You already know the history of the airline distribution landscape. To summarize, initiatives like New Distribution Capabilities NDC and One Order are already changing the current system. Indirect sales now account for a larger portion of the market share than direct airline sales. For this channel, Online Travel Agencies (OTAs) and Travel Management Companies (TMCs) reign supreme. Although not a big player in the US market, travel agents play a large role in other areas of the world, like China.
It's interesting to see how OTAs still rank higher than airlines in overall customer satisfaction. The Chinese market is heavily dependent on travel agencies, with over 75% of booking performed through OTAs. LATAM customers prefer payment plans for their travel booking, and flock to OTAs like “Despegar” that offer this service (source).
According to the Future of Airline Distribution 2016-2021 Report, older consumers 65+ as well as emerging markets and developing economies (like Mexico, Indonesia, and Turkey) will play a bigger role in airline distribution systems and third-party channels.
So, what are you to do in the midst of all this change?
Revenue diversity is increasingly important. OTAs make a lot of money and already make up a sizable portion of the market share of your profits. Additionally, reaching consumers in international markets requires establishing successful with travel agents, OTAs, and TMCs.
Let's look at OTA's as partners. These agency channels require a closer look and deeper understanding. Big data will be important for understanding customers and markets, as well as agency performance and definition of future incentive schemes.
8 Steps to Work More Effectively with Agency Channels
- Identify Emerging Markets and Customers: Like the LATAM example, airlines have to take a hard look at emerging markets and which sales channels they’re using. As the population grows, so does your customer base, each segment with different search patterns, buying behaviors, device preferences, etc.
- Differentiate your strategy: What works for Chinese customers and agencies, probably won’t work from Western markets. Cater as much as possible to local needs and set up contracts and incentive schemes based on this data.
- Know your agencies’ priorities: Saving time, attaining new customers, increasing profit, improving service…agencies want to increase in efficiency alongside you. Knowing your OTAs strengths, market, and objectives (low-cost, upselling, personalization) will help you establish the proper strategy and incentives. You’ll both tap into new customer bases!
- Consider the Past and the Future: Define sales promotions, incentive contracts and deals for agencies considering past performance as well as market potential. The platform you use for Channel Management should be able to carry out incentives simulations and modelling to optimize your cost of sales.
- Constantly Communicate with Agencies: Agencies need information about their performance and opportunities. Identify gaps and growth opportunities, offer incentive based on sales targets and market share growth. Constantly undertake monitoring actions. These figures are important to agencies since they affect their profit margin.
- Identify Agency Profitability: Some OTAs and travel agencies simply aren’t profitable. You need to properly identify the profitability of your agency channels in order to factor them into your strategy – or not. Your airline may choose to drop agencies that aren’t meeting their targets, that can’t sell bundled fares or ancillaries, or that only cater to low-cost travelers.
- Keep up with Technology: Combining technology with real-data on agencies from multiple sources will be the defining point for your airline in the future. Consider the costs of managing and incentivizing so many different agency players, as accounting/finance, legal, IT, and other departments are involved. The platform you use can make or break your strategy for Channel Management, and in turn, your sales revenue.
- Always Be Changing: The distribution landscape moves fast, and what worked last year, or even last quarter, might not work in the future. You need a strategy that is dynamic and can rely on real-time data.
If you follow these 8 steps, you will discover that your airline is one step closer to having a more effective and successful relationship with OTAs, TMCs, travel agents, and other partners. In addition to the direct channel, indirect sales through the agency channel can be a big source of revenue if managed effectively. You’ll diversify revenue and enter markets that were before unreachable!
For effective Channel Management, Accelya’s Channel Management Suite acts as a single platform for ingesting data, modeling incentives and deals, providing insights, and monitoring performance.