NB: This is a guest post by Murray Harrold, a homeworking business travel agent from Buckinghamshire, UK
I have spent a long time trying to understand what American Airlines is trying to achieve by blowing out some of the main OTAs and by seeking to go "direct".
At first glance, none of the spat made sense. Why throw away, one asks, such a large chunk of business? Why diminish your exposure to potential clients?
This was followed by many analysing trends and trying to work out who was winning, using such things as website traffic volumes as a benchmark.
American Airlines talked about getting closer to its clients, by being able to offer more services, by offering a better solution from a technology point of view, amongst other red herrings.
Thing is, after mulling the current circumstances, none of all this is actually the real reason behind the current spat.
Does anyone really believe that a GDS - with technology that even in the late 1980s could deliver a person from point A to Point B, anywhere on the planet, safely and securely - was actually going to have an issue with adding something to the system to charge for an extra bag or a seat?
Look at the ability to sell add-ons - even a travel rep in Ibiza appreciates the value of selling add ons. Indeed, the travel industry has always known about selling add-ons.
What do you think all the fuss over travel insurance was about? Getting closer to clients - what are frequent flyer cards, then?
No, this entire issue is much more fundamental than that and this debate goes back directly to the 2002 commission cuts and some background before that.
Pre-internet and commission cuts, the sale of airline tickets was spread far and wide.
Tickets were sold by a diverse community of agents and increasingly on the internet. Yet even internet sales were across a fairly broad spectrum.
Airlines hoped that the advent of the internet would enable them to deal directly with the customer, following the trail blasted out by the likes of Ryanair (or Southwest in the US).
Agents of any ilk would become redundant and, so, problem solved. The airlines made a few errors at that time, as well as not following through on one fundamental issue - the error of thinking was not understanding why customers used agents in the first place.
This was especially relevant as to why corporates used agents.
Furthermore, even though the airlines cut commission, they left in place the consolidated fares system – CAT35 fares – whereby large volume sellers were able to sell an airfare at a rate much lower than by the airline directly. This latter system was necessary to fill vacant seats. Better to have 30 bucks than no bucks.
But what happened next was interesting.
As agents realised the extent of the commission cuts - rather, the effect it had on their businesses - they stopped selling airline tickets.
But travellers still needed to find out about travel products which were not just simple A to B stuff - especially corporates - so more business started going to fewer agents.
In terms of web distribution, OTAs became much better at selling air travel than airlines.
They had the technology, youthful skill sets, enthusiasm and were not hampered by the individual route network of just one airline, even if an airline was the member of a major Alliance.
The GDSs, being a lot more commercially astute than others, quickly realised that they could easily power these sites, and the site owners - not wishing to re-invent the wheel - took advantage of what the GDSs were offering.
So, what are we left with?
Instead of a diverse community of small agents (on or off line) selling tickets, we have a very much smaller community of agents selling to corporates and a small number of very, very big OTAs.
Where people are not booking on the likes of, say, Orbitz, there is a good chance they are booking on an offshoot of say, Orbitz.
As far as the corporate agents were concerned, things did not really change that much. Sure, they have to charge a fee, but given that corporate agents do an awful lot more than just book tickets. They can justify this fee – indeed, have justified that fee - or there would sinply not be any corporate agents today.
The thing is, the large OTAs have become a sort of corporate travel agent for everyone.
They receive the CAT35 fares and, as they command such a large volume, can (I don’t know this for fact but simply summise) demand a much wider use of CAT35 fares (commission/rebates – call it what you like) than airlines could offer previously only to business travel agents and very large retail agents or "consolidators".
This is what American Airlines needed to fix. The fuss is because the airline has only recently woken up to the problem – and possibly too late.
And this is what this whole issue is really all about - divide and rule.
The myriad of small agents selling air tickets meant then no single agent could ever command too greater volume of sales.
The business agents could be - to a greater or lesser extent - kept sweet and, by a more judicious application of the CAT35 fares, these could be better targeted to where they made more sense for airline and corporate alike.
American Airlines realised they had to fight the "commission cuts" battle all over again. And they know they may (just) stand a sporting chance of winning.
As much as there may be an issue of an element of lost business (which I doubt there is, at the end of the day) the OTAs must ask themselves, can they seriously survive without offering the route network of a major airline?
This begs another question: what about the other airlines? Other carriers may be sitting on the sidelines for one of two reasons:
- They are worried about anti-trust type legislation
- They have not yet realised what this battle is really about.
Personally, I think it is the first scenario. Other airlines will soon follow so any accusations relating to cartels may be safely put to one side. Then the OTAs will have a real dilemma – they will be unable to survive if they are unable to offer two, then three and then four major global airlines. Their position would be hopeless.
This is what this debate is really about. It is about returning to divide and rule. American has realised that it must prevent any one OTA – or any one agent – controlling too much of its inventory, especially now when airlines see the likes of Google looming on the horizon.
A major challenge, here, is the involvement of the major GDSs. This may be the biggest issue for American to tackle and could be one that may cause it to lose the battle, if they do not tread warily.
American has identified the problem and credit must be given to it for that. But is American Airlines simply too late to make such bold moves?
NB: This is a guest post by Murray Harrold, a homeworking business travel agent from Buckinghamshire, UK