Airline Distribution Systems in 2013 Essay

Web based commerce and internet technology have dramatically transformed the airline industry throughout the past thirteen years. The internet has enabled travelers to bypass the traditional distribution pattern of travel agencies and enabled airlines to sell more directly to passengers (European Commission, 2006). Since the mid-1990s there have been some major changes to the airline ticket distribution industry which were both a result of internet technologies (GAO, 2003). Major U. S. Airlines claimed a net operating loss of nearly $10 billion in 2002 and had paid over $7 billion to distribute tickets to consumers (GAO, 2013). These distribution expenses include booking fees to global distributions system to the amount of hundreds of millions of dollars (GAO, 2003). Airlines would receive a set booking fee each time an airline ticket was purchased through a travel agent by the global distribution system used by the travel agent (GAO, 2003). Due to most U. S. carriers being largely dependent on each of the global distribution systems for distributing tickets to different travel agent and consumers and consumers having to subscribe and pay fees to each, there are concerns that the global distributions systems may exercise market ower over them (GAO, 2013). Market power would allow global distribution systems to charge high, noncompetitive fees to airlines and in turn, these costs may be passed on to consumers (GAO, 2013). Environment Two major changes have occurred in the airline ticket distribution industry since the 1990s that have produced cost savings for some major U. S. airlines (GAO, 2013). The airlines have developed less expensive internet ticketing sites that bypass global distribution systems and their fees and encourage consumers to book directly rather than through travel agencies (GAO, 2013). Between the years 1999 and 2002 the average percentage of tickets booked on-line either from airlines or travel agencies grew from 7% to 30% (GAO, 2013). (See Appendix A). The next effort to reduce costs that airlines made was the cutting the amount of commissions they would pay to travel agencies (GAO, 2013). These attempts have still not eliminated the dependence airlines have on global distribution systems. In the report made by the U. S.  Government Accountability Office (GAO), they were unable to determine the exact relationship between global distribution system booking fees and related costs and were not able to reach any conclusions towards the potential exercise of market power by global distribution systems in the airline ticket distribution industry (GAO, 2013). Despite these reports there have still been numerous complaints from airlines that the companies who distribute airline flight and fare information are stifling competition and violating federal anti-trust laws (Koenig, 2011). Government reports help airlines because they investigate claims which are made that could possibly violate anti-trust laws and act as a middleman to solve disputes. Travelport and Sabre are two large global distribution systems which have had investigations against them (Koenig, 2011). A third company, Amadeus, is another global distribution system and the three of them make up for all of the distribution systems in the U. S. (Koenig, 2011). The justice department has clearly stepped into the mix by investigating claims of monopoly power and anti-trust. Only announcements of such investigations have taken place with no more real information being handed to the public. American and US Airways have both filed lawsuits against the global distribution giant, Sabre (Koenig, 2011). Sabre was actually created by American Airlines but later spun off as a separate company (Koenig, 2011). American also sued Travelport for using monopoly tactics and burying their flight information (Koenig, 2011). With Travelport accounting for nearly $2. billion of American’s ticket sales last year, it is hard to see where the complaint lies yet American is intent of wrongdoing and is asking for government assistance through lawsuits (Koenig, 2011). Government institutions try to protect consumers and smaller companies in tourism by imposing anti-discrimination and anti-trust regulation to ensure that real information is presented and competition levels remain satisfactory (Beatrice, Cezar, & Alexandra, 2013). Industry Airlines and independent travel agencies were amongst the first to take advantage of the marketing and sales opportunities the internet provided (Borenstein, & Rose, 2013). Airlines saw the internet as a way to bypass the traditional sales channel of travel agents in order to gain control of lower costing electronic ticketing methods (Borenstein, & Rose, 2013). The internet provided an alternative for airlines and lowered their fears of sales being blocked by ticketing agencies (Borenstein, & Rose, 2013). Domestic airlines in Mumbai, India are attempting to not follow the conventional fixed commission system (Cuckoo, 2005). The issue of commission reduction has caused a huge stand-off between travel agents and international airlines (Cuckoo, 2005). Legacy airlines let by flag carrier Air-India announced in May, 2005 that they would cut commissions from 9% to 5% (Cuckoo, 2005). British Airways joined in with this plan and other European and Southeast Asian carriers were expected to follow suit (Cuckoo, 2005). Travel agents are planning to fight the commission cuts through the Travel Agents Association of India (TAAI) and the Travel Agents Federation of India (TAFI) (Cuckoo, 2005). Just as many U. S. Carriers have claimed fear of, agents in India announced a plan to boycott Air-India and to stop selling their airline tickets in the event of commissions being cut (Cuckoo, 2005). Low-cost carriers have an advantage to the internet because they can start off with new models of distribution whereas legacy carriers have been using agents for decades and it is hard for them to step out (Cuckoo, 2005). Air Decan is a low-cost airline in India that sells 35% of its tickets online and has been knowingly boycotted by agents because it offers a lower price, usually around 5% less, to consumers who book directly from them (Cuckoo, 2005). An International low-cost airline, Air-Arabia, will not pay any commissions to travel agents with its India flights (Cuckoo, 2005). Air-India’s low-cost subsidiary, Air-India Express will also have their passengers pay handling fees instead of the airlines (Cuckoo, 2005). Another Airline to consider is Frontier who makes their lowest fares available on both their own website and on the big online travel agencies (OTAs) such as Priceline and Expedia (Perkins, 2012). There is a difference however, when passengers purchase from any other site or agency other than Frontier, they only earn half of the amount of frequent flyer miles, do not get advanced seating, and will face higher fees for various changes (Perkins, 2012). Marketing Strategy and Situational Analysis Some may find it peculiar that companies are now battling other companies that they themselves created. The three major GDS systems that control most airline ticket distribution worldwide, Amadeus, Sabre, and Travelport provide OTAs with fare information and transact sales (Perkins, 2012). OTAs are used by most airlines in order to sell their tickets along with their own websites. In addition to providing airfares OTAs also provide hotel accommodations, rental cars, and most other popular travel services (Perkins, 2012). Airlines now want to avoid fees which were once accumulated through the use of agents and GDSs charge them anywhere between $5 and $12 to book a flight while a transaction through their own system probably costs less than $1 (Perkins, 2012). Now that the internet source is available and extremely efficient the airlines want to gain control back of their customers in order to be able to sell them additional services (Perkins, 2012). On their own sites they could have the ability to present upgraded options such as a bundled no-fee fare packages and can provide passengers with the ability to book semi-premium economy seats (Perkins, 2012). Airlines also want to avoid the easiness of price comparisons passengers have with OTAs in order to maximize their profits once again. The problem, as stated earlier in this paper, is that GDSs account for more than half of their business and to cut them out of the transaction stream completely would be extremely difficult (Perkins, 2012). Airlines are also signed into long-term GDS contracts that require that they provide the same fares to GDS that they have available on their website (Perkins, 2012). A third problem is that large buyers and managers of business travel are extremely dependents on GDS for various reasons such as fare, price, and other information that is required to control travel costs (Perkins, 2012). Attempts to move completely from GDS systems by most airlines have been unsuccessful but many have been able to find ways to shun them. Southwest is one who has managed to have their own system entirely because if you want to fly Southwest, you have to go to Southwest (Perkins, 2012). Allegiant and Spirit also provide only limited participation with GDS (Perkins, 2012). Others get around the contractual agreement of having the same fares available by offering discount promotional codes for direct bookings (Perkins, 2012). With the advantages of control of ticket distribution for the airlines stated and the various strategies used by each airline along with their strengths discussed, let us now look at the weaknesses of these distribution systems. The main weakness is that with the amount of passengers that do use OTAs, there’s a chance they will not use airlines that are not on these sites due to their popularity. Passengers want to be able to compare prices and OTAs provide just that. Passengers may not be willing to research fares on their own and may only go to their preferred airline if OTAs aren’t available. Airlines win if they are the airline of choice but if they aren’t they could be losing potential customers. Commercial Websites This study will look at two individual airlines and their websites and discuss how successful they are. According to Google Trends, the internet is the number one source for both business and leisure travel and roughly 83% of personal travelers use it as well as 77% of business travelers (The Economist, 2009). The two airlines in this review will be United Airlines and Southwest Airlines. Commercial websites need to consider what customers experience when searching for information, evaluating alternative products, and purchasing them (Peter, & Donnelly, 2013). We will be reviewing these three basic areas of which web site designers should consider for each United and Continental Airlines. With information search, there needs to be ease of navigation, fast page downloads, effective search features, and frequent product updates (Peter, & Donnelly, 2013). When evaluating alternatives, designers need to consider the ease of product comparisons, product descriptions, ease of contacting customer service representatives, and a status of the availability of items (Peter, & Donnelly, 2013). With the purchase evaluation, designers need to consider security and privacy issues, the checkout process, payment options, delivery options, and the ordering instructions (Peter, & Donnelly, 2013). United Airlines makes navigation simple by placing their flight search table right on the home page. They also include a section for members to sign in, passengers to print their boarding pass, check a flight status, and to change or view reservations right on the home page. These are some of their most used services which are placed right in plain sight on their home page making the information users are looking for easily obtainable. When searching for a flight the speed of the page downloads is quite fast especially considering that a query is being made and information has to be sorted. The results of the search used for this study came back fast and with more information than even requested. The site included many additional options to narrow the search down and was very up to date. When a search for a flight is made the results make it easy to compare similar flights available and even points to the direction of which options could/would give passengers a lower fare. The descriptions are accurate, clear, and comprehensive enough for customers to make informed decisions when choosing a flight. Customer service can easily be reached by clicking on the top right corner of the screen no matter what page of the site you are on. When a search is made unavailable flights or booked flights are not even visible making it easy for customers to view the availability of their options. When considering the purchase made on a web site, it is clear that United has all of the issues covered from security and privacy issues to ordering instructions. United airlines guides customers from the start of their home page all the way to the end purchase with ease. The steps are clear and the purchase can be made in a reasonable amount of time. Customers have various payment options such as credit card, PayPal, or buy it now as well. Southwest Airlines uses a more simplified homepage yet still has the flight search on their home screen to allow for ease of navigation. On top of providing ease of navigation they also use their home page to advertise promotions. The speed of pages downloads is quick, the returned information was effective, and the flight schedules were all up to date on Southwest’s site. They also provided multiple flights to choose from that incorporated a variety of different prices. The promotions continued through the flight selection process as well going on to add discounts if a hotel were to be booked as well. Flight comparisons and descriptions were easy to compare and were accurate, clear, and comprehensive enough to allow consumers to make informed decisions. Something I was surprised to find about the site was that the customer service phone number was not extremely easy to locate. Customers have to click through about 3 pages before a number is given and that is after they find the tiny help icon at the top of the screen. The status of availability is done the same whereas unavailable seating or options are not even displayed to customers. Southwest covers issues of security and privacy all the way to ordering instructions. Southwest Airlines guides customers from the start of their home page all the way to the end purchase with ease. The steps are clear and the purchase can be made in a reasonable amount of time. Customers have various payment options such as credit card, PayPal, or buy it now as well. Comparing the two directly, Southwest’s homepage is more simple and easier for consumers to take in whereas United has an abundant amount of options to choose from. They are both however, very effective and successful commercial websites and follow all of the guidelines mentioned above from the text with the exception of a number for customer service being more difficult to find on Southwest’s website (Peter, & Donnelly, 2013).