November 23, 2012

Reducing cost of sales not main reason for airlines’ direct distribution push

Reducing the cost of intermediaries is not the only objective for airlines when they work to achieve more direct distribution. Improved customer engagement and additional ancillary revenue - which is increasingly important for airlines - are arguably as important as cost reduction.

Most large airlines don’t want to give up the benefits of OTA’s or traditional travel agents nor do they want to dramatically increase advertising spend. Spirit Airlines advises that ‘tweaking’ channels will not fundamentally change airline distribution costs but that is the most likely course of action for the major carriers. It will take a multi-faceted plan with clear objectives to change customer behavior.

Airlines will sensibly continue to push for change and will continue to experiment with distribution alternatives. But a dramatic shift is unlikely in the medium term given the caution with which they are addressing this challenge. If some majors can increase direct penetration by 5-10 % points (from 50% to 55-60%) that would constitute impressive results over the next two to three years.

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