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Monday, May 21, 2012

Anti-disintermediation - The airlines should be leading the charge!

NOTE: Corrected Version

In commerce, anti-disintermediation is a term used to describe the preservation of intermediary positions.

Today's consumer can access goods or information on the Internet that traditionally required the assistance of an intermediary such as a retailer, travel agent, or banker. By cutting out the middleman (disintermediation), e-businesses are able to sell goods and services more quickly and efficiently, and for lower prices.

The question remains - does the middle man (or the technology that the middle man uses to connect buyers and sellers) play a valuable enough role that it should not be disintermediated.

If we look at this hotly debated topic in the travel industry from the consumer perspective, we can come to one set of conclusions and if we put on our supplier hat, we come up with an entirely different answer.

Let's look carefully at the latest Airlines Reporting Corporation numbers.   ARC reports tickets sold by the travel agency community, including Mega Agencies (TMCs), Online Agencies (OTAs) and all other agencies.  

First, domestic tickets sold by the agency community (both sold and wholly flown within the US).



In the first quarter of 2012, 25% of all domestic airline tickets sold by the agency community and 28% of all revenues from the sale of domestic airline tickets by agencies were attributable to the top MEGA agencies (Amex, CWT, BCD, HRG, Maritz, Omega and SATO).  The average ticket price (based on fares versus taxes/fees) was $395.76.  This is $84.50 and 27% higher than the average online ticket.  The assumption here is that the average online ticket price is very similar for OTAs and for airline/supplier direct.  This can be demonstrated easily by searching on any of the metasearch tools, such as Kayak. 

Translated through the supplier lens, the large TMC channel is a great way to sell tickets, even if it requires paying a commission and a GDS booking fee. 

Now, lets look at the balance of the 13,000+ agencies in the agency community (non-MEGAs).  The story is actually not so different.  The average ticket price is $393.58, which is $82.32 higher than the average online ticket, or 26% more than an airline gets when selling through their own site (or via an OTA).  These agencies issue 34% of all domestic tickets sold by agencies in the US and produce 37% of all revenues from the sale of domestic airline tickets sold by agencies.

Again, through the supplier lens, they should be pushing as much business through the agency channel as possible.

From the consumer perspective, it is important to understand that the airline ticket does not COST more through the agency channel.  It is that the dialogue is simply different.  Online typically presents the lowest cost first, even if price is not the consumer's criteria.  An agency asks lots of questions - who are you traveling with, when do you need to be there, do you want a non-stop.  Each of these helps refine the process to produce what the customer actually wants for a given trip.

Now, lets shift to International.


For international, a much smaller percentage of transactions (13%) sold by the agency community comes through the MEGA channel, but the average fare is more than twice that yielded by their brick and mortar agency counterparts and three times that of their online counterparts.   

The story here is that the MEGA agencies are by and large handling a more complex itinerary and these large TMCs sell more first and business class travel internationally than their brick and mortar counterparts.  The online international transaction is a simpler one and more focused on finding great deals, which may in fact drive the destination choice.

There should be no doubt in the minds of an airline executive that selling a ticket that is $1,020.39 higher than the average online transaction through a MEGA agency is a good thing and even an international ticket that yields on average $262.31 more than an online transaction is also good.  Both amounts are more than sufficient to cover a commission and a GDS booking fee AND still produce a higher profit than online.

It is clear from all these statistics that consumers will still advocate for disintermediation and the right to choose and that there is a time and a place for booking online or supplier direct and a time to put yourself in the hands of a professional to guide you through your options.

It is equally clear from these statistics that the airlines should actually be the ones leading the anti-disintermediation charge.   

Stay tuned.
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