In a perfect Direct Connect world it should be love at first sight for airlines and agencies

NB: This is a guest article by Mike Premo, president and CEO of ARC (Airlines Reporting Corp).

In my keynote at this week’s Computerized Airline Sales & Marketing Association (CASMA) conference in Beijing, I wanted to create a vision of what an airline that is serious about Direct Connect (DC) as a distribution option should work toward.

That vision, unlike most of the conversation around DC to date, included a significant paradigm shift in the way airlines think about travel agent distribution.

First, I think it’s important to remind everyone of the material benefits that accrue to an airline from a successful DC deployment.

These include:

  • Targeting offers based on internal airline assessments and intelligence driven off of customer relationship management (CRM) data.
  • Representation of carrier’s value proposition as the carrier desires.
  • Offering transparency (“shopping”) to the end-user, but is more opaque to competitors.
  • Driving loyalty, enhanced revenue via ancillary sales and higher customer satisfaction.
  • Reduced GDS requirements around fare shopping and potentially reduce some GDS-related costs.
  • Improved data quality via fare certainty – you price it so you know it’s right.

In my honest opinion, DC is the smartest airline strategy I’ve heard since Bob Crandall announced the B-scale pay system in the 1980’s as a way to rapidly grow American Airlines.

You can see that this is an approach that, if implemented properly, could really make a difference in the profitability and competitiveness of a carrier.

Second, it’s important for carriers to be realistic about what travel agency distribution “nirvana” looks like and understand that going in.

We are probably somewhere near equilibrium in the US between direct booking and travel agency booking at about 50%-50%.

You can’t fight human nature. People have been seeking advice about travel since time immemorial (“So, Marco Polo, where should I stay when I get to China?”).

In addition, many travelers have either technical access or financial system access problems that make ecommerce unworkable for them. Finally, business travelers, certainly for public companies, will likely continue to have third-party managed travel.

Travel agents are going to be a very significant part of the US distribution system for a long time to come. And outside the US even more so.

Airlines, however, have conflated agents and GDSs for so long now that it’s difficult for them to see a different kind of relationship.

When an airline looks at agents, it actually sees GDSs. And we know how challenging most airline-GDS relationships are.

ARC faced similar challenges. Agents have sued and taken us to arbitration. ARC’s role in providing timely payment to airlines on agent sales sometimes put us in the bad guy position. And especially in the paper ticket era, we had some pretty onerous policies and practices – for good reasons, but still…

And today, we offer more optional services to agents than ever. But, many agents’ attitudes were: “ARC? Why would I ever buy anything from them?”

We set out to change those attitudes and become a place that was friendlier, more open and collaborative and ultimately be seen as someone agents would like to do business with.

We started with a corporate identity shift and back that image up with new services such as our non-air ticketing agent accreditation and outreach to over 40 agencies with in-depth Voice of the Customer interviews, a more open relationship with ASTA and other steps to make that image more concrete.

And it’s delivering results. Our treatment by formerly hostile agent media outlets like Travel Weekly (US) have noticed and, while still rightly skeptical, regularly applaud ARC actions in more even-handed fashion.

Non-air ticketing agents have grown to a community of over 1,400 and products like our service-fee program and even data sales to agents are seeing meaningful growth.

We have a long way to go, but we’re moving the needle. The message to airlines? It can be done.

Airline perceptions, however, are stuck. I’m sad to say that comments around airline headquarters like these are all too common:

  • “Agencies are parasites. I’m paying for their success/lifestyle”
  • “Agencies are a source of fraud”
  • “Agencies are pawns of the GDSs”
  • “Agencies don’t present my brand/value prop as I like”
  • “We deal with them because we have to”

Of course, airline feelings aren’t the only ones being hurt. Agents are equally unhappy:

  • “No way to contact them”
  • “They outsourced their audits and we get tons of arbitrary and petty debit memos”
  • “Treat us all the same”
  • “I don’t even want to sell airline tickets any more”

Even OTAs bring benefits that carriers often don’t include in their calculations. For example, OTA cash sales are up 100,000 tickets per month versus 2010!

That’s driving $600 million in ticket sales where there’s no merchant fee to the airline – saving carriers in the US, for example, in the order of $15 million so far this year on credit card fees.

All this is apparently being driven by OTA package bundling where they act as merchant and pay the airline via ARC settlement in cash. I wonder if this calculation is factored into the airline-OTA dynamic?

At the end of it all, is it really a good idea to have 50,000 or more travel agents out there who don’t like you very much? Selling a local cruise or drive package instead of an airline ticket? Are these sustainable or wise business practices?

Worst of all were comments from a pretty big agent that signed up for Direct Connect.

  • “I signed up for Direct Connect. I’m sorry I did.”
  • “They treat me no differently than they did before.”

Ouch! So if DC is really worth doing, how SHOULD an airline think about agents? The first thing to do is realize your DC agents will actually be selling in a channel you actually like! Whoa!

The question is, can the airline peel apart the long-held beliefs that GDS equals agents, and vice-versa? If so, the next step is to decide how to treat them.

It’s a well-established fact that what customers desire (whether they say so or not) is a better EXPERIENCE. Airline loyalty programs prove this. Frequent flyers aren’t given cash. They’re promised a better experience. It obviously works, drives (sometimes crazy) customer behavior and costs less.

In my view, carriers need to start with internal work:

  • Articulate the DC vision – distinguish clearly between GDSes and agents
  • Understand throughout the company that the “what’s-good-for-agents-is-good-for-GDSes-so-we-won’t-lift-a-finger” model no longer applies in a DC world
  • Squash the agent-as-parasite talk
  • Don’t fight human nature – third-parties will sought or be required by a substantial part of the market. Make it work FOR you – your competition may hang on to the old attitudes and you can steal a march on them
  • Understand that airline revenues are a modest part of most agencies’ revenue

Then you can start to outline the experiential differences you want to deliver to DC agents. Ideas might include more robust communications, targeting individual agents (people!) as well as the agency itself, training, sales aids, feedback loops (social media, IM and email) and technical support.

A biggie might be a commitment to no debit memos. Hate doesn’t begin to describe agent feelings towards debit memos, and there shouldn’t really ever be any in a DC environment, should there?

Given the significant benefits of DC, some modest reinvestment into the agency channel seems both affordable and game-changing.

In conclusion:

  • Agents and agencies want a different kind of relationship.
  • ARC’s experience shows it can be done.
  • Direct Connect is a highly desirable distribution solution.
  • Resistance to change is high for financial and technical reasons.
  • Creating a more fulsome and rewarding Direct Connect agency experience will multiply a carrier’s odds of success.

Getting, say, 30,000 agents who actually sell through a channel a carrier likes and who treat their product and brand as they want should be pretty powerful.

Agency distribution nirvana may not be that far away.

NB: This is a guest article by Mike Premo, president and CEO of ARC (Airlines Reporting Corp).

Share on FacebookTweet about this on TwitterShare on LinkedInEmail to someone
 
 
Viewpoints

About the Writer :: Viewpoints

A founding principle of tnooz was a diversity of viewpoints from across the spectrum. Viewpoints are articles by guest contributors from around the travel and hospitality industries. The views expressed are the views and opinions of the author and do not reflect or represent the views of his employer, tnooz, its writers, or partners.

 

Comments

Your email address will not be published. Required fields are marked *

  1. GDS Geekster

    And Mike – I need to thank you for this well-balanced article and your informative replies. I find your viewpoint refreshingly free the hype and buzz words surrounding both agent and DC topics and refreshingly unbiased. Thanks for contributing and I hope we’ll have the opportunity to read more guest articles authored in similar fashion. Thanks again!

     
  2. Anonymous

    The airlines tried in vain the drive travel agents out of business in the 90’s, and failed. First with no commissions, and then thru their own websites, but never understood that corporate booking depts don’t have the time to check 10 different airline sites. “Travel Agents” are never going away!

     
  3. william el kaim

    Welcome to GDS 2.0..

    GDS 2.0, for me, is a DC powered solution that uses a unique landing page (like Google) and then drives the travel agent directly to proprietary systems. So, a major shift from a centralized solution to a real decentralized and coopetitive ecosystems (with no suppliers comparison obligation and channel access fairness).

    Airlines did understand the long tail principles (kill intermediaries, reduce inventory cost and management, leverage digitally powered distribution channel at nearly no cost, own you client). They want to “empower” hundred of thousands of travel agents worldwide, with their DC channels, to sell their tickets (and not the others). Travel agents will not be using a “meta-search”, since they will become an airline brand advocate for nearly free. In this vision a travel agent will then resell only some airlines and may be some fares. ARC will help in the process to support the “small and only one” travel agent alone somewhere in the world behind its desks (+ insurance to be paid).

    Google, Hipmunk and some others were the first ones to really make this dream a reality both for air and hotel … I’m still looking for the same type of tools for car (mixing car suppliers and people renting their own car), or hotel and lodging together (like air BnB offer to rent apartment for business travelers) or insurance (healthcare, etc.).

    Schumpeter creative destruction will shake the travel ecosystem and Global New entrants in the next two years will pop-up. Of course giant companies offering massive social/search/selling platform will have a big advantage (Facebook, Google, Ebay, Amazon, Linkedin, Apple, Samsung, etc.) and will either do the job themselves (Apple iTravel or Rim Travel) or leverage their ecosystem to host new solutions.

    Until now, these new systems/apps were targeting end users. OBT (like Concur, Rearden, etc.) are targeting Business Travellers (the company pays for the OBT and force their user to use the tool = captive users). Now, people are thinking of building tools for independent (future) travel sellers (not sure if we will call them travel agent) real near to people (a kind of great synergy between on-line, off-line, and face to face, local).

    Finally, corporate and personal travel will be less and less done using different tools, but based on different contexts (using a personal and corporate travel policy or different persona – I book for me or my family). Tools will be customized dynamically using social and preferences graphs and content to propose the best offer (fare, package), intermediary (real travel agent, light travel agent, direct) and insurance.

    Until now cost was the only and main driver, things are changing, it will be cost and Me. In fact Me is plurial (me pro, me perso, me family, etc.). Give me one tool I like to please Me and my friends and get what I want at a price I consider correct (look at Apple iPhone success and the cost they sell millions of them).

     
  4. Jennifer

    First, does anyone else find it ironic that American Airlines created the first ever GDS and now they’re leading the charge against it? I’d actually be really interested in reading a guest blog from someone who sits on the other side of the fence on this topic. As a consumer and as someone who gives consumer travel advice for a living, I have to wonder what happens to the consumer benefits that travelers get through booking with an OTA — such as the ability to purchase an interline ticket? One of the big money-saving perks that travelers get from making a purchase through an OTA is that they can easily see if it’s cheaper for them to take different airlines each segment, yet they can purchase it through one transaction as if it were a round-trip on a single airline. It seems that the airlines are asking OTAs and travel agents to build a whole new technology to accommodate them. And if every airline has their own direct connect system, do OTAs have to customize technology for every single carrier that they feature? Is there any real CONSUMER benefit in doing this? Interesting topic.

     
  5. gds geekster

    how are they going to fare and issue tickets in a DC model that does not involve ATPCo. I’m not sure I understand how direct connect succeeds in bypassing these issues.

     
    • Michael Premo

      Dear Geekster,

      Again, I’m no wizard on this (perhaps other readers can do better?), but one of the big ideas behind DC, as I understand it, is for the carrier to reduce dependency on ATPCo. Not they don’t appreciate ATPCo. But when every fare and deal is publicly available via GDS pricing engines, it’s easy for the competition to figure out what they need to do to beat your price and move up ahead of you on the shopping screen results.

      American, for one, has said, we want to price ourselves and send our offer directly to the shopper (and/or their travel agent) in a way that makes it harder for my competition to figure out what I am doing. This is the big Aha! of DC. Carriers in their host systems (many of which are GDS-supplied) have the ability to price their own products. Southwest does this – without using ATPCo. Or there are third-party pricing engines either from a GDS or third-party like ITA (recently purchased by Google) who can do this with or without ATPCo-sourced fares and rules. The carrier simply updates those directly in the pricing engine’s reference files.

      The DC carrier would also have to supply a ticketing protocol to bring in the necessary items for ticketing such as name, form-of-payment, issuing agency and such. As I understand it, the DC technology issues the ticket in the carrier’s e-ticket database when the buyer or agent makes the purchase. In American’s case, for a travel agency sale, they would issue the e-ticket (and EMDs for any ancillary services), pass the dat on to ARC (in the same way GDSes do today) and our normal ARC fulfillment processes would take over from there. We would make the data available in the agent’s ARC reporting and back-office data tools, pass the charge info on to the credit card company involved, or if it’s cash or check, initiate the cash collection process in the standard ARC fashion.

      It should be obvious that all DC airline tickets are not coming from the DC channel – ever. Carriers like AA are still going to have to file the vast majority of their fares and rules via ATPCo to reach GDS subscribers in the US and certainly in the rest of the world for as far as the eye can see. But DC reduces the certainty of their competitors about what AA will actually offer to any particular buyer. AA clearly thinks that is enough of a profit and customer loyalty opportunity to be well worth pursuing. Critics say this and other technical aspects of DC tools are not yet robust enough to handle the complex world of international, corporate and other private fares. I can’t offer any insight into whether that is true or a smokescreen.

      This is more a process answer than a technical one and can probably be improved upon by others who work in this area. Sorry if I sort of bloviated on a bit.

      Mike

       
      • GDS Geekster

        But airfare’s a tariff. Southwest _does_ use ATPCo – everyone does, well except the small percentage who use SITA. For international, you can’t distribute without placing the fare program in the tariff and submitting it to the governments of all countries it will touch. Even US domestic fares have to go in the tariff for taxation reasons and I believe also for some of the passenger protection clauses. Unless we don’t have to have tariffs, I don’t see how we can get away from this monolith in the industry.
        …Now how the LCCs in Europe such as Ryan Air do it, I don’t know and am very curious how they get to operate nothing but international service yet I’ve never seen a fare filing published by them.

         
        • GDS Geekster

          Oh – and only public tariff fares are visible to everyone. Anything in a private tariff is only visible to those to whom the security has been released. Web fares are a great example of how sale fares can be obfuscated in a “public-private” distribution model. The viewership security can be set to something as broad as “all subscribers of GDS xx” and then the fare program both will not come up in ATP analytic tools and also would not be visible to anyone who is not a GDS xx subscriber. if the viewership is set by state, for example, any ARC number not reflecting the specified location would be blocked from viewing the fares.

           
  6. Michael Premo

    Legit concerns, Jonathan. To be clear, I am not a point-of-sale technology expert. The devil will certainly be in some of the details you raise. That said, as a practical matter, there are only a few carriers in the US and perhaps a handful more globally that are trying or seriously considering a DC distribution strategy. As I understand it, integrating a few DC feeds at the point-of-sale isn’t simple, but it isn’t a deal-breaker from a coding or performance perspective. Bigger players with bigger budgets may well choose to do this type of integration themselves. Or other IT services firms will step to the fore. In fact, no one I speak to completely rules out the GDSes (or some of them) doing this for DC airlines if the right technical and commercial terms can be agreed (which is where most of the friction seems to be). From the carrier standpoint, if their offer from a DC pipe is presented in a way that respects the way they want their value proposition given to the consumer (or their buying representative) under fair economic terms, they are agnostic about who actually does the work.

    In a related panel at CASMA this morning, TripIt founder Gregg Brockway made some interesting arguments that carriers could start to get the kind of product presentation they are seeking by using new technologies like his new employer, Concur, has to offer. While I’m sure that’s true, I pointed out that Concur has already implemented a Direct Connect for American Airlines’ hometown competitor–Southwest Airlines. If I was AA, I would be wondering why Southwest, whose distribution strategy provides many buyers with transparency, shopping and ease of use problems, gets a Direct Connect while AA gets vilified for wanting pretty much the same thing!

    My point here was not to address the technical solutions and players, but to note that the airlines are not yet ready to embrace a key set of players, travel agents, due to cultural and tactical unpreparedness. This, in my view, hurts their chances of being successful in executing a highly sensible strategy and can be relatively easily overcome (as we have started to do) with modest and inexpensive measures.

    Thanks for posting!

    Mike

     
  7. Jonathan

    Thanks for the very interesting article. I have some questions though- not to poke holes in your theory but rather for the purpose of having a thorough and comprehensive discussion on this topic.

    If all airlines move to DC and are committed to this direction, what will become of the shopping process of a travel agent? Suppose a customer walks in and ask for a Denver-San Fran-Hong Kong tickets. They typically want to know much the different airlines charge. Will the travel consultant have to log into the DC sites/solutions of 4-5 airlines just to make a booking and get a quote? Or have an IT team to develop interfaces to all 600 airlines in the world before they can achieve the same level of efficiency to serve their customers? I am not sure every travel agency (other than the TMCs) can afford such a development. And even if they did, are the airlines willingly to have a call centre to respond to potential connectivity issues that may come from the hundreds of thousands of travel agents globally? The other possibility is some IT provider will come along and aggregate content using DC to airlines and distribute this platform to travel agents- wont this then create yet another GDS?

     
 
 

Newsletter Subscription

Please subscribe now to Tnooz’s FREE daily newsletter.

This lively package of news and information from Tnooz’s web site provides a convenient digest of what’s happening in technology that drives the global travel, tourism and hospitality market.

  • Cancel