Which BIG airline just pulled out of three booking sites?

american airlines orbitzAs you’ve read here on Gadling, the battle between airlines and online travel agencies is poised to heat up. For the past few years, a dismal economy has sent many bargain-hunters to online travel sites with the hopes of finding fantastic deals and minimizing the pain in their wallets. Yet, with the travel market and the broader economy showing signs of recovery, airlines‘ brand power will gain momentum, and customers with more cash at their disposal will favor convenience and recognition over saving a couple of dollars. A battle for your money and your loyalty is brewing.

And, it’s just intensified.

Last month, American Airlines and Orbitz tangled over fees and the booking process, with the airline threatening to yank its inventory from the travel site, a threat on which it made good. After a temporary restraining order was issued, a judge ruled yesterday that American could pull its inventory from the online travel agency and ordered Orbitz to stop selling American Airlines tickets and displaying its fares.

Now, Delta‘s getting in on the action.

The airline has yanked its inventory from a handful of smaller online travel agencies, Aviation Week reports, including CheapOair, OneTravel and Bookit as of last Friday. So, if you’re hunting for cheap tickets on these sites, you won’t run into Delta any more. Aviation Week observes that it appears to be “part of a partial shift in its distribution strategy,” and notes that it seems different from American’s move with Orbitz.For Delta, the decision looks like it’s part of an effort to consolidate around larger online travel agencies, while American is targeting agencies directly, rather than using an intermediary to reach another intermediary.

While the means may be different, the objective appears to be the same. With a shift in the economy, airlines have a bolstered position in the marketplace, and this is likely to give them a bit more weight in dealing with online travel agencies and in reaching consumers directly. For American, it seems like a play to reduce costs and increase efficiency – as it is for Delta (though through different means). Ultimately, however, Delta wants more direct action from consumers, which reduces its sales costs and increases profits, which is what differentiates its decision from that of American.

According to a statement by Delta in Aviation Week, “Delta is being more selective in our use of online travel sites in the future as we continually work to improve our online distribution strategy.” The company adds, “We continue to make significant investments in delta.com to make it an industry-leading travel site, and we believe that delta.com will become the preferred online site to book travel on Delta.”

A representative from CheapOair was not available for comment.

I asked Douglas Quinby, Sr. Director, Research, at travel industry research firm PhoCusWright, his thoughts on Delta’s decision, and his reply was pretty striaghtforward: “The only surprising thing about this move is that it has taken this long.” He explained, “U.S. airlines have impressively restrained their appetite for growth (i.e. capacity) on the back of a (more or less) recovering economy. With clear control of their inventory, airlines have already started rationalizing distribution, and the weakest links are first to get snipped. American may have jumped the gun a bit with Orbitz, but believe me – we ain’t see nothin’ yet!”

So, what’s the net effect of all this? Do the actions of Delta and American suggest that we’ll be paying higher fares in the future because of behavior that doesn’t benefit the consumer? My bet is that the average fare buyer won’t see a whole lot of difference, especially given the share of sales already owned by the airlines via their own websites. The infrequent leisure traveler, especially, is losing an alternative … though it’s one that won’t be as important in a recovering economy.

[photo by boeingdreamscape]

The death of cheap tickets? Four factors to watch!

Will cheap tickets continue to be around?Are the days of bargain pricing over? There’s a lot of pessimism around this issue. After getting smacked around in 2008 and 2009, this year has been a good one for air carriers, and USA Today reports: “Airfares are on the rise again and unlikely to fall again anytime soon.” Yet, a travel industry recovery comes with advantages, as more people want to fly, and they tend to be willing to stomach higher prices. So, what’s the deal? Are we going to pay more (happily), or will 2011 means continued a continued prowl for cheap tickets, particularly online?

There’s no doubt that the airlines are getting more of our wallets. The U.S. Department of Transportation says that the average domestic ticket surged 13 percent – from $301 to $341 – from the second quarter of 2009 to the second quarter of 2010. That’s the fourth quarter in a row domestic fares rose.

Now, airlines are price-takers, not price-setters. What does this mean? They respond to what consumers are willing to pay … they don’t set the tone for the market (e.g., the way a luxury goods manufacturer would). So, if fares are shooting up year over year, a consumer willingness to pay is certainly implied.

Individual airline fare increases are pretty interesting, with United Airlines up 25 percent on average for is period and discounter Southwest adding 15 percent, on average, to every ticket.

According to USA Today, airfares are climbing for three reasons:1. Tension between capacity and demand: during the recession, airlines cut capacity in an effort to lower operating expenses and keep their margins from getting throttled. Available seat miles plunged more than 12 percent from the fourth quarter of 2007 through the end of 2009, according to the Air Transport Association. But, travelers are coming back. Demand is up, and there isn’t as much supply on hand. That pushes prices higher, even as airlines scramble to add capacity. Yet, available seat miles are up only 1.5 percent over the past year.

Why?

Airlines have been burned by market forces before when adding capacity too quickly. USA Today explains:

Having learned a bitter lesson by adding back too much capacity, airlines are exercising greater caution and restraint this time around. Additionally, bankruptcies and consolidations during the past few years helped contain capacity. Brands like Aloha, EOS, MAXjet, Midwest, Northwest, Skybus and ATA Airlines have disappeared as a result of consolidation or financial calamity and AirTran and Continental Airlines will soon follow suit.

2. Oil won’t go down: oil has been on the rise for a decade, moving from below $20 a barrel to above $90 a barrel, some of which came from the 2008 market shock. Someone has to pay for this of course … and it isn’t necessarily you. That’s the problem with being a price-taker: you can’t pass along all your expected or unexpected price increases to consumers. Now that market pressures are being eased, airlines can start to recapture some of these expenses.

3. The business is changing: according to USA Today, “so called ‘low-cost’ airlines look more like network airlines every day” – as a result of carrier merger activity. And, the increase in maturity comes with higher expenses. For example, these airlines are “rapidly expanding into larger hub airports or building their own”: that cost cash. It has to come from somewhere. It can also come with long-term costs that aren’t always easy to forecast:

Hub airports are often plagued with congestion, resulting in increased flight delays which can wreak havoc on aircraft turnaround times and utilization schedules, further raising operating costs. In recent years, Southwest has expanded into some of the most congested airports in the country, like Boston Logan, New York LaGuardia and Washington Reagan National.

4. There’s more to spend: the fact that there are expense pressures on airlines doesn’t mean that you’re going to have to foot the bill. The oil price factor, for example, has been around for a while, and it wasn’t enough to protect carriers from price declines. The fact that you probably have more discretionary income – or at least less perceived employment risk – means that you aren’t going to wince when you see a higher price. You’ll book with less lead time. It’s easier for you to spend.

What will be interesting to see is the extent to which consumers will be more willing to open their wallets. Even though having more cash comes with a bit of comfort in using it, memories may not be as short following this recession as they were in previous economic downturns. The recession kicked off by the global financial crisis in 2008 hurt. A lot. Unemployment was severe – and continues to be. People may not be as willing to pay big fares as they were in the past. Does this leave more market opportunities for online discounts – such as those offered by online travel agencies? That remains to be seen.

What do you think? Leave a comment to let us know! There’s no crystal ball on this one, and I’d love to get your thoughts.

[photo by atomic taco via Flickr]

Brand Wars: The Airline Booking Battle Will Be Televised

Brand Wars: The Airline Booking Battle Will Be Televised

Online travel agencies have had a solid run over the past two years. They picked up some market share as would-be travelers were willing to poke around a little more to score cheap tickets. High rates of unemployment and under-employment and general economic uncertainty, of course, were enough to make consumers value every dollar a little more. This opened an opportunity for online travel agencies to advance in the marketplace, and chip away at the dominance of their suppliers (i.e., the airlines) on the web.

Yet, the market is turning. Next year is expected to be a strong one for the air travel industry relative to 2010, and 2010 was a vast improvement over 2009. For online travel agencies, this provides some benefit as a rising tide, but it’s likely to favor their suppliers, as customers are more likely to go with what they know over putting in some effort to find the largest discounts.

Online travel agencies will have to overcome this tendency by investing smartly and substantially in their own brands. This is what we’re seeing in the latest move by CheapOair, the one of the 10 largest online travel agencies in the sector, in its recent announcement of a marketing mix change, which teases a broader strategic shift given changing market conditions.


A Changing Travel Market
From 2008 to 2010, online travel agencies were able to chip away at the online market share of their suppliers, reducing the suppliers from owning 62 percent of the online business in 2008 to 59 percent in 2010, according to travel industry research firm PhoCusWright. Bargain hunters drove the market, which eroded the importance of brand loyalty.

From 2009 to 2010, PhoCusWright notes a “strong countercyclical performance for the OTA category.” In 2009, sales fell only 1 percent for the sector, compared to 5 percent for the total online leisure/unmanaged business travel market. And, online travel agencies have posted double-digit gains in 2010.

Stronger industry conditions, however, are better for the suppliers, and PhoCusWright observes, “With the rebound continuing, supplier websites will likely regain momentum as the OTA fight to hold on to their share gains.”

In regards to the actual travel experience, ostensibly, the airline’s brand matters most. When a passenger books through an online travel agency, the brand associated with the transaction lasts for a few minutes – or a few hours, depending on the diligence of the buyer’s search. Meanwhile, interaction with the airline’s brand starts during the search for a ticket, persists through the flight and ends sometime after the passenger hops into a town car to get to his ultimate destination. To register in the customer consciousness, online travel agencies need to develop the sort of presences that will keep them top of mind.

This runs counter to the traditional online customer acquisition models associated with the online travel agency business, which involve a combination of search engine optimization, online ads, affiliate programs and social media. These are transaction-oriented tactics, which speak directly to the brand-barrenness of big discounting.

More Than the Transaction
The largest online travel agencies have already moved past transaction myopia: everybody knows the Travelocity gnome, Priceline‘s William Shatner and the likes of “Cooper” from Expedia. For all but the top players, however, investments in mass media brand development (such as television) have generally been eschewed in favor of what’s been known to work. Speaking at Business Insider’s IGNITION conference last week, Buddy Media CEO Michael Lazerow noted that Travelocity grew to $4 billion in revenue through online means before it moved to television to get to the next level.

Yet, for the online travel agency sector to hold its ground – and even grow – in 2011, brand has to matter more, and this means casting a wider media net. This, plus the size of CheapOair relative to its competitors, is what caught my attention about its recent media diversification. The company is launching its first television ad campaign, “Get More for Less,” in an aggressive move to get out in front of the imminent online travel market shift.

The move to television is an aggressive one, and it comes a bit ahead of “schedule” for CheapOair, if you use the Travelocity number as a reference point. Expedia pulled in close to $3 billion in revenue last year, for example, and Priceline at $2.3 billion. Travelong/CheapOair generated $825 million in revenue in 2009 and has grown at a year-over-year rate of 45 percent this year, resulting in forecasted 2010 revenues of $1.2 billion.

The company’s CEO, Sam Jain, says, “TV is a new strategy for CheapOair and as we head into our 6th year we believe this is the right time to expand our marketing efforts. TV is a natural evolution from our current digital marketing and will help build awareness among a larger audience and introduce more people to the brand.” The countercyclical tendencies of the online travel agency market relative to travel as a whole reinforce this point.

Pointing to the potential for a virtuous cycle, CheapOair’s Sr. Vice President of Strategic Partnerships, Bill Miller, adds, “This new TV campaign should draw in more customers for us which in turn will bring more value to our supplier partners. Our suppliers — airlines, hotels, car rentals —- want valuable and efficient distribution partners. I believe we are all that and more and this TV campaign is just another example of how we can extend our marketing reach on the behalf of our supplier partners.”

Fashion versus Reality
It’s been fashionable among the digerati to claim the death of other forms of media, and I’m as guilty as the rest. But, the reality is that SEO and online ads (a la Google’s pay-per-click model) are becoming increasingly crowded and competitive. Since they are focused on the transaction rather than the brand, they don’t provide for a relationship with the customer that results in a gradual reduction in cost per revenue over time. It’s strictly “pay by the drink,” and that can get pricey.

With the travel market starting to tip in favor of the travel suppliers over the online travel agencies, the costs associated with traditional online marketing will become even higher, as brand brings customers back to the suppliers and online travel agencies chase a shrinking share of bargain hunters. For online travel agencies to compete effectively, they have to make their own investments in branding – a commitment that lacks the predictability of other forms of marketing.

Strangely, television may become the key to winning on the web in the travel industry in 2011. A better market translates to the amplification of the importance of brand, and commercials are still a critical aspect of this in the consumer world.

A battle of the brands is about to break out. The good news is that it’s for your benefit … and you’ll get to watch it on TV!

[photo by Do u remember via Flickr]

Consumers spending again, travel included … but what’s next?

consumer spending on the rise, travel as wellWe know that people around the world are traveling again. U.S. travel exports are up, and the airlines are having a solid year (relative to 2009, at least). Meanwhile, two years after the financial crisis erupted only a few miles from where I sit now, people are spending money again. Consumer credit is once again the culprit, as Black Friday deals touted financing with long periods of interest-free money use.

Favorable deals are enticing consumers who don’t really have the money to spend, but they’re lured in by offers that are “too good to be true.” As Newsweek reports, “Old habits die hard.”

Consumer debt by household is down, and savings habits are on the rise, but the increase in spending from a consumer base so recently battered does make me wonder what comes next. Is borrowed money going to fuel growth in retail, consumer product and travel sectors, as it did through 2007? Is this a house of cards that’s waiting to collapse (yet again) when easy money dries up and the consumers find themselves as squeezed as they did in 2009?

Leave a comment below to let us know your thoughts!

[Thanks, @jasoncoletta, photo by TheTruthAbout via Flickr]

Long-haul travel decline result of visa difficulty

long-haul travel declining in the united statesWhere did all our long-haul travelers go?

According to a CNBC report, Americans just aren’t crazy about long distances. From 2000 to 2009, long-haul travel fell by 2.2 million in the United States, while it surged by 46 million for the rest of the world. Difficulty in securing visas for U.S. access is part of the problem, and the impact is one that affects our economy, as it makes it more difficult for the hospitality industry to bring foreign money to us.

Nonetheless, foreign travelers are still finding ways to bring their cash to our pockets. Visitors to the United States spent $88.2 billion in the first eight months of 2010, up 10 percent from the same period in 2009.




[photo by Dave Heuts via Flickr]