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Wednesday, October 31, 2012

Per ARC, YTD Mega agencies are holding steady on Domestic Air Tickets Issued

According to the Airline Reporting Corporation, for all three quarters to date of 2012, Mega Agencies have issued 25% of the domestic airline tickets issued by the agency community.

The Online Travel Agencies (OTAs) grew as a percentage of total transactions (42%) in the 2nd quarter, but reverted back to 41% of total agency sales in the 3rd quarter.

The number of tickets issued by all other travel agencies in the US grew to 34% of total in the 3rd quarter, after a slight dip in the 2nd quarter.


Tomorrow we will look at the corresponding split in sales for domestic air tickets issued by these three constituents.

Stay tuned.

Tuesday, October 30, 2012

International gap between travel agents and online grows larger


This is the second in a series of blogs this week about the 3Q2012 Airline Reporting Corporation  statistics.   Today's topic is the average value of an international airline ticket.





This graphic tells several stories.  


First, it shows that quarter over quarter, for the first quarter all channels were up as it relates to the average value of an international ticket.  In the second quarter, the travel agent channel (both mega and other) were down, with only the OTAs showing an increase.  but in the third quarter, in all three categories, fares were down.  Like domestic ticket pricing, this is good for consumers, bad for the industry.  

In the third quarter, the average value for mega agencies was down 3% from $1,539.76 to $1,487.15.  For online agencies it was down 10% from $551.14 to $495.62 and for all other agencies, it was down 5% from $769.75 to 732.30.    

With online having the greatest decline, you can be fairly certain that the airline's own average for sales over their website are following that same trend.   This is born out by a simple search on Kayak for just about any city pair -- the airline price is as low or lower than the online travel agency price.

So if you are an airline and you are trying to shift international travelers from a travel agency to your own website, I have just one word for you - STOP.  

Second and most important in this analysis is the gap between the Mega agency and online and the gap between all other agencies and online.  This is the critical issue when looking at the value of each channel for the airlines.  

In 3Q2012, the Mega agencies produced an average ticket that was an astounding 200% higher than the online channel.  This $991.53 is sure to cover any commissions/volume overrides and the GDS booking fee.  On average, the total of these two items on a $1,487.15 ticket would be no more than $164.71 (assuming a 10% payment to the agency and a $16.00 GDS booking fee).  That leaves $826.82 of profit for the airline on top of the fare that they would have earned by selling on their own website.

In the same quarter, the gap for the other agencies over online was $236.68, a 48% gap.  Using the same calculation methodology, that leaves $147.45 in profit for the airline.  

As always, if you are an airline, I urge you to run your own numbers and do all possible to sh

Tomorrow we'll look at percentage of domestic business coming through each of the channels, then on Thursday, we'll look at the international business mix.

Stay tuned.

Chicke Fitzgerald, strategist and resident iconoclast

Monday, October 29, 2012

Year to date ARC sales are up

According to the Airlines Reporting Corporation, as of the end of the 3rd quarter there are just 13,709 travel agencies in the US.  These agencies have produced air ticket sales of $66.6b year to date, up 3.77% from the previous year to date number.   That $66.6b is broken down as follows:

Domestic Fares

             $28,597,618,2582.13%
International Fares

 $25,499,048,259-1.97%
Total Fares

 $54,096,666,5180.16%

 
Airline Fees

 $4,892,226,73963.17%
Taxes and Non-Airline Fees

 $6,864,189,8676.49%
Total Taxes and Fees

 $11,756,416,60624.48%

Airline fees (aka ancillary fees) sold by the travel agency industry are up 63.17 year over year.   Taxes are up just 6.49%.

The last time that the number of agencies was this low was 1977.  In 1977, those agencies produced just $9.3b in air ticket sales.

At that time, the industry was just about to be changed forever by both deregulation and the advent of the Central Reservation System on the travel agency desktop.  The availability of such technology to improve accessibility of information, as well as productivity has been a boon to the industry for nearly 35 years.


The number of travel agencies in the US hit a high of 47,286 in 1996 and have been declining annually since then.  Although it would appear that we are declining as an industry, times have actually changed for the better and overall on average, the remaining agencies are bigger and stronger than their 1977 predecessors.


Today's ARC agencies are split into three major groups - first is the Mega Agencies, which includes American Express, CWT, BCD, HRG, Maritz, Omega, CWT/SATO and SATO.  These mega agency groups were largely a product of the rollup of smaller regional agencies and acquisition.  The second category are the balance of the brick and mortar agencies.  The last category are the Online Travel Agents.  The primary OTAs include Expedia, Priceline, Orbitz and Travelocity and their sub-brands.

The Online/Brick and Mortar agency gap is widening on domestic ticket sales

As the GDS/Airline battle is being waged in a courtroom in a state district court in Texas, I'd like to take this opportunity to put to rest the discussion about the profitability of airline direct versus the GDS driven agency channel.  

This is the first in a series of blogs this week about the 3Q2012 Airlines Reporting Corporation  statistics.  

And unlike survey data which can be seen as suspect, depending on who is procuring the study and how many are in the sample, this is actual transactional data and it is current through the end of September 2012.  

For a number of years now, I have been providing an assessment of the travel agency channel as it relates to the sale of airline tickets.  The Airlines Reporting Corporation is gracious in providing market segment data for this analysis.  They play a critical role in our industry, settling the bulk of airline tickets sold in this country by the agency community, including both traditional and online agencies.  

And while there are some agencies that bypass the GDS for some portion of their airline business, the bulk of ARC transactions do indeed get sold via one of the three major GDS companies (Amadeus, Sabre or Travelport - with their Apollo, Galileo and Worldspan products).



This graphic tells several stories.  


First, it shows that quarter over quarter, for the first two quarters of the year, the average price of an airline ticket sold through Mega agencies, Online agencies and all other agencies (13,709 agencies all told), was up, but in the third quarter, in all three categories, fares were down.  This is good for consumers, bad for the industry.  

The average value for mega agencies was down 6% from $414.30 to $389.30.  For online agencies it was down 10% from $316.98 to $285.26 and for all other agencies, it was down 7% from $410.19 to 380.91.    

With online having the greatest decline, you can be fairly certain that the airline's own average for sales over their website are following that same trend.   This is born out by a simple search on Kayak for just about any city pair -- the airline price is as low or lower than the online travel agency price.

Second and most important in this analysis is the gap between the Mega agency and online and the gap between all other agencies and online.  This is the critical issue when looking at the value of each channel for the airlines.  

In 3Q2012, the Mega agencies produced an average ticket that was a whopping 36% higher than the online channel.  This $104.04 of course must still cover any commissions/volume overrides and the GDS booking fee.  But on average, the total of these two items on a $389.30 ticket would be no more than $54.93 (assuming a 10% payment to the agency and a $16.00 GDS booking fee).  That leaves $49.11 of profit for the airline on top of the fare that they would have earned by selling on their own website.

In the same quarter, the gap for the other agencies over online was $95.66, a 34% gap.  Using the same calculation methodology, that leaves $41.56 in profit for the airline.  

Someone will have to explain to me why that is not appealing.  I have yet to hear a convincing argument.    

Lastly, look at the trend over the three quarters.  The gap is getting larger, not smaller.  

Now before you get riled up, I want to go on record that I fully support the airlines using newer technologies, such as Farelogix and GDSx, to enable smarter distribution of the airline's full range of products.  But I am once again reaching out and appealing to the airlines not to throw out the baby with the bathwater, because you think that the agency channel, [or more succinctly, the GDSs that currently aggregate this high value demand] is no longer viable.  

Look at the numbers one more time and then take a look at the Pegasus model that has been deployed successfully in the hospitality industry to tap into the existing distribution structure.  I believe this could be the right model for the airline industry moving forward.

Tomorrow we'll look at the same set of data for the international tickets sold by US ARC agencies.

Stay tuned.

Chicke Fitzgerald, strategist and resident iconoclast





Sunday, October 14, 2012

Top 10 Travel Distribution Fallacies - #11 The Air Traveler is where the money is





The Air Traveler is where the money is

 

This particular fallacy is perhaps the most powerful and disturbing of all.

It is one that to this day, still astounds me.

Not because it is difficult to prove, which it is not.  But because even faced with proof, the industry as a whole, including the trade press, the investors who focus on the industry and the conferences that service the industry have completely and utterly ignored the real facts.

Air travel is a niche market.

There I've said it.   Again.

Nearly seven years ago I raised $7m to build a solution to address the mass market of this industry.  The demise of the company is a story for another day.  (Actually it was documented in my book Bootstrap Business, co-authored with New York Times top selling authors Tom Hopkins | How to Master the Art of Selling, Jack Canfield | Chicken Soup series, and Jon Christensen | Fish)

Two years ago, I did a syndicated study with Mandala Research to expose the facts.  Surely the industry would see the opportunity.  I even hosted a Think Tank.  About 30 forward thinking companies supported the study and attended the Think Tank.  We called it Project 85.  That is because the air travelers represent just 15% of overnight travelers in this country.  That leaves 85% that do not fly.

Bottom line?  The opportunity is huge.  I'm in the midst of building out a new solution (just can't help myself) to address the wide range of non-air markets that the industry either takes for granted that they will get via their air traveler centric marketing or that they are just flat out ignoring or discounting.


 


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Bottom line?  Give me your ideas.  Perhaps we can innovate together.

Oh and as a postscript, PhoCusWright indicated in the spring that they were going to do a drive market study.  When PCW speaks, the industry generally listens.  Can't wait to see the outcome of their study.  I'm betting it won't be substantially different than the statistics published by US Travel for the past 10 years, validated by my last two studies.

OK, I'll sit down now.  Perhaps I'll take an overnight road trip while you ponder the opportunity.  That would be me and 850,000 other travelers this year.








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