NB: This is a guest article by Mike Premo, president and CEO of ARC (Airlines Reporting Corp).
In my keynote at this week’s Computerized Airline Sales & Marketing Association (CASMA) conference in Beijing, I wanted to create a vision of what an airline that is serious about Direct Connect (DC) as a distribution option should work toward.
That vision, unlike most of the conversation around DC to date, included a significant paradigm shift in the way airlines think about travel agent distribution.
First, I think it’s important to remind everyone of the material benefits that accrue to an airline from a successful DC deployment.
These include:
- Targeting offers based on internal airline assessments and intelligence driven off of customer relationship management (CRM) data.
- Representation of carrier’s value proposition as the carrier desires.
- Offering transparency ("shopping") to the end-user, but is more opaque to competitors.
- Driving loyalty, enhanced revenue via ancillary sales and higher customer satisfaction.
- Reduced GDS requirements around fare shopping and potentially reduce some GDS-related costs.
- Improved data quality via fare certainty – you price it so you know it’s right.
In my honest opinion, DC is the smartest airline strategy I’ve heard since Bob Crandall announced the B-scale pay system in the 1980's as a way to rapidly grow
American Airlines.
You can see that this is an approach that, if implemented properly, could really make a difference in the profitability and competitiveness of a carrier.
Second, it’s important for carriers to be realistic about what travel agency distribution "nirvana" looks like and understand that going in.
We are probably somewhere near equilibrium in the US between direct booking and travel agency booking at about 50%-50%.
You can’t fight human nature. People have been seeking advice about travel since time immemorial ("So, Marco Polo, where should I stay when I get to China?").
In addition, many travelers have either technical access or financial system access problems that make ecommerce unworkable for them. Finally, business travelers, certainly for public companies, will likely continue to have third-party managed travel.
Travel agents are going to be a very significant part of the US distribution system for a long time to come. And outside the US even more so.
Airlines, however, have conflated agents and GDSs for so long now that it’s difficult for them to see a different kind of relationship.
When an airline looks at agents, it actually sees GDSs. And we know how challenging most airline-GDS relationships are.
ARC faced similar challenges. Agents have sued and taken us to arbitration. ARC’s role in providing timely payment to airlines on agent sales sometimes put us in the bad guy position. And especially in the paper ticket era, we had some pretty onerous policies and practices - for good reasons, but still...
And today, we offer more optional services to agents than ever. But, many agents’ attitudes were: "ARC? Why would I ever buy anything from them?"
We set out to change those attitudes and become a place that was friendlier, more open and collaborative and ultimately be seen as someone agents would like to do business with.
We started with a corporate identity shift and back that image up with new services such as our non-air ticketing agent accreditation and outreach to over 40 agencies with in-depth Voice of the Customer interviews, a more open relationship with ASTA and other steps to make that image more concrete.
And it’s delivering results. Our treatment by formerly hostile agent media outlets like Travel Weekly (US) have noticed and, while still rightly skeptical, regularly applaud ARC actions in more even-handed fashion.
Non-air ticketing agents have grown to a community of over 1,400 and products like our service-fee program and even data sales to agents are seeing meaningful growth.
We have a long way to go, but we’re moving the needle. The message to airlines? It can be done.
Airline perceptions, however, are stuck. I’m sad to say that comments around airline headquarters like these are all too common:
- "Agencies are parasites. I’m paying for their success/lifestyle"
- "Agencies are a source of fraud"
- "Agencies are pawns of the GDSs"
- "Agencies don’t present my brand/value prop as I like"
- "We deal with them because we have to"
Of course, airline feelings aren't the only ones being hurt. Agents are equally unhappy:
- "No way to contact them"
- "They outsourced their audits and we get tons of arbitrary and petty debit memos"
- "Treat us all the same"
- "I don’t even want to sell airline tickets any more"
Even OTAs bring benefits that carriers often don’t include in their calculations. For example, OTA cash sales are up 100,000 tickets per month versus 2010!
That’s driving $600 million in ticket sales where there’s no merchant fee to the airline - saving carriers in the US, for example, in the order of $15 million so far this year on credit card fees.
All this is apparently being driven by OTA package bundling where they act as merchant and pay the airline via ARC settlement in cash. I wonder if this calculation is factored into the airline-OTA dynamic?
At the end of it all, is it really a good idea to have 50,000 or more travel agents out there who don’t like you very much? Selling a local cruise or drive package instead of an airline ticket? Are these sustainable or wise business practices?
Worst of all were comments from a pretty big agent that signed up for Direct Connect.
- "I signed up for Direct Connect. I’m sorry I did."
- "They treat me no differently than they did before."
Ouch! So if DC is really worth doing, how SHOULD an airline think about agents? The first thing to do is realize your DC agents will actually be selling in a channel you actually like! Whoa!
The question is, can the airline peel apart the long-held beliefs that GDS equals agents, and vice-versa? If so, the next step is to decide how to treat them.
It’s a well-established fact that what customers desire (whether they say so or not) is a better EXPERIENCE. Airline loyalty programs prove this. Frequent flyers aren’t given cash. They’re promised a better experience. It obviously works, drives (sometimes crazy) customer behavior and costs less.
In my view, carriers need to start with internal work:
- Articulate the DC vision – distinguish clearly between GDSes and agents
- Understand throughout the company that the “what’s-good-for-agents-is-good-for-GDSes-so-we-won’t-lift-a-finger” model no longer applies in a DC world
- Squash the agent-as-parasite talk
- Don’t fight human nature – third-parties will sought or be required by a substantial part of the market. Make it work FOR you – your competition may hang on to the old attitudes and you can steal a march on them
- Understand that airline revenues are a modest part of most agencies’ revenue
Then you can start to outline the experiential differences you want to deliver to DC agents. Ideas might include more robust communications, targeting individual agents (people!) as well as the agency itself, training, sales aids, feedback loops (social media, IM and email) and technical support.
A biggie might be a commitment to no debit memos. Hate doesn’t begin to describe agent feelings towards debit memos, and there shouldn’t really ever be any in a DC environment, should there?
Given the significant benefits of DC, some modest reinvestment into the agency channel seems both affordable and game-changing.
In conclusion:
- Agents and agencies want a different kind of relationship.
- ARC’s experience shows it can be done.
- Direct Connect is a highly desirable distribution solution.
- Resistance to change is high for financial and technical reasons.
- Creating a more fulsome and rewarding Direct Connect agency experience will multiply a carrier’s odds of success.
Getting, say, 30,000 agents who actually sell through a channel a carrier likes and who treat their product and brand as they want should be pretty powerful.
Agency distribution nirvana may not be that far away.
NB: This is a guest article by Mike Premo, president and CEO of ARC (Airlines Reporting Corp).