Tuesday, January 16, 2007

Expedia pull-out could certainly set precedent

Anyone who was surprised by American Airlines’ recent decision to yank US first class and business class fares off the Expedia.com web site should take a stroll down the cluttered runway that is aviation distribution history.

For starters, American’s move is almost comical - though probably not to Expedia bosses. The airline was a co-founder (or co-conspirator depending on who you ask) of the online distribution phenomenon.

Like its peers, American initially viewed the internet as the anecdote to the pricey GDS.

The airlines still do see the internet that way, only today they’ve twigged that it only really works on the balance sheet if the majority of sales are coming through thier own sites.

Well, hindsight is always 20/20.

American’s recent move is a sort of revelation. You can almost here AA accountants asking, “Hang on a second…why aren’t we controlling the sale of our premium fares?”

To use an old, yet quite applicable adolescent term: Duh!

Sure, Expedia existed and was already a household name before American, along with four other US major carriers, established bucket-fare site Orbitz. But, way back in the late 90s, before anyone figured out just how much power the internet would wield over airline distribution, the likes of Expedia weren’t a threat (even though, of course, they were).

Northwest Airlines sniffed the danger in 2002 when it pulled net fares off the Priceline website, so, again, this is not exactly a new tune American is singing.

The airlines have gone several rounds with the online players over the years in an attempt to claw back control over their most valued products.

American’s recent move simply highlights the point that the airlines have figured out that handing over total control of their inventory is destroying their yield and that they must do something about it.

In other words, it should not come as a surprise if other carriers soon follow American’s lead.

As for where that leaves Expedia...well, you could almost argue they will be left right back where they started and doing what they do best: selling the heck out of cheap fares.

Tricia Holly Davis, chief writer, Travolution


Anonymous said...

I understand AA's point of view. I believe their strategy has to be to drive all bookings through their most cost effective channel aa.com and if customers choose to book online with AA, it should be at AA.com.

This in the future should be the case with all of its bookings through online players like Expedia, and not just First and Business class.

If Expedia have no unique selling point, then customers will use them as a price comparison site to check who flies to their chosen destination and then visit the airlines websites direct.

Looking at Internet usage stats you can see that lots of Expedia downstream traffic is to airline websites, where airlines are guaranteeing lowest fares.

Travolution Blogger said...

A good point indeed. At it's most basic level Expedia's value proposition, and I don't think I'm talking out of school here, is that it enables consumers to compare various airlines prices and schedules.

But more than that, Expedia enables consumers to price and compare hotels, car rentals, cruises and tour packages, and book value add-ons, such as concert tickets.

Expedia does this in an easy-to-use format and has consistently improved the user experience.

Regardless of how much money the airlines claim to have invested in thier own sites, the sad fact is that they are simply not as good as Expedia at delivering a quality "online experience".

Until they get that part right it would be an expensive mistake to withdraw all of thier inventory from online agents' sites.

There is an argument that the airlines are in a better position than say hotels to capture online shoppers becuase the majority of trips begin with the airline journey.

In addition, it is true that, while travellers may use sites like Expedia to compare prices (many feel they would be remiss otherwise) they tend to stick to their preferred airlines.

Thanks to mileage loyalty schemes, it does take a lot to convince a loyal customer to switch carriers.

Keep in mind that American pulled its first and business class fares, not economy. In other words, if you're flying first or business on American then you probably are an AAdvantage frequent flier customer or a business traveller, and are not likely to book with a different airline anyway, so why would American continue to pay Expedia for bookings that it is likely to get direct anyway?

Further, save for the east and west coast cities in America, a large portion of the country is dependent on one or two carriers. They can compare all they like on Expedia, but if they live in Owesnboro, Kentucky, for example, American Airlines is the only choice.

So, as for the downstream traffic to which you refer, you are probably correct that Expedia is responsible for sending a considerable number of customers to the airlines' own sites. However, they are, I'm sure, much less successful at driving customers to switch from thier local and/or preferred airline to a competitor.

If they could do that, then I think American might very well re-think its strategy.