Today’s leisure and, increasingly, business travelers are choosing to book directly with suppliers using their convenient online tools, instead of through third-party agents and systems as in days past. Travel management companies and online travel agencies are creating innovative technology as well in the battle to keep their market share from slipping into unfriendly territory.
To woo tech-savvy travelers into the book-with-us-directly camp. a marketing blitz, sweet with offers of free amenities, discounts, bonus miles, loyalty points, lower fares and room rates bombard them on different fronts daily. Emerging as prime prospects are Millennials who love trekking all over the globe as a rite of passage.
Travel suppliers can hardly be blamed for harnessing the same web and mobile technologies that leisure and business travelers are now warmly embracing.
Smartphones and mobile apps are responsible for changing the competitive environment with their seamless booking capabilities. Plagued by thin profit margins due to fierce competition, and a fickle economy sensitive to the up- and downdrafts of oil prices, travel industry players are involved in a never ending search to cut costs during lean years and maximize profits during good ones.
Selling costs for airlines, for example, generally represent approximately 4 to 8 percent of overall airline expenses. Tickets are sold one of two ways: either directly to customers through the carriers’ own websites, or indirectly via third-party distributors such as traditional travel agencies or the online variety.
A large proportion, if not a majority of tickets, get sold through indirect channels. Selling tickets indirectly is substantially more expensive, as much as 20 times more costly than selling tickets through direct channels for some airlines, according to the Atmosphere Research Group in a special report commissioned by the International Air Transport Association in 2012, The Future Of Airline Distribution A Look Ahead To 2017.
A key driver for the high cost of selling indirect, says senior associate Michael Ng of PwC, are the fees charged by global distribution system companies for each ticket sold, which in the 2012 report were estimated to be around $12 per ticket. While airline profit margins are currently riding high, when other factors such as fuel and labor costs go up – as they invariably will – airlines need to find ways of reducing distribution costs by selling tickets to customers directly instead of through third-parties, Ng explains.
In an interview with The Economist, Svend Leirvaag, an executive at Amadeus, argued that it was a pity airlines fixate so much on GDS fees, which constitute around 2 percent of their revenues. Liervaag maintains the industry could be much more profitable by going after such factors as ever-increasing travel taxes and the government subsidies that prop up some state-owned carriers.
Shifting Landscape
Still, finding ways to cut out middlemen to shave expenses is an irresistible strategy. Until recently, the travel industry didn’t have the means to do that effectively, making it mostly dependent on third-party distributors to transact their bookings.
It’s technology that has provided a tectonic shift in the landscape. Direct booking is now an option for airlines – with the promise of relegating the paying of commissions and fees to third-party sellers to the dustbin of history. One major US carrier that was among the first airlines to opt out of the traditional airline ticket distribution model to focus on selling direct was Southwest.
Another distribution development in the effort to sustain profitability is the rise of ancillary fees charged by airlines, otherwise known as the New Distribution Capability. NCD is an XML-based data transmission standard that was established by the IATA, explains Ng.
NDC sets up guidelines for communications between airlines and third-party distributors. In addition the technology provides a functional distribution channel that allows the sale of ancillary products such as baggage, meals, special seating and other amenities, a capability that GDS currently cannot handle.
While NDC has the potential to help airlines boost revenue, Ng cautions, there are still questions whether there will be any benefits stemming from reduced distribution costs. In a highly controversial move last year, Lufthansa imposed a €16 surcharge on passenger tickets purchased through online travel agencies (OTA) and indirectly the GDSs they use – software and technology giants like Sabre, Amadeus and Travelport.
Distribution 101
First, a bit of history: Major US airlines didn’t just one day decide to work with OTAs. In 1996, Sabre started the movement toward online travel booking by creating Travelocity on top of its Sabre GDS. In response, Continental, Delta, Northwest, United, and American followed suit in 1999 by forming an alliance to create Orbitz.
Two years later, however, the airlines decided that it was outside their core business and sold it for a fraction of its value today. Some believe the sale of Orbitz contributed to the increased fragmentation of online travel sales.
The booking process works like this: data flows from airlines to various GDSs, which in turn pull together airline, hotel and car rental data. From there the information flows to aggregator (ITA software) which pulls the GDS data (some OTAs do this internally) and finally to the OTA/metaserch engines like Expedia which presents this data through a customer-facing user interface.
But in what may harbinger of a period of peace, American Airlines Group last year renewed an agreement with Expedia for the distribution of content on Expedia, Travelocity and Hotwire websites. Further, AA Vacations and the Expedia Affiliate Network announced that an agreement had been reached that will allow EAN to supply hotel inventory through American’s website. OTAs like Travelocity, Orbitz and Expedia are online front-ends to GDSs Sabre, Galileo and Worldspan which traditional travel agents use to book.
Until fairly recently, the travel world was divided into two camps – leisure and business travel. What happened in one didn’t necessarily affect the other. But as new alternative booking channels come on line and business travelers increasingly behave like leisure travelers – wanting to make their own travel choices in response to personal preferences and incentives – all kinds of issues come to the fore that impact travel programs, such as cost control, management of traveler behavior, policy compliance and duty of care.
Thus, travel managers and TMCs are keeping a close eye on the industry’s latest developments and ways to adapt their travel programs to changing conditions. Indeed, the very future of the managed travel program may hang in the balance.
Caveat DIYer
Nonetheless, it’s been said that in every crisis lies the seed of opportunity.
One company that is making the most of this opportunity is Traxo, a leading travel data aggregation company. CEO and founder Andre Fabris says his various leadership roles over the past 20 years at GDS provider Sabre, OTA Travelocity, and corporate travel consultant and agency World Travel Inc., have given him a “front row seat” as an observer of the evolution of the travel industry and the way travel is booked.
“There has been a migration from defined systems to open booking,” Fabris explains. “Previously, travelers had one choice for booking travel – call a travel agent or agency. Now there are literally ten thousand different places to shop online and book travel, and travelers are taking advantage of these great choices.”
There is a caveat, however. “There is one, big hidden cost for ‘do-it-yourself’ travelers,” he cautions. “In taking advantage of all that choice to find the best deals on price, upgrades and loyalty points, a lot of time and energy goes into researching and aggregating the different elements of that trip to make those transactions,” Fabris notes.
So, excluding those who identify as what Fabris calls ‘DIY’ leisure travelers, the space may be big enough for GDSs, OTAs and traditional travel agencies to peacefully coexist – at least for now. But when business travelers decide to DIY and behave like leisure travelers, it creates problems within the travel program that either have to be addressed, or new methods found to adapt to the new world order of travel.
The corporate travel space has changed much over the past 20 years, Fabris says. In the early days, corporate traveler managers controlled their business travelers’ entire booking process, either within the department or through a preferred travel agency, he explains. As many corporate travelers may recall, airline tickets, hotel and car rental reservations, along with a printed itinerary of the business trip, magically appeared in an envelope on your desk or inbox a few days before departure.
Upon your victorious return the dreaded task of gathering sundry scraps of travel receipts and entering those figures by hand into an expense report, and making necessary corrections using Wite-Out, awaited you.
But within a few years, technology began to loosen the reins on booking travel, Fabris says. Business travelers were making their own travel arrangements and choices within the travel program’s approved online booking tools.
Now it’s within the last five years that the most dramatic and most problematic changes have taken place, he adds. “There has been a sharp rise in out of policy travel bookings transacted by business travelers wanting to make their own choices using off platform or open booking tools, resulting in corporate travel program leakage.”
In the past, conventional wisdom held that “knowledge is power.” In the world of travel that meant airlines, hotels and other travel sellers controlled the information flow. Today, as with most everything else the Internet has touched in the past two decades, the democratization of information has made this knowledge freely available to everyone.
With the click of a mouse travelers can easily shop competitive travel pricing, obtain customer reviews, research star ratings, get last minute fare deals, and access a wide selection of travel booking dates. While a boon for travelers, for travel suppliers the lack of controls over the flow of information has cut into their profit margins as travelers uncovered thousands of competitive choices.
In today’s technological revolution, wisdom now says that “data is power.” For example, having technology and software solutions to enable the aggregation of travel data and the filtering of it into actionable information for corporate travel managers and their TMCs could help keep a travel program intact, even as it responds to business travelers’ desire to book their own travel using off-platform booking tools.
Fabris says he believes Traxo has a winning solution for all parties – travel suppliers, corporate travel managers and TMCs. Traxo Connect is a data management solution designed for travel suppliers and corporations. “Traxo Connect captures, aggregates and facilitates the seamless sharing of air, hotel, and ground booking data between suppliers and their corporate clients,” he explains.
Developed specifically to address travel data flow issues driven by the growing number of bookings made by employees directly at supplier websites, Fabris says Traxo Connect plugs “existing gaps and provides comprehensive visibility for corporate travel managers to capture and service travel activity, regardless of booking origination.”
In March, the company announced that Lufthansa will be their first travel industry supplier to utilize Traxo Connect. “With Traxo Connect, suppliers and companies benefit from a flexible solution that securely and quickly gets data exactly where it needs to be. Corporate travel managers gain critical visibility, allowing them to centrally manage spend, policy compliance and duty of care, regardless of where employees book.”
Traxo Connect also supports corporate clients across the spectrum, he adds, from smaller firms to enterprise-scale corporations with established travel programs. For the enterprise segment, Fabris says Traxo Connect complements existing TMC tools by allowing corporations to share off-platform booking data directly with their expense management application, as well as integration with third-party services providing duty of care and mid-office solutions.
For smaller managed programs, and companies that oversee their own travel operations, Traxo’s solutions are available via an intuitive, web-based interface that tracks, manages and displays employee travel and spend patterns.
Traxo Connect integrates with a number of supplier data sources – including airlines, hotel chains, car rental providers, and transportation services, leveraging Traxo’s existing data connectivity infrastructure.
Catching the Wave
Another opportunity seeker is Christopherson Business Travel. The corporate travel management company which also owns Andavo Travel, a network of independent vacation travel agents, has developed and released a proprietary tool called AirPortal 360.
Christopherson calls it an intelligent dashboard for travel managers, which grants access to the TMC’s collection of corporate travel management software. The technology was designed to assist in the “reduction of corporate travel spend, facilitate duty of care responsibilities, keep track of unused tickets, access traveler profiles, and ensure policy compliance.”
“We believe that the ‘turf battle’ is between the travel suppliers and the OTAs,” CEO Mike Camero says. “Most of the travel suppliers still believe that the top tier TMCs are adding value to them and they still treat us as important business partners. AirPortal 360 gives us a unique competitive advantage, which has allowed us to grow faster than most of our peers. Our travel suppliers don’t see it as a competition to their direct channels. Most see it as a reason to partner with a rapidly growing TMC that provides them with access to the high-yield revenue that our clients provide to them.”
AirPortal 360 is not a booking tool, however, Camero says. “We use Concur as our primary online booking tool. We are a Preferred Partner of theirs and have consistently been one of their fastest growing TMC partners.”
Christopherson also released My Travel, a similarly customized dashboard with specific tools for individual business travelers, and in 2013, the company developed and released AirPortal 360 Mobile, the first app created for travel managers to keep track of their travel programs from their mobile devices.
The endless parade of mobile apps and online booking tools is a daunting challenge for DIY business travelers, travel managers and their TMCS. As the battle rages for booking dominance the question is knowing which tool or set of tools best addresses their needs.
But if one thing is certain – when it comes to booking their travel, business travelers want a seamless experience along with a wide selection of choices. Caught in a distribution tsunami, travel managers can either risk having the wave overtake them, or they can go with the flow.
