Events often conspire to create some strange bedfellow. In politics, expediency brings together unlikely candidates, such as in the recent UK election.
And so it is for the marriage of Google and ITA Software and the creation of the Troogle Family where, in fact, suppliers will probably like it.
If the deal (we can start saying Troogle legitimately now) is approved by the regulators and proceeds as many expect, this could be quite good for the airlines.
In the US market, for example, the deployment of Troogle would mean that there would be pricing transparency for website-based consumer fares. These will also be stabilized but under the control of the suppliers.
It is worth considering these three elements as well:
- The convoluted supply chain options from airline to consumer and the number of different channels that are supported.
- The complexity of those channels – remember the more complex the more costly.
- The simple fact of guaranteed pricing and availability in near real time.
Many US airline websites already do this and have their search results displayed from ITA’s QPX system.
So as long as the result is served in the same manner (with a short period to live availability of the results and their validity) then there should be no problem.
With air products, Troogle handles a lot of these complicated and expensive channels, and processes can fall away in place of a far more simple and controllable model.
A user goes to native search in a Google search box, for example, and types the following query:
Lowest fare to NYC on Sept 12th back on Sept 15th 2 people.
Google may respond with a display that shows a results box and the user selects from the list – and, Voila, the user is now deep inside the workflow of the airline’s booking engine.
No messy metasearch, no expensive online travel, no blood curdling GDS control.
The price is guaranteed to be the lowest, so no surprises for the customer who now has a trustworthy result.
The airlines have little to do because all of these processes already exist in the back-end to accommodate such a transaction.
A bit of airline website tweaking and a new commercial model with Google for CPA and away you go. It is hard to see why this would not happen.
Google gets to tap into four player’s revenue streams, consequently they can lower the total CPA to the airline.
- Airline direct advertising (likely increase in price)
- Metasearch – why would the airlines pay for metasearch when they can pay for the real deal in Google?
- OTA – customer gets same result lower fare and higher quality of services from airline.com than from OTA.com
- Bypassing OTAs means no GDS costs and those nasty GDS incentive fees.
Airlines look at the bottom line and are likely to think they have full pricing power again. They control the price for the market and push out approved guaranteed pricing via QPX.
There is no complicated metasearch or OTA messing up pricing plans. Airlines eliminate all the intermediaries making life a lot simpler.
They can also still handle TMCs separately as they even manage the vestigial offline channels.
They can deal with Google later and they hold the control.
The consumer is happier as he/she gets a trusted result the vast majority of the time. And it’s cheaper. Therefore this is as seminal a moment as when the OTAs first came on the scene and commissions evaporated.
If you are an airline what’s not to like about this?
Caveat statement. I do not for a minute think that all players will like it, nor do I think that it is right or wrong.
The metasearch/OTAs/GDSs will not be happy and it also does not necessarily apply outside of the US market. The theory also does not extend to other product categories such as hotels, cars and packages.
Underlying all this is how Google would have considered the business case for paying $700 million for ITA Software.
The only answer I could come up with was to consider how its travel revenues would rise and quickly. This would have to take into consideration the current ad based model and the loss of revenues from the OTAs and metasearch players.
A final and pressing thought…
What would happen if the acquisition fails approval? Don’t for one minute think that the numbers can still be impressive if Google was to develop its own solution outside of the ITA acquisition – $700 million buys a lot of developer resources.
Related posts:
- Panic for most, joy for a few as rumour of Google-ITA Software deal intensifies
- Google-ITA Software deal: Industry battle played out World Cup-style
- Google-ITA Software deal: the travel ecosystem as Google now sees it
- Google-ITA Software deal: Schmidt vague on whether flight metasearch is in the works
- Google-ITA Software deal: official and very unofficial reaction
About Timothy O'Neil-Dunne
Timothy
Very provocative and thoughtful, as usual.
Hope you have a chance to garner Al Lenza’s insight.
If you do, appreciate if you would share.
Regards
Brent
Timothy – yeah i reckon you could be onto something.
though i dont agree that theory does not extend to cars. given this is pretty much how the real-time car models works right now.
(where consumers compare live (price parity) rates from API’s/Switch , with no gds and no ota markups). transacted in same browser though. wouldn’t be a stretch for ITA to add cars to QPX.
accessing live rates, even just from five suppliers, does slow the search down a bit. so it would be a struggle to extend it to hotels unless the search was limited to major chains connecting their API’s to a QPX like switch. (which i presume ITA has laying around somewhere)
(apologies for long message)
I don’t agree with the above point of view.
This deal might be good news for consumers, but certainly not for airlines.
The only thing that would make airlines happy is if Google was driving traffic to them for free – which is not going to be the case.
Why airlines should not be happy:
1. The last thing airlines want is precisely pricing transparency.
2. OTAs can perfectly sell lower fares than airline.com, so airlines will potentially lose loyal customers in the comparison.
3. OTAs will outbid airlines on this “Troogle” system, given the higher yield they get by cross-selling other services, resulting in a bidding war increasing CPA for everyone.
4. Airlines are currently giving XML acces and let metasearch “do the job” of adapting to their specs. With Google in the front, there is the risk that one day Google will say “here are the specs” and let the airlines do the job of adapting their systems.
5. Airlines hate being locked behind a de facto monopoly as it happened with the GDS and OTAs.
On the opposite, airlines are much better off today with playing competition among several metasearch engines rather than with one giant one.
Why airlines could be happy:
1. Better relevant traffic (but the same goes for OTAs and anyone else bidding on these searches), for example Google could:
- deploy an Adsense integrated flight widget that displays relevant flights and fares onto all Adsense enabled travel web sites, so airlines could reach out more easily to hundreds of thousands of content sites.
– adapt flight data to mobile or GTV devices in a completely transparent yet contextually relevant way. But this only solves the promotional aspect, not the booking aspect.
– suggest flights and services based on other behavioural and retargeting techniques, as within Gmail or Gmaps.
2. If Google manages to invest into the design a metasearch function that easily displays fares and additional services and airlines are given tools to control and manage the display so that they can differentiate themselves. If done well, and globally, this would require a lot of investment that the meta guys are not able to do today.
This reply is for both Danielle and Murray.
Firstly I urge you to pay attention to the headline and my caveat statement.
I do think that many of both of your points are both valid and interesting.
So let me pose to you both a question. if you had to choose between transparency of pricing BUT under your control plus a lower cost of total distribution vs higher cost of distribution, fragmentation and opacity of pricing – which would you prefer?
Meta search by definition is bad – it is a facsimile of the possible situation and is not guaranteed. Further the web by definition promotes transparency. So whether transparency is in place is not debatable. To a large extent it exists today and nothing will ever stop that. (Just ask Toyota).
My point is that there are a number of choices and not everyone is going to follow the same path. Vive la difference (Since its Bastille Day).
And I really appreciate your comments – please keep them coming. I can assure you that my trustee editors questioned me at length over this piece.
Cheers
Timothy
Daniele Beccari hits the nail on the head with some of the fundamental flaws in this piece. Quite right, the last thing airlines want is pricing transparency – further, even more of a last thing airlines want is for one main retailer to be promulgating any transparency. For the sake of space, I can only develope a few ideas!
Indeed, as Daniele says, the last thing any supplier really wants is to find themselves beholden to one, or indeed, to a few retailers – especially when that retailer is very much bigger than you are. There is much empirical evidence to support this. Look at food retailing, computers, Brewing, DIY to name a few. The main reason that many of these industries found themselves in this pickle, though, was through their own rather short sighted view of things – and it works on the cake theory.
In any business from manufacturer through to wholesaler to retailer, there is a cake – and to each part of the process, there is a part of that cake available. Give or take a bit of argy-bargy around the sides, the cake stays in proportion. The strongest element, to begin with, is the supplier or manufacturer and their control is maintained through the simple maxim of divide and rule. Invariably, at some stage of any given industries’ evolution, the manufacturer gets greedy and decides to start eating into, for example, the retailer’s part of the cake – and that’s when things go wrong. The retailers do the only thing they can – they consolidate; they consolidate to the extent that they become bigger than the supplier and then, then tail wags the dog.
Airlines made a big mistake knocking out commission. Why? Because in doing so, they shrink the available retailers to the market, forcing retailers to consolidate. Divide and rule ceases to be an effective tool of control. What we are seeing is the number of big players (selling airline tickets) reduce and if the Google thing were to dominate, then airlines would find themselves with a main retailer who was very much bigger than any one of them and possibly bigger than quite a few of them lumped together. It would not be long before this Sainsbury’s (or Wallmart) of the air ticket selling world would turn round and started dictating where airlines should fly to, how often and for how much. Retail is King. Always has been, always will be.
By the way, the GDS is not an evil thing. Air travel is not just simply a matter of A to B, planned three weeks in advance by Aunty Flo visiting her nephew in Arizona and it is very naive to think it is. Money is made by airlines up front. Business pays airlines wages. Businesses use Travel Agents of varying sizes and shapes. Why? Because they do not want to spend time sitting in front of a PC working through endless sites trying to work out the best way of doing a journey. Business pay their staff to close a multi million dollar deal for their business, not to wonder about saving $10 on a trip from New York to LAX. Further, travel involves A to B and often C, D and E as well. It is arranged from a noisy terminal, the back of taxi, between meetings. It is arranged by a PA who has better things to do. An agent is often an extension of their client’s business who is not paid just to book travel but to understand their clients needs to the point that a client can simply say “Book me to Delhi on Sunday” or “I need to go to Abuja and Jo’burg next week” and the agent knows which airline, which class, which hotel and (probably) which taxi company. The GDS is invaluable – there is simply no alternative for speed and efficiency. It has been around since 1980 and frozen to death and no-one, anywhere has managed to improve on the general idea since. It is a cost of distribution that airlines just have to live with. After all, commission went many years ago now and we have had people saying that they have the best air travel website meta mash up thingy what-not since Mr. Boeing said “If we put seats in this thing, do you think people will use it?” – and still, the Agent and the GDS remain and reign.
There is not enough space here to dilate further. Suffice it to say that it is the airlines, not the OTA’s (or offline TA’s) who need to think very hard about how they wish to distribute their product – and if they wish to stay in control.
By all means have a lower cost of distribution – go away and invent one. Actually, you don’t need to, we already have one. What other business has a system which can combine so many features, globally, into one place all bookable (saleable) from one point at the press of a button? Why re-invent the wheel? Of course the GDS costs money but it must be, beacause for Global travel, there is nothing better nor does there need to be.
The basis of the argument assumes that air travel is point to point leisure stuff. It isn’t. The focus is far to much on the cheap leisure traveller rubbish (in legacy airline context – how much effort does on put into selling something for ÂŁ10 versus selling something for ÂŁ1,000?)Airlines make money at the front of the bus, not down the back… and the people that sell the front are people like me. (Amnd it’s high time we got a bit more credit for it – but that’s another story)
As regards transparency, that’s the last thing airlines want – and as for control, see passim, airlines will loose that in time because they started to sacrifice their ability to “divide and rule” when they threw commission etc out the window. Very short-sighted (from an airline perspective)
People may not want to follow the same path – but if this Google type thing goes through, there may only be one or two paths to follow.
Murray –
I have to disagree with you on the issue of the global picture. Again please consider the context. I focused on the “could” and also specifically excluded TMCs (aka corporate travel) which yields more revenue (but not profit) per passenger in general terms than leisure travel. But the focus of my article – I did try to explain – was the web based commodity travel. I am sure that Howard you do a great job in selling the front of the bus. But consistently it has been shown that the legacy carrier model without ancillary revenues has been unsuccessful in recent year.
The market for LCC traffic such as advocated by Ryanair and others of its ilk clearly have shown that the airlines who are profitable do so by changing the business model and focusing on leisure and being able to make a decent living from it. Far greater than any legacy carrier. With Ryanair now the largest single travel brand in Europe by passenger numbers – this is hardly an aberration.
I have seen many studies that show that the consumer values a number of things. But the one measure that is important is that he votes with his mouseclicks and purchases products that we are discussing.
Now let me say that I fundamentally disagree with Murray that Troogle will result in only one or two ways to get to the product. I believe that this will stimulate a lot of creativity. Further I believe we will see some new and strange bedfellows.
Gotta love this business – it is never dull.
Cheers
Timothy
Timothy, Murray and Daniele: On the question of one or two channels and Timothy’s mention of a “lot of creativity” ensuing out of this deal……..
One thing that was brought up on the PhoCusWright webinar July 13 about ITA-Google was the possibility of Google enabling an API to the new product like Google has done with Google Maps, for instance.
I don’t know if this is practical, heresy or under consideration — but it sure would be an innovation in travel.
Hmmm….can’t remember the last time Sabre, Galileo, Worldspan or Amadeus published an API….although Farelogix did offer its open-source desktop code for free downloads.
Might the travel industry evolve out of its proprietary shackles?
One cannot put RyanAir and others in the same boat as legacy carriers on the premise that what works for a low cost airline could work for a legacy carrier. Successful low cost outfits only fly a max of 2 hours or so and essentially follow the Gerald Ratner school of thought – pile ‘em high and sell ‘em cheap. As Michael O’Leary himself said: “If a passenger falls asleep, we wake him up and sell him something”
All those that have tried low cost and long haul have failed – from Freddie Laker to Silverjet.
What legacy carrier could do, is scrap all their short-haul and a goodly chunk of medium haul networks and just fly long haul, bringing fares up to corresponding, profitable levels. Fine, if the public want short haul low fares, let ‘em have ‘em. Legacy carriers could work following a very simple rule: If we can’t make money flying from A to B, then we won’t fly from A to B.
Further, though one says that the Google Travel thing will not reduce the routes yet will stimulate creativity indictates that travel would somehow be different from any other industry where the invasion of the dominant supplier into the retailers (or others) profit domains, has not resulted in the retailer ultimately dictating terms. Travel is no different and empirical evidence suggests that this is so.
What is not often recognised, by the by, is that many legacy carriers provide socially, globally responsible routes for many emerging and third world nations – in some cases, they provide a sole link to the developed world. Not important to Americans who can have a rather cavalier approach to these matters, granted, but vital to many of the poorer countries. In lots of cases, you can track the old colonies simply by seeing who provides these links. Angola and Air Portugal, SN and Banjul, Cameroon and Air France for example. Fine, let’s be brutal and change the way things work and scrap all these routes.
With regard to ancillary revenue and legacy carriers I presume we mean this rather fashionable “unbundling” business. It should be noted that air fares are not being unbundled. In the Y cabin, airlines are despotically trying to fine ways of clawing back some money, but that is not unbundling of fares. If one wants to unbundle fares, unbundle them. Next time I buy a first class ticket, perhaps someone could explain why I have to pay for 30kg of baggage I don’t need, food I don’t want, I don’t drink alcohol and I can do without the extra special checkin, the shower on arrival and the lounge. How much discount do I get? None. So, lets get this unbundling and ancillary revenue thing in perspective.
On another note, I am never too sure what API means. Now, if we are referring to a link to Google maps or something, certainly agents (and most of the general public, I would suggest) are quite cpaable of having more than one window open. Personally, I view systems as tools to get at information I want. When those tools smack too much of subtle advertising, I begin to doubt their integrity. At any one time I will usually have my GDS running, Google maps and Google images (Why images? – because half the time I do not know what a Ford Thingymebob looks like!) As far as coming out of our shackles is concerned – of course. Just produce something better than a GDS. Why do people knock the GDS anyway? Sure it costs – but a piece of kit that can book a person all the way round the world with 15 stops, safely and securly (which I did the other day) fare quote it, check all the connecting times, add in some hotels and car hire (Yes, with Google images)and have the whole thing done and dusted in about 30 minutes – Heavens alive, there are industries that are screaming for that kind of functionality (railways, for one). Perhaps, with kit like that, the reason we are not trying to escape is because we do not need to. Iam begining to think that the only people who do not like the GDS are techys – mainly because they didn’t think of it first and cannot improve on it – so they just knock it.
Oh! And you need a travel agent who knows the wrinkles, of course.
@Tim –
transparency is good for buyers, not for sellers if price becomes the only decision factor. Metas have brought transparency, but this can be tolerated by airlines because A- metas drive relatively low traffic and B- once the airline “won” the customer with a low fare, then they can upsell/cross-sell/loyalize, hoping the happy customer will naturally come back to airline.com the next time.
Both points fall completely apart with Google. Plus, richer OTAs will outbid airline.coms on sponsored placements.
(Unless, as I mentioned before, Google finds smart ways to enable airlines to differentiate themselves while still making it simple and transparent for users to compare apple to apples.)
@Dennis – I agree, that’s the direction I was hinting to when mentioning an “Adsense flight widget”. Skyscanner already does this – very very cleverly (although with a backlink for SEO…).
(Slightly off topic, but real APIs are a different ball game. Of course Sabre, TP and Amadeus all provide APIs. Phase 1 of OTAs was build entirely on top of GDS APIs, before direct links. Even ITA pulls data from GDS APIs. The trick is that you have to be a registered agent to get the credentials to access + they are not simple to use. TravelFusion has a great API too.)
Daniele: You are correct about the GDS APIs. But they are not open…you have to sign costly developers’ agreements.
This is a good debate.
The line between legacy and LCC has been blurring for a long time. There are may airlines who today call themselves LCC – US Airways stock symbol is LCC. Ryanair routinely flies to long haul destinations (Morocco for example). Air Asia X is a low cost airline flying into Stansted. Jetstar has several long haul destinations.
An Open API would be a good thing to have. It would indeed further change the closed model we all know so well.
To confirm Dennis’s point there is at least one GDS who charges 1000 US Dollars for access to their API.
The unbundling of product is not limited to airlines. The GDSs have been doing it quite successfully over the past few years.
Have a good sunday everyone.
Cheers
Timothy
No! RyanAir do not fly long haul at all. Morrocco (RAK) is 2 hours 35 mins which is not long haul, not even medium. Air Asia do fly STN to KUL, as a one off, really; and is probably regarded as “trophy” route. Even then, Air Asia offer a business class type product. As for Jetstar, they have been barely going for about 5 years – and time will tell; in any event they fly around Australisia and are still sorting themselves out, route wise.
There are airlines that wish to (depending on which way you look at it) mislead the flying public into thinking they are Low Cost – so that they can screw the punters for all sorts of add ons (aka “unbundling”) – and there are those that are trying to keep their feet in both camps and failing miserably to be successful in either – eg Aer Lingus (who took that path at the instigation of one WALSH/ “Our Wullie” now head honcho at British Airways).
Even if you were to be able to combine these airlines and their flights, it would be pointless – and it is certainly pointless from a GDS perspective – or any combined database type thing. For example I want to fly DUB LTN (RyanAir) and then LTN PMI (Easyjet). Can’t do it because a) they do not interline and b) Minimum Connecting Time conditions do not apply. All you can do is treat the two journeys as seperate travel entities. Another example is, say, LON to PIT, which A suggestion is, LHR BOS on BA and BOS PIT on JetBlue… no interline, no MCT, no work. Or worse, LHR to MSP via ORD – AA to DL which cannot be combined because DL use the Delta Connection thing – even though both show on the GDS. Again, seperate entities. In other words, the actions of legacy carriers trying to be LCC’s is already causing big problems in the real world of booking air travel. In our real travel world, in order to be able to construct seperate itineraries, you must be able to interline and you must have MCT, without which the itineries would become unworkable and prohibitively expensive.
Digression – There is a whole raft of stuff one could write here about interlining and how fares are constructed (another little feature being quietly brushed under the carpet).
Indeed, the inability to combine an ever increasing number of airlines is an insidious and for the passenger, expensive feature coming in to the air travel booking arena. It is something which has been spotted by only a few people (mainly business travel agents) and has been quietly brushed under the carpet by airlines whilst the techys and the “consultants” who do not regularly book a wide range of air travel bang on about “breaking” the GDS distribution method. In other words, they (techys and consultants) are messing with something they do not fully understand.
It is a closed system for some very, very good reasons – well, actually, it is not closed at all, anyone can come in – it’s just that you need to know what you are doing – and be bonded, of course.
To say GDS systems have been unbundling is complete rubbish. All the systems offer their basic system which allows you to book flights, cars and hotels and allows the buisness travel agent to get on with their job. True, there are some bells and whistles which you can add on and there always have been, but the basic has always been there. If a GDS were to unbundle, then they would need to say “The basic will let you book a flight. It’s extra if you want to ticket it as well, or add a car or a hotel” They may charge programme development types for access to information – quite right too – but do not confuse “unbundling” with a basic menu of options which have been around since time immemorial.
@Murray – i appreciate your passion and detailed contribution.
However – I’d like to propose that we use a bit more adjustable language when putting our points across.
for example you say “would be pointless – and it is certainly pointless from a GDS perspective”. To me your expression is as if what you are saying is “a matter of fact” as opposed to “your perspective”.
I’d prefer to listen/read your point of view rather that “a matter of fact”. I subscribe to the thinking that “all our knowledge is uncertain” aka, opinion/argument.
what do you reckon Murray, do you agree? if not, I’m happy to hear your counter argument.
But ultimately if your able to express yourself with a bit more adjustable language, I’m more likely to be influence by your “perspective”.
Steve
There are several reasons why it is pointless to combine legacy and low cost carriers on a single “database” – indeed, I would go further by saying that it is thouroughly misleading.
1. Any connection functionality assumes the IATA Minimum Connecting Times can be applied to any connection shown.
2. Any connection assumes, in effect, that airlines interline on tickets.
3. Connections assume that, where appropriate, through fare constructions may or could be applied.
The first two points are not mutally exclusive though. You need to have both interline and MCT functionality for connections to work. Now, it is true to say that historically, not all airlines interline anyway, but the mainstream ones traditional have done.
Unfortunately, some major airlines have spun certain routes off into stand alone low cost carrier type outfits, which have compounded, rather than improved air travel functionality with mixed results and lifespans – eg Delta, United, and the Iberia spin-off, Click Air.
Why pointless and misleading? Because if you try and book a connection low cost/ legacy, which with some GDS systems, they will let you do, (for reasons that escape me) – you find that neither the MCT nor the interline ability applies and so, in turn, neither will the itinerary.
No dis-respect, but one does wonder if some that make contributions to the debate really have much knowledge of practical and ongoing experience of actually booking air (business) travel
but who’s gonna ticket those results? ITA doesn’t ticket so the data STILL has to go to a GDS/airline and be matched for sale. same problem as always — data not synched