Airline ticket distribution: How airlines might reduce Global Distribution System (GDS)... - 0 views
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After a quick search I found and booked the same ticket through an online travel agency for a bit more than the price on the airline website, but less when you included the €8 fee. Unfortunately this small change in booking method would have cost the airline a substantial amount of money. Here’s why…
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A key driver for the high cost of selling tickets through indirect channels is the fees charged by Global Distribution System (GDS) companies for each ticket sold. With airline profit margins under constant pressure airlines need to find ways of reducing distribution costs by selling tickets to customers directly instead of through 3rd parties.
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The fees to distribute tickets through the GDS are relatively high averages around US$12 per return ticket [2]. In 2012, it was estimated that approximately US$7 billion in GDS fees was paid by airlines which was over twice the industry’s expected net profit for that year [3].
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Quite simply, the GDS is something that airlines cannot live without. Why? If your competitors are using the GDS and you are not then your tickets will not appear in any searches by 3rd party distributors meaning it is unlikely your tickets will be sold by the 3rd party.
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Even low-cost carriers such as Air Asia and Ryanair that have avoided the GDS for years have recently started selling tickets through the GDS as they have realised that they are missing out on revenue from not selling tickets through the GDS.
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The ‘New Distribution Capability’ (NDC) is a XML-based data transmission standard set by the International Air Transport Association (IATA) and provides a set of guidelines for communications between airlines and 3rd party distributors. The NDC will allow for the sale of ancillary products (for example, baggage, meals, special seating etc.), something which the GDS currently cannot handle. However, while the NDC has the potential to help airlines boost revenue, there are still questions as to whether there will be any benefits stemming from reduced distribution costs.
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How can we make our direct channels so attractive that customers will want to use them over indirect channels?”
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The simplest solution is to ensure that the user experience on the airlines website is seamless and easy. Users are highly likely to abandon online bookings and use another booking website if they encounter difficulties. Simple actions such as ensuring customers are not diverted to an error page can translate into a significant increase in direct bookings
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Airlines might also want to re-think the way it provides incentives and commissions for ticket sales.
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With the trend moving towards airline consolidation (for example, partnerships, equity interests and mergers) airlines might also consider how they can work together to sell each other’s tickets on their websites. This strategy goes well beyond the sale of interline or codeshare tickets and will give customers benefits including the ability to book multi-airline itineraries directly from an airline website. Of course airlines must be wary of how they do this to ensure they are not in breach of any anti-trust regulations.
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There is no ‘one size fits all’ approach and for an airline to decide on the best distribution strategy it will need to conduct a solid analysis into their customer behaviours, channel usage and also the commercials of their different distribution systems.
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In this article we discuss the issues that airlines are having with the GDS system. They give an example of someone attempting to purchase a ticket through an airline website, and then through a travel agency. The direct airline method was only cheaper, if the guest provided information to a direct bank account. The cost for airlines to sell is a bit less than 10%, and they are sold mostly through indirect channels, like travel agencies. The main reason this can happen, is the integrated GDS system. A GDS system is a data facility that shares inventory information for various airlines to different 3rd party channels. The issue with this, is that the total in fees for the use of the GDS system was around $7billion, which is twice the amount of net profit they are receiving. People state that the airline system cannot survive without the GDS, but is that statement really true? Airlines like Air Asia or Ryanair have really attempted to focus on selling tickets directly, and really expand on their profit. How can this be achieved? Well, airlines are making the booking process easier for guests to manage, which gives them more of a reason to book through there. Also, they are offering greater loyalty rewards for directly booking through the site. Different incentives need to be created to attract guests to book directly. Lastly, they would like to create another distribution system, to put GDS out of business. This new system will work to allow guests to handle meal and baggage fees. Concepts that the GDS cannot handle. With that said, will this new system reduce costs for airlines? I guess they will have to wait and see.