For the past 15-plus years or so, airlines and agencies have been butting heads.
Yet technology is now letting agencies sell the high-margin products airlines want to sell the most. Might that technology shift the dynamic of the relationship between airlines and agencies in a more favorable way?
The verdict was uncertain in a panel talk at a recent customer conference run by Travelport, the global distribution system (GDS), in San Antonio, with a United executive and representatives of travel agencies and travel management companies (TMCs).
The panelists touched on several of the hot-button issues that have popped up around the boom in airlines merchandizing products, such as whether airlines should compensate agents for the extra work involved in selling the seat upgrades, priority access to boarding a flight, and other new merchandising.
The agencies also complained about the lack of full content, suggesting that the playing field with the airline wasn't level.
The agency comments were in line with research from industry analyst Henry Harteveldt's Atmosphere Research Group that found that 77% of agencies feel they are unable to compete effectively with airline websites to sell ancillary products.
Like many airline executives, the United executive balked at the idea of compensating agents for additional work related to merchandising.
Yet the agents noted that, unless the sales process becomes automated, they will struggle to afford to be able to push the retail products as much as they might like.
All of the panelists hoped that new technology, whether it came from a GDS like Travelport or evolved out of a new initiative called One Order (which began to be publicly discussed by the airlines in recent weeks), might help address problems.
The conversation was moderated by Harteveldt.
Harteveldt:
“Not knowing how to do something forces you to find your own path. Retailing is new for airlines. I started working at a travel agency in New York City where I grew up. After school, I did handwriting of the tickets and all of that, going through the OAG.
The airlines, and I am a former airline guy having been at American with Bob Crandall, so I say this with respect, the airlines had to stumble into retailing. Technology will enable all of us to be better retailers.
Do you think that merchandising and retailing offer an opportunity for travel agents to better serve their customers and why?"
Steve Glenn, CEO of Executive Travel in Lincoln, Nebraska, and a 30-year industry veteran, said:
"Merchandising, or retailing, is key for the agency future. As a company we view, actually we view an airline ticket as a commodity. It’s an enabler to attaching a hotel booking, which is how we make our revenue.
As a TMC, we make more in hotel commissions than service fees, and what we want to do next is merchandising so that we can own that customer.
The key is, who’s going to own the customer? Are we going to let the airlines own that customer or are we going to own that customer?
We’re not going to make enough revenue off of the airline ticket. That’s just an enabler to that traveler for all these other programs and products and we’re excited about the future.
The big elephant in this room is, quite frankly, the business model with the ancillaries and ancillary services does not align with the cost of labor. It’s not reasonable for the airlines to say, “Okay travel company, sell our services, but we’re not going to compensate you for it.”
It cost me $12 to have that agent spent that 5 minutes selling your seat, so you need to compensate me.
If you don’t compensate me, the business model will not sustain itself, and it’s business: You can’t ask people to apply labor to sell your product and not compensate them, yet that’s the United, Delta, American business model of today.
Even if the technology for selling ancillaries more easily is in place, which it is and moving rapidly forward, am I going to want my agents to put 10 minutes selling an airline seat and we get no revenue on it?
No, but what I want, maybe, is Travelport to come out an email interface or a mobile interface that says, “Oh, and here’s a seat you can get.” That doesn’t cost me any labor.”
I see that as maybe the next stage for the industry. That the technology provider, Travelport, hopefully is looking into, is to allow agents and TMCs to sell airline tickets without a cost of labor."
Christine Prescott, COO and owner of the agency Corporate Travel Planners of San Antonio (and a 32-year industry veteran), said:
"Corporations are changing their policies to allow their employees to buy upgraded seats and other ancillary services, and as TMCS it’s very important for us to be able to have access to those products and those specific seats or those specific rooms.
One thing we know, the customers don’t want to pay us more in fees. It’s quite the opposite. They want to drive down the cost of the transactions. But with airlines adding all these ancillaries, we have to be doing more to make a sale.
If we can find a way to automate the sale of these products, then we’ll be okay. I think agencies in general, 40 to 50 percent of our overhead is our labor.
It’s really scary that some of the most robust online book tools in our industry are just so far behind as well and don’t have integration into that full merchandizing content right now."
Tye Radcliffe, director of distribution, payment and ticketing systems for United Airlines, said:
"If the agencies are helping sell more of the ancillary products, I think the customer should compensate the agent for providing that service. That’s my view.
Travel agents are there to provide the service to the customer and I think travel agencies in many case can do it better than I can, but the customer should compensate the agency for doing that."
Harteveldt:
"Tye, as an analyst and as someone who has worked for an airline, I have to respectfully say, I don’t think that’s the right opinion. I don’t think that’s the strategy that is going to uphold going forth going forward.
I think that in the research my consultancy Atmosphere Research did, agents’ expectations overwhelmingly were that the airlines should compensate them. Now, we didn’t ask about how much or what form or anything like that.
But the expectation was that the airlines are able to use agents to put their product on more shelves, perhaps at a better time in the life cycle, so that they can sell premium upgrades at the most opportune time, for instance. So the expectation is that airlines are somehow going to have to compensate the agencies."
Radcliffe:
"I’m not saying it’s not something that’s constantly under review with the airlines in general. But I also think that an agent could get money from their traveler potentially as well as the airline.
It could come from both places, because certainly it is something that is value that’s being added."
Harteveldt:
"Steve and Christy, do you think that you’re going to be able to get more money?"
Glenn:
"Our corporate philosophy as a TMC is that if the traveler can go to the airline’s website and get products, we want that access to that same content at that same cost. We don’t want our travelers to go direct to the airline and buy it cheaper."
Prescott:
"I think I’m a pretty good salesperson, but I think it would be a real challenge to get my customers to pay us for handling their luggage fees and blocking those premium seats.
It is going to be tough to get customers to pay additional fees to us for selling airline ancillary services. The exception might be with servicing C-suite level customers. But that’s it.
I’m a pretty optimistic individual, but I don’t foresee airlines paying us to sell those."
Glenn:
"We try to be creative. For example, we looked up the other day, and we could send via UPS luggage to Miami cheaper than paying the $25 fee to check it on the airline on a particular route.
Think about when we’re in the position where we say, “Hey, we’ll pick it up at your door], ship it to your hotel for $19.25, and it’s in your room when you arrive” We make money on it, while delighting the customers with something extra.
If we can have additional services like parking or ground transportation available in the ordinary booking workflow, that= disruptive technology – hopefully coming from companies like Travelport -- is going to force the airlines to open their platform and compensate for where they get revenue from.
They may not want to do it, but the technology that’s coming at us in the future is going to enable us to offer things to our customers we’ve never even thought about and make revenue from that.
So, it’s an exciting day before us and the airlines aren’t going to be able to opt to work just in a vacuum by themselves."
Radcliffe:
"One of the key things that I’m focused on is making sure is it doesn’t take 12 minutes to sell my Economy Plus seat.
The real labor add for an agency or TMC comes when when you have to take the credit card information and put it in and then you have to do the back office accounting room orders.
Then you have to do everything else that causes it to work through your mid- and back office processes.
That’s where I think the bulk of the 12 minutes of labor comes from. So, if I can find a way to work with Travelport to make that simpler for the agency, that’s really what I would like to focus on, to streamline the process."
Harteveldt:
"How do you think it might change the relationship when agencies are empowered to sell, whether it’s individual products, bundles of products, whatever it is, do you feel that it might make it more of a partnership compared to how it has been, let’s say, for the past few years between United and its agencies?"
Radcliffe:
"We are absolutely reliant upon TMCs and we see them as extremely important partners."
Craig Banks, senior commercial director, air commerce at Travelport, (who is focused primarily on working with airlines in the United States and Canada) said:
"The key is for us is to provide the technology to travel agencies that allows them to quickly and efficiency put these ancillary services in their work flow in the least amount of time possible, and that’s exactly what we’ve focused on and done with Smartpoint.
Over the last couple of years, we’ve seen a big change in Travelport’s conversations with the airlines. It is much easier to have a commercial conversation with an airline when you have products that enable the way they want to sell their products.
The discussions where they used to be about pennies and cents, it’s now about driving revenue and maximizing revenue. So I think it has already improved the relationship."
Radcliffe:
"If all the travel agencies went away today, I shouldn’t say this, but, can you imagine what would happen? I mean, how many hours would you be on hold? Could the website take all of the traffic? I mean, I don’t know that we’re ready to take on all of that.
A lot of my focus is on improving United’s interaction with our partners, our agency partners. A huge percentage of our revenue, as you can imagine, comes through the agency channels.
Agencies deal with a lot of very particular customers whom you’re better at dealing with maybe than I’m equipped to at a direct airline website. Enhanced technology via the GDS would just make that even better in my view."
Prescott:
"We really enjoy partnerships with our airlines, so I think this would only strengthen that. Really, I think what all of us want is, we want full content.
We want access to all of your content and everything that you have on your website that you’re offering the consumer.
If you as an airline do that, hands down, that is what makes a great partnership.
We don't want our customers going to the airline websites, getting something or seeing something that we don’t have access to. I would like to be the one selling my customer these ancillary options versus it coming from the airlines, an hotelier, or a rental car company."
Radcliffe:
"I think that we’re in line with that view.
Part of the problem is just the technology and the infrastructure that exists in the industry.
An electronic ticket is a paper document that we turned into an electronic document. What if you wanted to put some new bit of information on the ticket? We would have to go to an IATA meeting for 6 months and then propose a change.
IATA’s One Order initiative is where airlines thinking about how maybe you don’t have a traditional passenger name record (PNR). Maybe it’s more of a database record, and the travel agency has interacted with me like a retailer, like an Amazon, or someone like that versus we’ve got this very structured PNR."
Glenn:
"The other elephant in the room that hasn’t been addressed is, even when we have the technology to enable us to retail, and if we have our airline partners who say, “We want you to retail,” we still have the elephant that we can’t put those fees onto a] document and it all be bundled, so we’re prevented from retailing.
We’re still stuck in a non-retail merchant model where. I mean, imagine that if you go buy jeans at Target, they tell you “Well, the jeans are $12 and our trucking is $5 and the profit is $12 so your jeans are $59 total, and by the way, you get charged for each of those elements separately on your credit card.” No way.
We need not only the technology to retail, but we need infrastructure that only will come from the airlines who say, “We will allow you to be a merchant. We will allow you to retail by taking our product and putting that into the price model and allowing us to set the price.
Right now that’s a major elephant that nobody’s addressing in our industry and I don’t know why.
If we can do what we’re doing with technology to offer rich content and ancillaries, that ought to be on the table, too."
Radcliffe:
"That’s what IATA’s One Order is all about. You hit the nail on the head. You said it better than I did.
That’s what we’re working on. Just announced 2 weeks ago. The airline group IATA has a committee on how we might go about simplifying the business.
NDC has brought us to a certain level where we can communicate with each other using XML standards and it’s funny, if you speak with a technologist and you say, “Hey, we in the travel industry, we’re trying to go onto XML,” and they’re like, “That’s from like the early 2000s. Welcome to this century.”
Look, it’s a step in the right direction. NDC will take us to a level where you can communicate with each other and at standard I can send you pictures and videos and text and we can share information, but One Order is the next level on top of that.
What if I’m in a world where I don’t have an e-ticket anymore? What if I don’t have a traditional PNR?
This committee will write a requirements document to say, “If an airline is able to move away from tickets, to move away from this traditional way of doing business and have an offer and an order and a confirmation number, these are the elements that we’ll need in these XML messages to support and these are what system provide will need to think through.”
So the industry is inviting airlines, industry providers, travel agents, to come to the table and sit down and think, how do we do this together and move forward without breaking everyone’s processes but still making progress?
To take it a step further, if I knew that one of my luggage handlers broke your guitar during your last flight, could I tell the travel agent via technology to offer that traveler a lounge pass for free or something -- before they write a song about it that becomes an internet sensation?
There might be something that we can do together to try and prove that your relationship with the customer that I might know about a service I failed to provide or many other things about the customer.
You know, in resolution 787 there were some agreements on things like anonymous shopping. So, to be clear, I mean just tailoring the offer for the customer based on the information that you share, rather than trying to do nefarious things with that information."
Prescott:
"Some of the things that our corporate customers don’t want is for us as an agency to ever market retail vacation travel to their travelers.
I mean, they are very specific in their contracts. They say, “You’re not allowed to retail to our corporate customer base.” Hopefully things like that will change because it’s already happening through these other channels. If the client books out of policy or outside of the agency, the airline is up-selling them on retail vacations all the time."
Radcliffe:
"If we were to help provide you with information about the operation through folks like Travelport, obviously we used to have more information when we were hosted, but try to backfill some of those gaps, maybe then you could own that relationship more with being the single point of contact about 'Your rental car’s purple and here’s your flight status information'."
Banks:
"We would welcome you back to our airline hosting solution, United.
So on corporate travel and airline merchandising, I think there’s a lot of opportunities here. The comment that I want to make.
I have a lot of conversations with airlines. I always hear airlines say that they want to provide targeted offerings to travel agencies, to corporations, to end travelers, and what we’re doing right now is going to the airlines and working with them to load those offerings into our Rich Content and Branding system.
We have the ability today for an airline to make a specific offer to a travel agent, to a corporate, and to an end-traveler based on their frequent-flier status with the carrier.
For example, again in our Rich Content and Branding displays, the corporate would be able to see the familiar brand that is specific to them along with the normal fare brand, so you can compare the differences, you can see the ancillaries that apply to each one of those..."
Glenn:
"I was excited to see the MTT purchase. We as an industry have this tremendous opportunity to build customer-facing mobile experiences for TMCs that’s very, very contemporary and positive.
The place where we’re furthest behind as an industry, that we need to address, is our TMC mobile offerings. They’re really bad and compared to what’s out there in the contemporary space.
Our mobile booking engines have the problem that they’ve build with corporate travel policy embedded into them, and they’re clunky and slow and where everything else in the consumer world is fast and pretty. So we’ve got to think more fast and pretty."
Prescott:
"I feel like we are falling behind what the airlines, the hotel leaders and the car companies are doing. I feel like they have more contact with our travelers than the agency community does, which means getting the merchandisable products onto those platforms, because it’s at the last-minute that many of those sales are happening.
Hoteliers, airlines, car companies, I mean, they’re rounding third base on their way to home and we’re just getting off the box, if you will and heading to first, so I think we are behind.
With partners like Travelport we can catch up and hopefully beat them across the plate, but we have a lot of work to do in this area from a retail and mobile perspective."
EARLIER: Travelport’s MTT talks mobile app strategy for TMCs and itself
NB: Photograph of panelists courtesy of Keith Soucy.