Why Airlines Keep Creating Even More Types of Fares
Many airline executives insist that their so-called New Distribution Capability, or new method of sharing data for selling tickets, will hit a major target next year. But industry insiders say the target will be missed. To cope in the meantime, several airlines will expand the marketing for bundled fares under a confusing array of brand names.
Next-generation sales tactics for plane tickets haven’t yet materialized. Airlines and technology firms have been slow to adopt new technologies, prices, and commercial models. In the meantime, some airlines are hoping so-called fare families or branded fares — where airlines bundle tickets along with extras like free checked bags in a total price — will be a stopgap fix.
Airlines have long wanted to move to so-called personalized pricing. They would like to sell online in ways that make it more difficult for a traveler to comparison-shop by the lowest price alone. Eventually, they want to promote tickets based on a traveler’s spending history.
To achieve these goals, airlines need distribution channels like online and offline agencies to cooperate. The industry needs to adopt new technical ways to display their fares and other content. But change has been slow.
A case in point is the so-called new distribution capability. About 21 substantial airlines, such as Air France, United, and Qantas, have pledged to have 20 percent of their sales be powered by new data transmission standards by the end of 2020. In March, the International Air Transport Association, which champions the effort, said it thought airlines would reach that goal.
However, skepticism was the watchword last week at an annual conference of airlines and travel agencies run by ARC (Airlines Reporting Corporation) in Leesburg, Virginia.
“Whether we get to 16 percent or 14 percent, the industry is moving in the right direction,” said Stewart Alvarez, head of industry affairs in the Americas for Amadeus, the distribution technology company, on a panel. His counterparts at peer companies Sabre and Travelport also made comments that aimed to manage expectations.
“I don’t see the industry as getting to 20 percent NDC (New Distribution Capability) production next year,” said Ian Heywood, global head of new distribution at Travelport in an interview. “We’re doing everything on our part to be ready and meet the deadline if the airlines and agencies pick up their paces. But we hear a growing pragmatism from airlines about how much work they still need to do on their sides.”
“Even if we don’t hit the 20 percent mark, the airline community is making progress,” said Shelly Younger, senior manager of airline retailing strategy and head of new distribution capability at ARC (Airlines Reporting Corporation), during a panel talk.
[UPDATE: Younger was incorrectly identified. This has been corrected.]
Representatives of two major e-commerce players and one major U.S. airline at a conference run by ATPCO (Airline Tariff Publishing Company) last week in Washington, D.C., echoed the doubts that airlines would reach the 20 percent goal by the end of 2020.
FARE FAMILIES AS A FIX
Since early 2012, some major airlines have been introducing basic economy fares, stripping out full-service perks to match the bare-bones offerings of budget carriers. The move builds on fare families, or the idea of offering different bundles of products at different prices, popularized by Air Canada in 2006.
The trend is now spreading to smaller airlines. Last month, Hawaiian Airlines introduced basic economy fares, for example. The research firm Centre for Aviation has predicted that many other full-service and network carriers will adopt variations on basic economy, fare families, and branded fares.
The problem for full-service carriers is that it’s costlier for them to offer basic economy seats than it is for budget airlines. Their operational, or unit, costs are higher, on average, according to Centre for Aviation data. That means that network carriers can’t offer as many seats at the discounted price as the point-to-point budget carriers. This reality puts the airline companies at a disadvantage with consumers who get frustrated at their comparative lack of availability of cheap seats.
The best way for airlines to increase their revenue per passenger is to adopt so-called personalized pricing and similar retailing efforts. But the slow pace of industry change on that front is keeping that opportunity at bay. Fare families and similar approaches help make some smaller gains.
“We’re definitely working with airlines on adding more fare families and similar branded products, though I can’t share details,” said Heywood of Travelport.
ADDED CONFUSION OR ADDED CLARITY?
Online travel agencies are also looking for stopgap fixes for the selling of plane tickets while waiting for industry tech changes to fall into place.
They’re looking to go beyond filtering results that are grouped by bundles of features, such as an economy seat that includes overhead bin access. For example, last year, Kayak began displaying the price breakdown for each cabin class, so a consumer can easily see the price difference between booking an economy compared with a basic economy seat, along with what’s included in each.
But there’s more to come. In a white paper published last month, Amadeus predicted that some online travel agencies would create their own branded bundles.
Amadeus cited India’s Goibibo as experimenting with creating its own branded fare families as a search tool. The goal is to make it easier for consumers to compare across different products with different airline brand names. The agency, which is owned by MakeMyTrip Group, may even test its own add-on services, offering to plug in gaps what airlines offer, such as by making a non-refundable ticket refundable.
Goibibo is also copying the virtual interlining move of Kiwi.com by combining multiple itineraries from airlines that don’t cooperate on baggage transfer or other customer service and selling them under a single price along with guarantees of free rebooking in case of missed connections. In this way, the online agency is doing the fare bundling and offering some extras for additional fees, rather than the airlines.
All of this underlines the curious fact about fare families, branded fares, and other efforts. Airlines and agencies introduce these fare types under the pretext of helping simplify things for consumers. But the fare types add to traveler confusion. Consumers may struggle to compare, say, one airline’s “Red e-Deal” offer with another airline’s “Blue Extra” offer. But the ongoing frustration will only increase as airlines rely more on the marketing effort while waiting for Amazon-style selling to come in a distant future.