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Tuesday, July 05, 2011

News Flash: AA Gerard Arpey "All we need is $10 more per passenger per day"

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I can't resist commenting on the Wall Street Journal's article last week on American Airlines, entitled "American Air Strains for Lift".

In the article, authors Susan Carey and Timothy W. Martin cite the fact that AA has "racked up $11.6 billion in losses in the past decade, and hasn't enjoyed a profitable year since 2007".

But what caught my eye, was AA CEO Gerard Arpey's quote  "We carry 250,000 passengers a day. All we need is $10 more [a passenger]."

Perhaps Gerard has not seen the numbers from the Airline Reporting Corporation about the difference in yield from the various channels.  If he had, he would seek a much quicker resolution of the current debate with Sabre and Travelport.

Do your own math Gerard.  

These numbers are from the Airline Reporting Corporation from the end of the 1st Quarter of 2011 for all tickets sold through the agency channel (online and offline).  

The airline direct numbers are assumed to be the same as the OTA price (based on what we see on Kayak, so let's go with that number).  We have not included any internal cost to the airline direct channel, although we instinctively know that this is NOT the case and their actual net per ticket is lower than what is shown.
Assuming that you match the OTA in price and you actually have NO internal cost (which is not realistic), even if you paid traditional travel agents a 10% commission on sales and even with the current GDS fees,  on domestic tickets you make $32.89 more by selling through a mega agency and $26.49 more through the average agency.  

On international tickets, you make $815.24 more for mega agency (TMC) issued tickets and $67.83 more through average brick and mortar agency ticket sales.  

So rather than burn up so much energy (not to mention legal fees) on the fight with the GDSs, you could easily achieve your $10 per passenger goal by just shifting distribution away from AA.com and the OTAs back to the traditional brick and mortar agency community.

If you want the GDSs to come to you through Farelogix, that is fine too.  Just don't expect the agency community to be able to afford to [and to quickly] change their internal environments should you decide to cut the GDS out of the equation.

Radical?  Yes.    But give it some thought.  The agency community is a variable cost channel and yields a higher average net ticket price.   

Maybe the good old days of distribution actually were good.......




 

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