Author: Philip Rothaus, E-Commerce Strategist
Save perhaps the financial sector, few industries are forced to navigate as many laws, regulations, and unique constraints as the airline industry. However, if you strip away the many rules and requirements surrounding air transportation, an airline is no different than any other revenue-generating business: It comprises a relationship between a company and its customers.
And, like any other business, an airline has to engage in marketing and business development. It has to accept and adapt to changing consumer preferences and competitive forces in the market. It has to constantly evolve its efforts and offerings to stay relevant in a dynamic marketplace.
Over the last twenty years, airlines have done all of those things – albeit not with the same agility and speed afforded to companies in less regulated sectors. However, there is one area in which airlines have perhaps accepted a changing business reality all too readily: their participation in the online travel-booking ecosystem.
Problematic ‘Partnerships’ among Aggregators and Airlines…
Airlines recognize that, for consumers, the flight-purchase process is vastly different than it once was, thanks in part to the rise of the aggregators. Third-party tools – namely online travel agencies (OTAs) and metasearch engines (MSEs) – command a significant share of the travel-booking market: An estimated 44% of the 766 million passengers who enplaned in the U.S. in 2014 booked their flights via OTAs or MSEs.
Though a small number of low-cost carriers have opted against sharing their inventory with search-based booking sites, most airlines have viewed cooperating with third party platforms as a necessity for customer acquisition. If travelers are using these sites to find flights, the thinking goes, then we need to be on these sites to win customers.
That line of thinking, however, is taking a toll on airlines’ income: The global airline industry pays some $7 billion annually in commissions and fees to online and brick-and-mortar travel agents combined. All-in participation in the OTA ecosystem also forces airlines to compete against other carriers on flight price alone – contributing to a growing perception among consumers that all airlines are interchangeable.
Mitigating those negative effects requires airlines to reconsider how they are allowing aggregator platforms to intermediate their relationships with consumers. Essentially, OTAs and MSEs replace the direct, one-to-one transaction mentioned above (i.e., airline sells flight to traveler) with something more akin to a customer-rental arrangement: The aggregator acquires the customer, maintains the relationship, and ‘leases’ the traveler out to the airline for the flight-purchase transaction – in exchange for a fee, of course.
In hardly any other business context would such an arrangement be not only tolerated, but embraced as a partnership by the entity playing lessee.
“Essentially, airlines are paying billions for the privilege of allowing third-party platforms to own their customer base and commoditize their flight inventory,” says Anton Diego, Founder & CEO of EveryMundo, “Carriers’ willingness to be what the OTAs see as ‘very positive partners’ is hugely detrimental, because it’s vastly undercutting their ability to grow their margins.”
…Command a Return to the Retail Model
To grow their revenue in a sustainable way over the long-term, airlines have to focus on far more than ancillaries, add-ons, and upsells – they need to recommit themselves to essential elements of business development: Attracting customers to their branded sites, cultivating brand loyalty, and maximizing revenue from customers long-term (with a focus on lifetime value rather than individual, one-time transactions).
A return to a retailer model is achievable for airlines in 2016, but it will require airlines to a few things: 1.) invest more heavily in marketing directly to captive audiences of potential customers; and 2.) reevaluate their relationships with OTAs. In part, it’s about recognizing that OTAs aren’t airlines’ “booking partners” – they’re airlines’ “booking competitors.”
“Carriers have long viewed OTA participation as their best tool for competing against other airlines for customer bookings, but it’s time to shift away from that mindset,” says Diego. “In reality, airlines are competing against the OTAs for customer acquisition.”
The chief arena of that competition is online search: A reported 64% of business travelers and 57% of leisure travelers say they always start their travel planning in a search engine. OTAs, MSEs, and other aggregators dominate online search results for many reasons – chief among them their deep technological resources, specialized expertise in search engine marketing and optimization (aka SEM and SEO) and their mammoth marketing budgets.
But sophisticated, cost-efficient new tools can help airlines compete in this ecosystem more effectively. EveryMundo’s airTRFX® solution, for example, enables airlines to quickly deliver many thousands or even millions of high-performance landing pages, in any language or country – matching the scale and sophistication that OTAs and MSEs are able to deliver with their own technology platforms.
Once they have greater parity with the aggregators in attracting customers directly to their websites, airlines can deploy smarter tactics to nurture customers through successful transactions, keep them engaged after purchase, and foster stronger brand loyalty through targeted marketing strategies. And, as airlines increasingly realize, that’s the key to long-term growth.
“We’re seeing carriers begin to recognize the connections among ecommerce, loyalty, and lifetime customer value,” says Diego. “Airlines already know that the most valuable bookings come from a directly acquired customers. Now, they’re finally ready to play hardball against the OTAs to win back those bookings.”