Airline Distribution

Air Transport Management Seminar Universidade Lusofona Lisbon 7th - 11th January 2008

Dr Keith Mason
Director Business Travel Research Centre www.businesstravelresearch.com Dept of Air Transport K.Mason@cranfield.ac.uk

Distribution - Factors affecting distribution strategy

• Airlines drive to reduce costs
• Distribution has been around 20% of operating costs

• Airlines wishing to have more direct contact with their clients • Technology has provided the possibility of a direct channel between the airline and its customers • Disintermediation - as airlines doubt the ability of agents to influence customers’ choice • GDSs fees • Large corporates are more professional in the way they purchase travel products

Star Alliance Carriers collective spend over USD $11bn on distribution
Description
Total Mainline reservations, sales, advertising and promotional cost, by category 2004 est.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Sources: Form 41 4Q03, Star Alliance

Cost Q3 03
8% 2% 2% 7% 18%

Advertising & Promotions 20%

Media Personnel Loyalty Programs Other

CRS / GDS Fees

Other Reservations & Sales 60%

Credit Card Fees

18%

Salesforce /Reservations Benefits Management & staff

5% 6% 3% 8% 19% 1%

Cargo Comm. 1%

Other

Pax Comm. 19%

Passenger commissions

Cargo commissions

The distribution value chain

• Airlines spend $5bn per annum on GDS fees • Cost as % of ticket prices
• GDS 8 - 11% • Travel Agency 1 - 2% • Mercantile fee 2 - 3%

Source: UATP(Universal Air Travel Plan), Airline Business July 2005 and July 2006

Airline Distribution Channels

• Direct
• • • • Sales offices Call centres Website Corporate travel website

• Indirect
• • Traditional travel agents On-line travel agents o Travelocity, Expedia, Priceline.com, last minute.com, … o On-line travel portals -