are working with a number of airline partners, including Air Canada, to accomplish exactly that,” Sean Shannon, vice-president and managing director of Expedia Canada, said in an e-mail.
Online travel agencies serve a clear purpose, allowing customers to compare fares, said Robert Kokonis, travel industry consultant at Toronto-based AirTrav. But for airlines wanting to differentiate themselves, Expedia or Orbitz look “more like a puppy factory. They are just churning out tickets,” he added.
The fees and commissions for processing tickets through those sites can cost carriers upwards up $15 per ticket, he noted, whereas it might cost only $2 or so to process a ticket through the airline’s own site.
Airlines around the world spent a total of around $7-billion in the past year on global distribution systems (GDS). These are the companies that feed the reservation data to sites such as Expedia. They have long since evolved from the green-digit electronic consoles that sat atop travel agents’ desks listing only flight schedules and airfares. But the airline industry argues that this evolution hasn’t gone far enough.
“People who have grown up with the Internet look at that and say, What is wrong with the travel industry? Why is it that I can’t personalize my offer?” said Doug Lavin, regional vice-president of North America for the International Air Transport Association (IATA), which represents the airline industry. “So that’s what the airlines are struggling with.”
Shelly Terry, vice-president of supplier merchandising at Sabre Holdings, a GDS headquartered in the Dallas-Forth Worth area, argued that it isn’t a question of reservation companies’ technology not keeping pace with new bundles, as the airline industry argues. GDS systems such as Sabre have for years included detailed information about bundles, as well as extra charges such as baggage fees not included in fare bundles. The difficulty is that online ticketing sites simply feel they can’t list myriad combinations of bundles without overwhelming users.
And so full-service airlines particularly feel that airfares don’t reflect the actual level of service. Air Canada currently lists its Flex level of economy service on travel sites simply because it contains some of the perks it thinks customers anticipate, even though it makes their airfares look more expensive.
As a side industry of consultants and e-commerce firms such as Miami-based Farelogix, which works with both WestJet and Air Canada, helps airlines beef up their retail sites, airlines know they still have to list their fares broadly on ticketing sites. “We are not trying to cut out the travel agents and the GDSs. We’re not trying to do that at all,” added Mr. Lavin of the IATA. “Airlines are just trying to [be retailers] and join the 21st century.”