Distribution - Branching Out
It may not seem so at first glance but new distribution models are rife. Creating a stronger framework for the industry is vital
Nothing is quite what it seems in the world of distribution. Even as new channels come online there is an air of familiarity. Even as customers shy away from face-to-face contact, airlines have come to know more about them.
“Distribution channels are becoming increasingly complex,” says Javier Gallego, IATA’s Director Distribution Services. “But at the same time, improvements in services and products offer cost savings and greater ancillary revenue opportunities for the airlines.”
Same old story?
Despite earlier predictions of travel agent doom in the Internet era, the reality is that travel agent numbers are stable. About 70% of IATA member airline ticket sales continue to be via a travel agency, be it in a local office or on the web. In emerging markets, such as the Middle East and parts of Asia, the proportion is even greater.
This big picture has important ramifications for airlines and the airline-customer relationship. For airlines, it makes the infrastructure behind travel agent channels vital. IATA’s Passenger Agency program facilitates sales through a network of accredited agents. Some 70,000 agents are registered, and adhere to rules and procedures set down by the Passenger Agency Conference. This group meets each year to discuss the agent framework and propose initiatives aimed at greater efficiency.
IATA Billing and Settlement Plans (BSPs) offer airlines the opportunity to sell travel products via accredited travel agents. In 2009, these processed some $191 billion in sales. New BSPs were implemented in Ghana, Vietnam and Kyrgyzstan—crucial new markets still heavily dependent on travel agents—bringing the total to 86 BSPs worldwide, and covering 168 countries and territories.
“BSPs reduce airline distribution costs and, at the same time, provide agents with a cost-effective system for selling the products and services of participating airlines,” says Gallego. “The existence of BSPs enables airlines and agents to save on administrative overheads through the simplification of the selling, controlling, and reporting of sales and settling of monies due. It also streamlines their service to customers.”
BSPs have a tremendous amount of data, ready to be mined by airlines. Most obviously, they can get to know who is selling their product. The agent accreditation program has a unique numbering system. This has created a database, which IATA uses for a suite of solutions called Global Data. There are approximately 10,000 updates each month by IATA worldwide offices, delivering an up-to-date picture to customers. The aim is to build and maintain professional distribution networks worldwide.
“The entire industry supply chain—airlines, hotels, car rental companies, and more—can use this information for a number of activities, from fraud prevention and e-marketing campaigns, to facilitating critical functions such as revenue accounting,” says Gallego.
What’s in a name?
Knowing who sells your product is just one important part of the equation. Knowing who buys the product is the game changer. Airlines have been helped in this regard by one notable change in the distribution model. Travel agents are shifting inexorably towards an online environment.
Again, all is not what it seems. Although face-to face contact between agents and customers is dwindling, airlines are building a stronger relationship with their passengers. An online environment is actually allowing a clearer picture of customers’ buying habits to emerge. Removing the daunting forests of paperwork has allowed airlines to discern the wood from the trees.
For example, ancillary revenues represent a strong new trend for airlines. Airlines are expected to extend their ancillary revenue efforts across all distribution channels. “E-services will play a crucial role in facilitating distribution as the model currently stands,” says Gallego. “These electronic miscellaneous documents can be used by IATA accredited travel agents to collect charges for ancillary revenue streams, providing passengers easier access to these services.”
Standardization will allow the reams of data produced to be mined more easily. Airlines will begin to understand who values what service. Combined with the ability to unbundle the product, this gives airlines a powerful tool for maximizing revenue opportunities.
But the situation is changing by the day. All of this could be undone as Internet giant Google enters the fray. Purchasing ITA Software (one of the web’s key providers of airline travel software) could be its first move into the airline data world. The understanding that the software company brings to personalized travel decisions could rebundle the product by suggesting packages to travelers that perfectly suit their needs.
The ITA Software deal is currently being scrutinized by the US Department of Justice, which is looking into claims that the $700 million deal would give Google too strong a presence in the online travel market.
Airline reliance on the agency distribution channel carries with it a need for reliable payment and security measures. Over the past decade IATA has handled some $1.6 trillion of the industry’s money with a collection rate of more than 99.9%. At the same time unit rates have fallen nearly 80%. More can always be done. The protection of member funds is a top priority for IATA, and the security framework continues to be strengthened. Measures being implemented include:
- The standardization of remittance and settlement (R&S) processes globally
- The centralization of R&S functions to regional hubs
- Strengthening segregation of duties to increase financial control
- Introducing simplified process controls, such as voluntary more frequent remittance instead of ad-hoc prepayments
- The development of standard, global tools
“These enhancements will ensure fast, efficient and secure distribution systems for airlines and agents,” says Gallego.
Ralph Kaiser, President and CEO of UATP, agrees that payment methods should be carefully analyzed by the airlines. “Airlines are paying hundreds of millions of dollars each year to process credit cards,” he states. “Is this acceptable? No.
“Payments need to evolve too, and those airlines that get a handle on the high cost of credit cards will gain competitive advantage, just as they did with speed-to-market on ancillary revenues and channel development,” Kaiser concludes.
For more information visit www.iata.org/travel-tourism