Posts Tagged distribution
…all getting very silly…
Posted by murray in Latest News on April 13th, 2010
Image: Daniel St.Pierre / FreeDigitalPhotos.net
Usually, with the BTC stuff, I have to read it several times before any lightbulbs start to flicker. It is all good stuff, but being a simple-minded sort of chap, it takes a while to understand the thrust of what they are on about.
A typical BTC missive arrived with a thud into my email in box. Another weighty tome, a bit like dropping the Encylopedia Britannica onto the desk and saying “precis this by this afternoon”. This time, I followed through about this bloke from Farelogix, Jim Davidson, but not of the “nick, nick” variety, who seems to have a bit of a bee in his bonnet about, well, about an awful lot really.
I have read some of the Farelogix press releases. They do not make sense. For example, one dated Feb 2010 talks about “…consumers generally make their reservations through a travel agency… where overall cost is a primary requirement” In the next breath we have “…Many travelers would welcome access to a new world of convenience and add-on choices available directly from their mobile device prior to departure.” Erm, Yes. If cost is a major concern, they are hardly likely to want to add stuff on, are they? Another statement runs “..Airlines can offer individual travelers a variety of add-on services, such as seat upgrades, priority boarding…” Wow! Farelogix has found the holy grail – have their mobile service and Hey! Presto! your $9 ticket will get you a seat in first class – and you join the front of the queue.
Mobile technology has it’s place and will become more popular – but I think the prophets of mobile technology need to take a reality check. You see, according to them, we agents should all have disappeared just after Graham Alexander Bell said “Look, these tin cans and this piece of string – could we make communication better?” We have had the telephone – and we are still here. We have had the fax machine – and we are still here, the mobile phone, the internet and the internet on mobile phones – and we are still here. We have had our commission taken away, so clients pay us a fee – and we are still here. Why? Simple – because in the final analysis, man is a social animal – we like to communicate and I mean really communicate. As in: talk a bit about the weather, what the last trip was like, the bloke/ bird that we sat next to (depending on orientation) a bit of banter, a laugh or as the Irish say, for the craick…..
For all Farelogix may go one about how their kit may be the best thing since sliced bread, that social element can never, ever, ever be replaced by any form of technology. And it is that social thing which makes us belong – and why real agents will always have a place.
HS2 – At Last – But Not Visionary
Posted by murray in Latest News on April 9th, 2010
High Speed 2. About time. Non stop from London (Euston) to Birmingham (Somewhere) at 225mph. 14 trains and hour each one 400 meters long (interesting fact, I suppose, but not being a train spotter I am not in the habit of measuring train lengths in any meaningful way. Trains are long. Always have been.)
This new line will run right behind where I live, though in a tunnel. I am not going to object for various reasons, none the least of which is that it is in a tunnel. I am also not going to object because this sort of infrastructure in the UK is long overdue. The Victorians built our railways, in 1936 Mallard achieved 100 mph and….. nothing. Even Old Beardie’s awful (in my opinion) Pendolino trains struggle to keep up to the standards of rail travel achieved in the 1930’s. Railways further disintegrated after privatisation mainly because the new railway companies first task was to get rid of anyone who knew how to run a railway.
There is, in HS2, a lack of vision. The service runs into Euston. No problem there, save for the fact that Euston is at, well, Euston – in the same way St. Pancras is a good station – just impossible to get to. There are no intermediate stops – and the link to Heathrow airport is but a dotted line for people to think about. There may be a reason for that, of course. Airlines, having seen what damage High Speed Rail does to domestic air travel in Europe, may be none to keen to see it developed here.
What could be added to make this a really useful start? We could do with an M25 gateway. A “parkway” style interchange, built near the M25 with a sod-off 4 lane motorway access and egress onto a sod-off car park. An extension to Heathrow should be built at the same time – not as an afterthought, so too the connection to HS1 – the Channel Tunnel – to give connections (at 225mph) – from the Midlands and also sooner-rather-than-later Scotland and the North.
We also need some intermediate stops – apart from the M25 gateway, about half way. The whole development around my way only happened because of the railway (yes, back in 1858) and with the demand for housing being what it is, the inclusion of a half way stop would make possible housing development in comfortable, country surroundings, with easy access to London – as well as taking pressure off the green belt.
So, good idea – but where is the joined up thinking?
Well, That Just About Sums it Up For Travel…
Posted by murray in Latest News on June 5th, 2009
Now everyone really has lost the plot. Credit card companies have decided that the best way to get their money back, after a tour company collapses, is by simply re-charging whoever sold the holiday in the first place. In other words, you buy a holiday from Expedia or even Joe Blogs Travel and the tour company goes up the Swanny, the punter gets his money back from the card company who in turn recharges the travel agent. As that Meerkat would say, “Simple, Huh?”
Not quite. Agents are not mega-rich people who have fistfulls of cash floating about the place. Secondly, in case anyone hadn’t noticed, they are agents. That is, they flog the holiday and pick up (hopefully) a (small) commission as a result. Recharge any agent for a couple of £5,000 holidays and you will simply bankrupt every agent in existence. Overnight.
Coupled with this assault on an already fragile sector of the industry, IATA is thinking about taking money every two weeks rather then monthly. The agent will barely get enough time to get the money off the client before airlines, operators, Uncle Tom Cobbly and all are jumping up and down like startled rabbits demanding the agent pays over everything they have including two pints of blood and a small mortgage “just in case”.
Trust has gone with the agency system (I hate the term “model”, let’s deal with the real thing). In any shape or form, online or offline.
Decisions need to be made and the most fundamental one is if airlines and operators wish to distribute through any – and I mean any – kind of agency type arrangement. It matters not if they are on or offline.
What benefits do travel agents, of any ilk offer? Without them, you have to do it yourself. Large operators have the ability to do this and so too would major airlines – at least those airlines that see the UK as a main market. Airlines do have an issue. They do not want to pay for distribution, but at the same time do not want to have to incur the cost of doing it themselves. Legacy airlines view the Easyjets of this world with envy. Easyjet manages to sell their product almost exclusively online; but then again you can do that with a simple and restricted product range that does not need to interact with anything or anyone else. This is not the case with legacy airlines – or indeed, any airline which has a global network – or anything resembling a network, for that matter. As soon as you need to interact, there must be a mechanism to do this and the GDS booking method does this very well. Over time, airlines have, however, lost the ability to network well. They have drawn in their horns and really only want to sell their own product; or at best, their alliances’ product. Fine, perhaps, if you are in the Star Alliance or Skyteam – but Oneworld? BA has no-one left to interact with on anything remotely resembling a “world class” alliance.
The trouble is, when airlines are required to interact, unless an agent can accomplish some tidy footwork, these are invariably for big ticket journeys – valuable top level income which airlines really do need at this time. So, legacy airlines do not want to do the fiddly stuff, they do not want to pay agents to do it and they want the money for it yesterday – but they desperately need this top level income. They want their cake and they want to eat it.
Large tour operators have a love/ hate relationship with agents. Some, such as Thomson, have their own de facto chain of shops and have the resources to “train” staff (ie teach them how to flog their product over anyone else’s). But even Thomson are not TESCO – they do not have a shop every so many miles, so they need to cover the gaps – and the agent does this job for them. Like airlines, however, they do not want to pay for this distribution. Smaller operators are the one group who do use agents and do pay them for referring business; the trouble is, all the small operators together, do not provide a wide enough offering to pay for and maintain a high street presence. The small operator can go online, yet here he faces the issue of reach and exposure; if one is a small operator offering mainstream resorts, then the cost of getting noticed on the internet can run into many, many thousands of pounds.
Now, let’s layer onto the above, the issues of bonding, regulation and now, the cost of even being able to take money off a client. The point is, no-one is going to sell something if they cannot make a reasonable return. Brewers tried this long ago – instead of saying “you pay a low rent and we make money by selling you beer” they said “That property is worth £5mill and we want 10% return from you – You can do what you like” Result: No pubs. Reason: Because there is only so much available in any one transaction. Each person can have a portion of that pie, but as soon as the dominant party wants someone else’s share, the system collapses.
The other reason agents are useful, is because they are retailers. They sell stuff and they sell in volume. The likes of Expedia and Travelocity sell travel and travel products. They are good at it, it is their speciality. AMEX sell business travel (so do I – Plug, plug – and my fees or low ‘cos I have a low cost base!!) they are good at it, they know what the customer likes and understands the customers needs. British Midland, say, run airline services – that is what they are good at. But wholesalers and especially “manufacturers” do not make good retailers – you do not see any DIAGEO shops about, do you? Many airlines have appalling customer service systems, often based in parts foreign, staffed by parrotts or the cheapest humans they can find, with little, if any holistic training. There are airlines, such as BA who have customer service facilities which are excellent, but this is the exception rather than the norm. Most low cost airlines even go as far as to discourage customer contact. The question remains as to how long this style of operation can last.
Agents are a useful intermediary, a foil, twixt client and travel provider. Not all travel, by a long chalk, is simple. Some of it is very complex – not difficult, just complex – so there is a place for “technicians” who have an understanding of how travel works. People who know how part A bolts onto part B. Yes, tour companies and airlines could do this themselves but we come back to the training thing – or rather the total lack of any form of holistic travel training and that no-one with any nounce is going to train themselves for a business that pays rubbish money and shows little if any prospect of real wealth. Ultimately, this leads to “Bankers Syndrome” – as with RBS, one finds that no-one at the top knows anything about Banking. And we all know what happened next, there.
This all leads down a path that leads to a lose-lose situation. As the returns get less, there are increased attempts by various bodies to regulate. More regulation leads to greater cost on the on hand and so even less return on the other, a deep spiral that so encourages the darker side – and with the presence of the internet meaning that one can distribute on a global scale with virtual anonimity – it is easy for this dark unregulated side to take over. Large operators lose their incremental sales and airlines lose their ability to market their high end products – unless they wish to do everything, and I mean everything, themselves.
So the big question remains and before anyone in the travel industry goes any further, it must be answered: Do travel providers wish to do everything for themselves – or do we retain the off and online agency style distribution system? If the answer is no, then fine – get on with it. If the answer is Yes, then the agency system must be allowed to be profitable – and must have a voice that is respected and acted upon by the suppliers. If things just continue along the same road as now, we will see just a few online retailers and a few high street retailers (probably a combination of both – eg Expedia shops) and these retailers will simply dictate who can sell what, for how much and on what terms. Can’t happen? Well, it has in many other fields – Grocery, for example, or computers or DIY….
Why Airlines and IATA Need To Tread Carefully…
Posted by murray in Latest News on May 16th, 2009
Airline revenue falls, BSP revenue falls – BSP being, amongst others, the monthly income payment that airlines received from travel agents – panic sets in. So, what are we talking about? The figures do look big – BSP churns some 240 billion dollars worth a year; a fair chunk of that being from the 58,000 travel agents world wide. IATA-BSP lost, last year 85 billion in bad debts – horrors! Well, not really when you bear in mind that this represents some 0.35% of turnover (an expression used loosely). Now, airline revenue comes mainly from BSP – some 80% to be exact – which means that travel agents – online AND offline – still represent the main source of airline income, despite the increasingly despotic attempts by airlines to drive traffic away from the various agency networks.
Of this BSP income for the airlines (and about 95% of the world’s airlines are in IATA BSP – and certainly nearly all of the “legacy” carriers) 80% of the UK airline income is generated by just 140 of 1,300-ish UK IATA agents – and half of it by just 30 agents (thank you, Travel Weekly).
The knee jerk reaction of airlines is to demand that BSP (and so, agents) start paying every two weeks rather than monthly, as they do now. In other words, the airlines get less money but on a more regular basis. Failing that, in order to “stop the bad debts” (which is running at, you will recall, 0.35% of turnover) IATA BSP wish to impose bonding on everyone who looks even slightly less than gold plated. This, at a time when bonds and loans are, of course, very easy to come by.
From this, we can deduce that airlines have clearly failed the marshmallow test. Take now! And hang the consequences! Well, What are the consequences? Agents, especially, will remember British Airways arrogantly proclaiming that they “Did not owe agents a living” whilst taking away the commission paid on airline tickets. Fine, said agents, who went away and in the words used in a PhoCus Wright study promptly “….. responded strategically, tactically and most of all aggresively to adapt, survive and succeed” in other words, showed the airlines two fingers and got on with the job of selling travel.
The worm turns, agents (and remember I mean online as much as any other; even Expedia and Travelocity are agents) do not owe airlines a living, either. There is a mutual dependency – the likes of Travelocity are very good at what they do, retailing (or shall we say, distributing content) whereas airlines are supposed to be good at what they do, which is shipping people from A to B. Travelocity et alia make a profit; airlines don’t – which says an awful lot about who actually owes whom, what. Airlines (and to a greater or lesser extent IATA) still ponitificate Canute-like about what they are going to do. Actually at the moment, they can. Just. Where they are taking their eye of the ball, if they ever had it on the ball, is by not watching those BSP statistics. That 50% of their income is dependent upon 30 agents – such as AMEX -at present.
Any precipative action, such as going to two week payments may well have exceedingly uncomfortable side affects, say 80% of their income coming subsequently from 30 (or less) agents. Why is this? Simple – “Divide and Rule”. Airlines could only pontificate and rule the roost because they had a wide and diverse distribution network through many channels, they did not need to really listen to any one product distributor simply because there wasn’t one. Yet, since the demise of commission, there is – or rather there are 30 of them and as they impose more onerous restrictions that number will fall, or rather that 30 will control and ever greater share of the income pie – and that is when you really start to sweat.
You do not need to be an expert to see this all too clearly. Where do you buy your daily bread? Yes, TESCO, Sainsbury or ASDA . Where did you buy your last PC? Yes, PC World or DELL. Your last thingy for fixing that irritating squeak? Yes, B&Q, WICKS (or Halfords, depending). Take the old IBM story where arrogance spawned Microsoft. Or just take a look what has happended to the local pub, even. All these are examples of what happens when people take a short term view by people with a short term interest. Airlines are lining themselves up, very nicely, thank you, for exactly the same treatment. They will soon be told what they can sell, where they can sell it and for how much. They behave or wallop! All that valuable, say, BA, trans-atlantic traffic goes to AA or UA or VS.
Of course, airlines say that they “talk” to the agents (Talk rather than “communicate with” – of course) but to whom are they are talking? Yes, you are right, to that 30. And that 30 have their own agenda, which is, of course, to control 80% or 90% of that BSP revenue, not 50%. I do not know what the critical mass is, but it cannot be far off. So, AMEX becomes the air travel business’s answer to B&Q. If you are an airline, you do what AMEX says, or you get nothing. Up to you, of course. Yes, they can distribute themselves and will have to. What we have here, however, is a service providor, a maufacturer, trying to retail and as I say, retailers are a lot better at retailing than manufacturers. Just look down the Times Rich List. Even Old Beardie once answered the question “How do you become a millionaire?” with “Start with 10 million and open an airline”.
So, airlines need to think things through (they won’t) and so does IATA (it can’t – think, that is). IATA is a body which believes that Stalin’s way of doing things was rather soft. And Airlines, like Sir Anthony Eden, still think they rule an empire. Things have changed dramatically over the last ten years or so and will indeed continue to do so. It is just intereting to note that the very architects of that change process, those that pulled down the orginal edifice with first checking to see what still needed support, now find themselves in turbulent air whereas those they lectured about that change, the agents, have quietly and efficently got on with the job. Airlines and IATA can talk the talk, they just cannot walk the walk.
Off Loading Costs
Posted by murray in Latest News on May 2nd, 2009
Here we go again! As airlines run out of profit and money, the hunt is on for more bits and bob’s they can pass on, so as to keep “low” prices. It seems to me that the time has come to step back and take a deep breath.
Airline travel is not a cheap item. An Airbus costs a lot of money, so does the petrol, the crew, getting it up, getting it down, getting it loaded, off-loaded. Hell! Even parking the thing up, costs a lot more than £2.40 at the local NCP.
What we have here, is a situation where someone wants to sell a service cheaply, which inherently costs a lot of money to provide. A situation where one now wants to charge a reasonable fee for something which over the years, one has spent many thousands of Dollars telling the world (quite successfully, as it turns out) people can have for next to nothing. And people wonder why there is a problem.
The latest bette noir is the GDS cost – the cost of getting the seat from the aeroplane to the client. This should be paid for by the travel agent (online or offline) and …. Whoooah! Stop there. The travel agent is not going to pay for anything. The client will pay, always has done and always will. What has come about over the years, is a price for a service whereby one has somehow managed to fool the various advertising standards people, of many countries, that the £1.00 (or $1.00) that appears on the promotional stuff is a valid figure. It isn’t. What we really have, is an industry where “transparency” is not a word which features in their dictionary. Air fares are not transparent. Exactly the opposite. Many charges appear after the “fare” and are buried under various codes which are meaningless to the travelling public.
But let us go back further. What are airlines about? What do they really want to do? The so-called “low cost” airlines are about simple A to B stuff, 2 hours or less, you get exactly what it says on the tin and no more. Fair enough. They do not need the GDS (that said, it is getting increasingly difficult to track them down. From a business travel agent’s point of view, sites such as “Wegolo” are proving increasingly invaluable as a “low cost GDS”). For legacy airlines, it is a different picture and these airlines need to decide what business they are in and if they, indeed, wish to continue in it.
A lot of business travel is not about going from A to B. It is about going from A to B and C, D and very often E as well. It does not all start from the home country and involves bits of the world which involve many agents grasping for their atlas (or, in modern terms, Google Earth). Here, the GDS is invaluable. This is where it does it’s job. The thing is, many of these flights involve going from airline to airline, changes of flight at various points en route and lot of general fuss and what-not. The key elements in being able to do this are: 1) The ability to interline and 2) The relevance of the “minimum connecting time” or MCT. The former allows one to mix airlines on one ticket and the latter, to regulate the time one needs to make a change of airline. If all airlines go “me only” (that is, come off the GDS and go it alone on their own websites), the all flights become just, what is known as, “point to point”. So, if you want to go from, say, Cairo to Dublin via Larnaca (’cos that is where the connection is) in old money, you get, on one ticket: Cairo to Larnaca to Dublin. The airline would interline (hence, on one ticket) and the MCT applies so you can be booked thorough and so, you make your “1 hour and a bit” Larnaca connection – most importantly, if the connection goes all pear shaped, you are able to get on the next available connection without having to worry.
BUT – in new money, that does not happen. You can only buy a ticket Cairo to Larnanca and then have to buy another ticket Larnaca to Dublin. Now, the MCT does NOT apply. You have to arrive at Larnaca, collect your bags, go through security, walk around to departures, re-check-in… and how long should you allow? If you miss your connection flight, tough. Buy another ticket.
Even more (airline) stupidity: This interline traffic is valuable stuff. Since, secretly, airlines have been dumping cheaper interline fares what is left becomes worthwhile traffic. You must have a GDS to book it and invariably (now! here’s the rub!) you need an agent to book your travel. Many airline reservation department, these days, are staffed by pretty clueless types from all sorts of places whose training is very precise (no “holistic” travel training) and if what you want does not drop in front of them straight away, they just can’t cope. Indeed, getting them to tell you their name can be a major thing…. sometimes.
The GDS, therefore, contributes a major and vital element, not only in airline traffic but generally, in making the whole concept of business travel possible. The GDS systems have been fiddled with by the EEC and various other bodies who are intent on making a very clever and practical system, which works into a cumbersome and pedantic system that doesn’t. It is not a question of viewing the GDS as a cost to be moved, the GDS is a lifeline which should be nurtured and developed (and in the case of Amadeus, just made to ruddy well work sensibly) – it is a cost that should be in the price of the ticket, because without the GDS, advanced air travel would simply not work.
