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Airline (Other Regional Slides can be found in the Appendix…)
In Europe today, Low Cost Carriers represent 35% of all passengers carried by the Top 10 Airlines.
Over the last five years, these 3 LCCs have grown passenger numbers by over 60%. The remaining 7 traditional carriers have gone through a series of consolidation, and have collectively grown passengers carried by just over 10%.
Indeed with such a high share of travellers choosing to fly LCC, this has become increasingly crucial content for OTAs to drive traffic & conversion
Passenger numbers and seat capacity have clearly grown globally over the years – mainly triggered by a changing economic and social landscape.
But where exactly is this growth coming from? Low Cost Carriers.
From a global perspective, this LCC expansion continues to overtake traditional airlines.
In Western Europe however LCC growth has slowed down relatively on the domestic network as network airlines claw back some share (growth of BA/IB/LHG)
In Eastern Europe however, LCCs are growing both in international and domestic markets.
What this means is that more new LCCs will come in to play, creating new travel providers for Travelport and new content for travel agents to access, often for the first time.
Low cost carriers (LCCs) are growing faster than the traditional airlines in most regions
After posting growth of 11.5% YoY in 2013 to reach 874m passengers, LCCs are expected to grow at 8% in 2014 and 10% between 2014-19 to reach 1,604m passengers by 2019
Growth reflects slower uptake in mature regions such as North America and Western Europe, and higher growth in under-developed markets of Latin America, Middle East and Africa.
Sources: Travelport, T2RL, CAPA
What are ancillaries? They are essentially an airline commoditising their products item by item, or seat by seat for example, putting choice and value directly with the traveler. They are critical to an airline’s profitability and they will remain a strategic focus for the foreseeable future.
The most popular ancillaries relate to seats, WiFi, travel insurance and beverages/meals.
Ancillary sales are the logical progression for Rich Content and Branding where you will be able to “look then book” and monetise by growing attachment rates.
Although not currently a major revenue stream for Travelport, ancillaries are becoming an essential element of our airline customers’ businesses.
Seats are the biggest priority for airlines, and this is where we have concentrated our implementation efforts – and where we have encountered the most difficulties
Going forward, we will focus our sales strategy on airlines that have signed up to Rich Content and Branding
In addition, we will utilize a cross functional team to drive up ancillary attachment rates
Price is clearly a key component of flight planning, and therefore offering the lowest available fare is a key measure of Search Performance. Being able to return the lowest lead-in fare option is always going to be important, whether you participate in metasearch, rely on organic search or a loyal customer base.
But we believe there are other criteria that are increasingly important.
Price is one of many variables that all weigh into the complex decision process that we go through when we decide upon a particular itinerary - whether that be the convenience of the flight times, number of connections, and accessibility of the airport – something that is an increasing consideration with some LCCs choosing secondary airport locations.
The reality is that the lowest fare is not always the most convenient
At some level convenience plays a role in our decision making, whether consciously or sub-consciously
Even on short haul, convenience plays a role. Want a flight to southern Spain? If you live in the south-east of England, you could fly to Malaga from Gatwick, Luton, Stansted, London City and Southend airports, with six airlines. You could also opt to fly to Gibraltar, Jerez or Seville instead...
Long-haul flights are even more complicated. For example variations not only include the fare, but the length of journey and the location and number of stopovers.
And it’s not just the unbundling of services – which have allowed the scheduled carriers to compete with LCCs directly on price in some cases - Airlines are mastering the art of upsell using methods seen in other retail environments (such as the automobile sector).
By bundling amenities into fare families, the pricing strategy of assigning a price point that seemingly represents better value than purchasing those amenities as individual options, actually encourages consumers to take the higher valued bundle.
Air Canada for example, have recorded that almost half of domestic consumers chose a higher branded fare. – what that ultimately means is that Airlines have found a way to get consumers to recognise value in the services they offer….if they pay extra for a higher branded fare, they obviously place value in what is included.
The fact that these Airlines can start to differentiate their offering and grow their revenue is why the airlines have put so much focus on displaying merchandising options.
The challenge now, is that the Airlines have created a product that is more complex, and today best (most clearly) presented on their own airline.com site.
On the left, you see how the airline site clearly displays the itineraries in a matrix that enables comparison of the prices of the fare families (in this case, Choice, Choice Essential, etc).
The airline site also allows the user to then explore the relative merits of each of the fare families and make an informed decision as to which meets their needs.
Airlines believe that the value of their products are best represented with this level of detail and differentiation. They want this value to be represented to the consumer, regardless of the channel used for booking.
On the right you can see how the same itinerary is represented on a typical OTA display
So what does this mean?
In the US, this development is being attributed in part to the shift in share between OTAs and Airline websites
According to PhoCusWright, this is one of the key explanations as to why in recent years spend on Air tickets on US OTA sites has flat-lined, while spend on the airline sites has grown.
This is the trend we need to address together….
So what’s the impact:
In the recent IATA study the majority of leisure agents surveyed feel at a strong disadvantage compared to airline websites to sell ancillary products or branded fares.
Close to 80% felt at a considerable disadvantage when it comes to selling ancillaries
And the responses from TMCs was very similar
So let’s take a look at how Smartpoint can help agents today
Just for Note:
75% perceive they are at an extreme or moderate disadvantage to compete with airlines to sell ancillaries
61% perceive they are at an extreme or moderate disadvantage to compete with airlines to sell branded fares
640m invested in the most relevant technology
One of the Largest non-military data centers
Our strategy is agile but remains focused
Sun with platform
Air hotel car, wifi , seats , bags , reviwes, chains independent
Content flowing in
Full content deal
The new full content
TVPT leads the industry
Over 128 carriers are now signed, including most recently the Lufthansa Group of airlines, and these airlines are now able to market their entire product suite and brand propositions in exactly the same way as they do on their own websites. So contrary to recent public rhetoric, airlines clearly see Travelport as an enabler for front-end value creation, which is in turn driving revenue growth for us.
Essentially, there is nothing that we are aware of that Lufthansa can do in its direct channel versus the indirect channel using Travelport. This means that the tens of thousands of travel management companies, travel agencies and corporate travelers who book using third party applications that are powered by Travelport can see and buy the entire range of Lufthansa product.
This is important not only from meeting the demands of our airline customers but also from a revenue generation perspective since each carrier that has implemented this capability pays Travelport a small additional premium fee for each booking made. And this in turn drives something we measure and report on called RevPas about which more later.