Airlines wise up to the web

The internet is heralding a return to the ‘golden age’ when carriers had almost total control over distribution.

“It may not always be profitable at first for businesses to be online,” Internet guru Esther Dyson once said.

Such was the thinking also at British Airways when it launched BA.com a decade ago.

“Back then, BA.com was just an information tool. We knew the internet would have a major effect on business but were just in the pioneering stage,” says Carsten Willert, the new head of the airlines’s online division

Looking back, the world then seemed a lot simpler and rosier. Yields were on the rise; BA’s business efficiency programme had padded savings to the tune of £250 million; and it’s investors cooed over robust employee profit-sharing schemes and record bonuses. Then, the concept of BA.com as a global sales giant was non-exitent. In fact, the airline’s e-business strategy barely warranted a footnote in financial statements until 2000, when BA joined the first European multi-airline travel portal Opodo, and hired a web consulting firm to ramp up its online presence.

Still, such was the early momentum of the internet that by 2003, even without an aggressive online strategy, BA.com was tallying 10, 000 bookings daily. “A year ago, BA.com was taking 20% of our bookings. That has now jumped to 41%, taking share away from the trade and our telephone sales unit,” said then-chief technology officer John Movement, during a 2003 investors’ confidence.

That statement telegraphed the devastating impact of the internet on bricks-and-mortar business units. Indeed, what has happened to the travel agent industry over the past few years, and changed in business model to respond to such a fundamental shift in consumers behaviour, is likely to be followed in other parts of the industry in the coming years, observes JP Morgan aviation analyst Chris Avery.

By strengthening their own websites, the airlines are preparing to give the established online agency a run for their money, and perhaps once and for all seal the fate of the global distribution systems. The network airlines are also poised to claw back some of the volume lost to low-cost carriers over the past few years. A lot is at stake. A recent PhoCusWright study found that the US is actually reaching saturation point in terms of internet usage, resulting in a larger focus on the European market. According to PhoCusWright, the European online market, including leisure and unmanaged business travel is worth 41.6 billion euro. SITA, an industry infrastructure provider and consultancy, estimates European online sales account for about a quarter of all tickets issued (compared with 63% in North America), leaving plenty of room for growth.

“Today, we’re moving into a new era, where the website is about serving as much as selling,” says Willert. In this next phase, the airlines’ own websites will serve as to cut costs. Until recently, the carriers had mainly viewed the internet as a dumping ground for cheap fares and a way to compete with no-frills carriers.

Tomorrow’s World

 

In the future, web-savvy teeny boppers of today will have grown up into even savvier adults and will expect technology to escort them through every portion of their journey.

The airlines are positioning themselves to greet this new generation of traveller and gain control over the entire customer purchase. Through new technologies, the airlines will lure passengers to their websites with lower, more flexible fares, dynamic packaging options, and the ability to electronically escort passengers from the point of booking to the point of boarding.

 

Certain airport security functions could even be circumvented by booking direct through an airline’s website, as carriers form exclusive agreements with, or possibly acquire, mobile technology which can identify passengers and speed airport security in the same way retina scanning is used today.

“The airlines have a great opportunity to win back more control over their business, as more [transactions] are dealt with on the airline’s website” says JP Morgan analyst Chris Avery.

 

In the near future, consumers may well start to use one-stop-shop concepts, and buy other parts of their trip via the main site that ‘hooked’ their business in the first place.

 

Avery adds: “The airlines have a significant opportunity to win the growth of the aviation industry back on their own websites. However they need to be fresh, fast-moving and relevant in order to capitalise on their head ‘consumer-inertia’ and brand advantages over independents and stay ahead of the competition.