Friday, May 11, 2007

Helping airlines stay on top

Airlines dominate online travel in many markets. In fact in Australia, Japan, Ireland, Spain and many others the number one airline carrier(s) are also the number one online travel player(s) regardless of what measure you use (traffic, sales, brand recognition). My story earlier this week of Qantas' efforts in online hotels (ReadyRooms) turned me to thinking about what is it that airlines in this position of online market lead need to (and should) do to fight off the cashed up and hungry for expansion online agencies (Expedia, Travelocity, Orbitz) and the scrappy, lean and very good at what they do "little guys" (Wotif, Venere, HRS, Flairview).

The simple answer and the one that most of the airlines seem to be following is simple do more of the same. First, provide dirt cheap fares that are online available online and market the hell out of it. Second, partner with someone (either external or if you have a "holiday" division, internal) for complementary products (hotel, car) and point some traffic at those areas for some extra revenue. This is a good strategy but pursuing it unmodified will not guarantee success.

Here are three things that I recommend strong online distribution airline players do to sure up their position. The first for revenue, the second for loyalty and the third for focus:
  1. Cross Sell of Complementary Product: But not through a third party (Ryanair and Expedia style) and not through the holiday or vacation division of the airline (Qantas and ReadyRooms style). Instead they need to invest in a true independent but in-house hotel business one that lives by the principles and processes that have made the "little guys" (see above) so successful - hotel flexibility in rates and availability, product focus and online product managers living and breathing their channel. Leaving it to someone else leaves you open to the expansion plans of someone else. Leaving it to you holiday division means that the hotel contracting style and results mirrors the less flexible world of wholesale. Either way you do not end up with the inventory and pricing you need to beat the little guys. Just as important you need to match the big guys in putting cross sell in the purchase path through both dynamic packaging and shopping basket style. Both of these things mean investing seriously in the complementary product;
  2. Customer rewards beyond price: Web only deals and lots of them drove customers to Airline websites but with the OTAs now using API connections and screen-scraping to provide customers with the same inventory, the airlines need to expand their offering to customers. Use content, loyalty concepts/miles, customer service and bonuses (all the stuff that OTAs do) to open up another front in retaining customers; and
  3. Channel management and structure: Stop treating the online channel as...well...just another channel. Make it a separate business in itself. Put the person in charge, truly in charge such that they never have to enter into a debate over cannibalisation of other channels. Turn the site into a business that is independent of the airline's other sales activities.
Do none of these and these airlines might stay on top but do all of these and they definitely will. Would be interested in your thoughts for other things successful online airlines can do to protect their gains.

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