The changes in the global economy, the progressing state of the emerging countries that resulted to the increasing middle income consumers, and the development and spread of the internet technology impacted the ticket distribution system of the airline industry. The airline companies developed new and more cost-efficient ways of selling and distributing air tickets to be price competitive and at the same time to survive the intense competition in the industry and the economic struggles especially in North America and Europe.
The global distribution systems (GDS), was the most common and prevalent system of airline ticket distribution in the past or before 2002 when airline companies still experience gainful revenues. However, when most US airlines had a net loss of about $10 billion in 2002, airline companies started to seek ways of reducing distribution costs to the travel agencies and to the consumers (GAO 2003, Online),
It has been said that GDS are expensive way of selling air tickets. The US airlines, for example spent $7.3 billion in this distribution amidst the losses incurred in 2002. The said distribution system requires the airline companies to pay the travel agencies for every ticket booking made, cancellation and modification of air travel schedules, and issuance of itinerary for potential customers (GAO 2003, Online),
According to the United States General Accounting Office (GAO), a forecast was made during that time that the travel agencies may dominate the airlines as the latter are largely depending on the travel agencies due to the large volume of customers booking tickets through them. The government agency described such dependence as travel agencies’ market power that may brings business risks to the airline companies. “Market power, which can arise where competition is lacking, may result in high, non-competitive fees charged for services or goods. In this case, market power may be indicated by booking fees that bear little relation to booking costs,” GAO said in its 2003 report on Airline Ticketing (GAO 2003, Online).
Five US airline companies also created Orbitz an online travel agency that allows flight booking. Various online travel agencies emerged such as the Expedia, Priceline, and Travelocity. The latter was a subsidiary of a global distribution system but charges less as compared to the traditional travel agencies (GAO 2003, Online). Today, with the higher penetration of the internet and financial cards around the globe and the cost benefits of booking online both to the customers and to the airline companies, online ticket booking and distribution is growing tremendously faster than the distribution through traditional travel agencies or GDS.
Is increased of ticket distribution control by the airlines via online ticket sales a real advantage? For most airlines, the answer is yes precisely because of the lower operation cost which enables them offer more competitive ticket price and hence can stimulate demand. In some airline companies, though, ticket distribution control or the propagation of online ticketing became a problem.
According to the government report, American Airlines still tapped the GDS despite having its own website for the selling of the tickets. The American Airlines provided its information as a value added services for the customers. However, in retaliation of the GDS companies, they allegedly buried the information of American Airlines to the customers which resulted to unfair competition. This resulted to a lawsuit. Such burying of information can also happen in the online distribution. American Airlines has pulled up its flight information in the Orbitz due to the alleged unfair competition practices (Koenig 2011, Online).
Airline’s increased control in the ticket distribution also resulted to stiffer price competition which can result to lower revenue of airlines despite higher passenger load. In the Philippines for instance, low cost carrier Cebu Pacific Airways which extensively used its website for selling air tickets created a trend toward higher patronage on low cost carriers. It had the highest passenger load but still has a lower share in terms of gross revenues (Euromonitor 2012, Online). For customers, in some instances, increased airline control of ticket distribution prevented quick comparison of prices and schedules among airlines (Perkins 2012, Online).
It is plausible that government reports on airline ticket distribution are available. These reports enable to the government to have a collaborative cooperation with the concerned agencies regarding issues involving the airline industry. These reports help the government to investigate any malpractices among the airline and travel companies and execute appropriate disciplinary actions. Additionally, government studies and reports concerning the airline distribution enable the consumers, companies and the regulating bodies understand the causes of the current distribution issues, progress and hence the concerned government agencies will be able to create policies that could protect and further enrich the industry.
An example is the GOA report, which tackled the history of the airline distribution, its positive and negative impact, and studied the dependability of the GDS and other distribution means of airline ticketing. As such, the Department of Tourism and the Department of Justice are aware of the current industry distribution trends and hence can develop policies for healthier business environment for airlines and travel agencies.
It is good to note that the Tourism department of almost all governments in the world are quite concern on the condition of the said industries as these are among the drivers of the tourism industry. For example, the low cost carrier phenomenon, and the airlines promotional programs vis-a-vis the packages of the travel agencies have attracted many tourists which in turn significantly grew tourist arrivals, domestic and outbound travellers. The lower airfares sold in the websites of the airline companies have attracted several middle income earners to travel for leisure.
In line with the successful marketing via airline websites, it is important to note some websites that had a significant contribution in the success or revenue growth of the airline companies. According to the American Journal of Business and Management, the low cost carriers had a large contribution in the number of passengers in 2008 and predicted a sustainable growth for the low cost carriers in the future (Zaman et. al. 2012, Online). The low cost carriers are also the ones who massively use company websites to sell as part of their strategy for operational cost efficiency.
Having said that, this writer will review the websites of the leading low cost carriers and analyze how these websites contributed to the success of the airline companies. AirAsia of Malaysia is one of the fastest growing low cost carriers in the world in terms passenger seat per kilometre (The Aviation Writer 2013, Online) and the leading low cost carrier in terms of customer satisfaction (World Airline Awards 2012, Online). Its website, www.airasia.com, allows its members to receive its latest airfare discounts and promotions enable them to book right away when there are low cost flights.
The website is well designed and provides list of current hot deals. The online booking form is easy to fill up and its ticket prices in the list of specific flight schedules are significantly lower than when these are purchased in a travel agency. Value added services such as photos of highlights or spots of destination, mobile booking, and promotions such as photo contest of a destination, instructions on online booking, and creative way of booking such as selecting destination via map among others.
Southwest Airlines was the leading low cost carrier in the world in terms of passenger seat per kilometre to The Aviation Writer. Its website, www.southwest.com, has special offers such as hotel, car and vacations booking aside from the air booking. The website somehow plays as a travel agency website providing complete sets of travel products. The website also has destination photos, promotions, orientation about flying with Southwest, rewards offered, and discounts for early bird check-in among others.
The similarity of the two successful low cost carriers is the integration of travel retail services in their company websites which makes booking more convenient and faster for the potential passengers. The promotions, contests and discounts also entice consumers to patronize their products, have repeat sales and develop customer loyalty. On the other hand, the least successful low cost carrier according to The Aviation Writer, the Tully Nordic, has undeveloped company website.
In conclusion, the development and changes in the airline distribution had a great impact in the airline and the travel industry. The losses of the airlines in 2002 which led them move away from the GDS gives an important lesson on fair competition, just distribution of profits and continuous innovation for cost efficiency. If the GDS are able to charge the airline companies a just and reasonable costs and provide them innovative and cost efficient ways of distributing air tickets, the partnerships between the GDS and the airline companies may have thrived for many decades. However, with the intention to have market power over the airline companies, vis-à-vis the development of the technology, the partnership between them became short live and eventually becoming the cause of the declining revenues of the GDS. While the GDS remained a significant venue for the airlines to sell tickets, it is no longer becoming the main contributor of air ticket sales with the advent of the advent of the airline company websites that sell not only air tickets but also travel packages. In return, the market of the travel agencies has shrunk. The airline companies did not only bypass the fees that the GDS charge them, they also get a pie of the travel retail market share which had a negative impact to the GDS.
The trend on increasing internet penetration around the globe, the busier lifestyle of the consumers, the emerging middle class and the growing demand for low cost fares amidst economic slowdown in many countries benefited the online travel retailers and airline companies distributing tickets through their websites as they satisfied consumers’ appeal for convenience and price reasonability of booking air flights and travel packages. It is very important to note that in the usage of the online distribution system as a means to create revenues, an airline companies should keep on becoming innovative and should be abreast with the latest technology and trends. The idea of the AirAsia to incorporate mobile booking in its website is brilliant given the growing penetration of smart phones and the increasing usage of internet in the mobile phones.
References
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Koenig, D. (2011, May 21). Government examining airline ticket distribution. The Ledger. Retrieved from http://search.proquest.com.ezproxy.libproxy.db.erau.edu/docview/1178537361?accountid=27203
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The Aviation Writer. (2013, May). Revealed; 50 Biggest Low Cost Carriers in the World. The Aviation Writer. Retrieved from http://www.theaviationwriter.com/2013/05/top-50-low-cost-carriers-world.html
Euromonitor. (2012). Transportation in the Philippines. Euromonitor. Retrieved from http://www.euromonitor.com/philippines?id=1&pageSizes=50&sortBy=5&fs[0].Code=94420&fs[0].Group=industry&fs[0].Name=Transportation&fs[0].hasChildren=False&fs[0].Expanded=False&fs[0].Type=Child
Heracleus, et. al. (2014). Flying High in a Competitive Industry. NUS Business School. Retrieved from https://bschool.nus.edu/Departments/Marketing/Jochen%20papers/flying%20high.pdf
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