American Airlines’ CEO Gerard Arpey dared to dream. He slipped a comment into their recent earnings call which seemed rather off the wall, until Delta CEO Richard Anderson effectively repeated the idea. The proposal? Instead of paying commissions to agencies and websites that sell their fares, airlines would charge those agencies a fee for the right to display and sell their fares.
AA’s Arpey:
“I can see a day, and maybe I’m dreaming here, where those folks who are the intermediary between us and our customer have to pay for access to our product rather than us paying them to distribute our product.”
DL’s Anderson:
“Over time, the industry will evolve,” Anderson told analysts on Tuesday during a conference call to report first-quarter financial results. “People will pay us for our content.”
There’s an odd disjuncture here in the understanding of what it is airlines are selling, and who their customers are. Travelers see airlines as selling transportation services, and that passengers are the customers. But these airlines apparently seem to think they’re selling “content” — their schedule data — and that the agents who sell tickets on the airline’s behalf are the customers. No wonder the airline industry is such a mess.
On the one hand, airline execs are right to be looking for ways to reduce their costs. And when an agency or website besides their own sells a ticket, they’re giving up a cut, largely to the global distribution systems like Amadeus, Galileo, and Sabre that distribute their information to agencies large and small. (Granted, the agent themselves may or may not get a cut, depending on the contract they’re on, with most small agents getting $0.00. That’s why independent travel agents typically charge a “service fee.” The big guys like Orbitz and Expedia get a piece of each sale.)
But charging their sales team — the agencies — for the privilege of even offering fares sounds like a multi-level marketing scam or a 19th century company town. Paging the Pullman Company!
What airlines are missing here is that the bulk of higher-priced tickets aren’t sold via the airlines’ own websites. They’re sold through big agencies, often through corporate travel sites. And even if the US market has moved away from independent shops, the rest of the world is still heavily dependent on agencies. Cutting out other means of distributing their fares could be cutting off their nose to spite their face.
If this really were to happen, it wouldn’t be great for consumers, despite the ostensible cost savings. The problem is transparency. If some airlines would be available for sale through one system but others wouldn’t, it would make meta-search all the more important to find lower fares. (That is, if the airlines allow aggregators to search their sites…)
But honestly, none of this is likely to happen. There’s the fact that the high-revenue sales come through the higher-cost distribution channels, and for all the complaining, the money is too good to just sacrifice.
Plus, even if this happened, and even if we assumed that sales would just revert to the airline’s call centers and website, implementing this would require a ramp-up of airlines’ customer service infrastructure (call centers, web support, etc.), just to do the work that agencies are doing now. Will the commission savings outweigh increased personnel and customer service costs?
Either way, at the very least, American and Delta have ticked off a host of agents. The comments on the TravelWeekly article already number in the hundreds. (419 to be precise, and comments appear to have been closed.) Threats of boycotting AA abound, and there’s ever more bad blood between agents and the legacy airlines who proposed this.
Great move, guys.
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April 23rd, 2009 at 10:23 am
This is admittedly a arrogant comment, but the appalling grammar and 4th grade level of writing/argumentation is not helping the people who posted on the site. It makes them sound ignorant and like they’re stubbornly clinging to the past without justifying what value they actually add – which is exactly what happens right before you’re replaced by robots.
April 23rd, 2009 at 10:24 am
And of course I have a grammatical error in my post. Ahh, sweet irony.
April 23rd, 2009 at 10:29 am
[...] Dare to dream: American and Delta want to charge money for access to their schedule info | Upgrade: … American Airlines’ CEO Gerard Arpey dared to dream. He slipped a comment into their recent earnings call which seemed rather off the wall, until Delta CEO Richard Anderson effectively repeated the idea. The proposal? Instead of paying commissions to agencies and websites that sell their fares, airlines would charge those agencies a fee for the right to display and sell their fares. [...]
April 23rd, 2009 at 10:48 am
Great find, great analysis!
April 23rd, 2009 at 1:20 pm
Twitter Comment
RT @kathika American and Delta want to charge money for access to their schedule info [link to post]
Keep flt times a secret! wow
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April 23rd, 2009 at 4:36 pm
[...] hours ago American and Delta want to charge money for access to their schedule info http://www.upgradetravelbetter.com/2009/... more travel stories at http://kathika.co [...]
April 23rd, 2009 at 9:14 pm
Geez, I’m having a hard enough time just trying to get a cheap enough flight to upstate NY. That’s all we need..more fees.
April 27th, 2009 at 3:31 am
Mark-
Great find on this story, but i think you are dead wrong here on what AA and Delta are doing. I would say this is similiar to the horse racing industry which charges book keepers to publish the race schedules. The two industries, horse racing and book keepers, are in a symbiotic relationship and i don’t see why the airlines would pay to give away their content. That makes no sense to me.
As well, i would caution you in saying that the world is vastly different in dependency on agencies. Ryan Air is famous for not allowing anyone to resell their tickets and they seem to be doing quite well. Americans need to give up the thought that the airlines should give them complete luxury for no cost. Airlines are to get you from Point A to Point B as quickly and safely as possible – that’s it.
April 30th, 2009 at 8:29 am
Mike, thanks for your thoughts. Interesting comparison to the horse racing industry. I assume that all tracks charge fees to the publishers of racing forms? The track, though has the monopoly on races at that track. An airline has more competition for fares between a city pair. If American airlines doesn’t make their schedule available without a fee, but US Airways does, then US Airways has an advantage. The airlines would have to collude and start charging a fee at the same time for their schedule data. That could run into other problems.
With regard to Ryanair being “off the grid,” yes, that’s true, but they don’t fly everywhere (try buying a ticket from Stansted to Bangkok). Ditto Southwest in the United States, which doesn’t share all its flight information. But outside of the United States, a far greater percentage to tickets are still sold through agents, so despite the rise of Ryanair and their many imitators, the role of agencies is still important.
April 30th, 2009 at 6:24 pm
Whatever the relative merits of charging agents for access to schedules, I think the smart ones would be wise to embrace change. We all know the internet has made human agents obsolete, at least with regard to the average consumer (aka non-business) traveler. The reason being, of course, the agent added almost no value whatsoever except for access to comprehensive fare and schedule information. Now that you can get all of that on kayak for free, they’re useless. My comment was aimed at that – it seems to me they want to cling to an old way of doing things where they do very little that cannot be done by a robot (aka the internet) and still get commissions. One repeated idea I was particularly appalled by was “I’ll never book my clients on American because of this!!” Imagine anyone else using the same logic… perhaps a Doctor saying “PharmCo just cut the commissions I get on selling their drug… screw that! I’ll never recommend one of their products to my patients again whether it’s best for them or not!” Literally zero ethics. Sure, the travel agents can handle deflect a little of the customer service issues that crop up. But there’s no reason almost all of what they do can’t be replaced by automation and/or absorbed by the service provider. Ultimately the agent isn’t empowered to actually fix anything, so basically paying for an agent means having someone marginally better equipped to advocate on your behalf. I think, like everything else in the world, their resistance to change will ultimately be futile.
Where there still is a TON of value to be added is in functioning as corporate travel departments, and perhaps as travel consultants. This would, of course, require a travel agent to actually bring something to the table other than simple access to reservation systems (in other words, to be more than just a middleman). Many of us spend hours of our own time on places like flyertalk, learning the system inside and out. Imagine a professional who did the same, and then consulted with the other 98% of frequent fliers (or their individual corporate clients) who do not spend all day on FT, to make sure they were maximizing their returns (through intelligent use of credit cards, promotions, etc.)? Virtually every travel agent I have ever met is less knowledgeable than I am about travel products… and I assure you that while I am an aviation dork, I otherwise have a day job. When I am forced to use a travel agent, most cannot do anything more than punch in the dates and flights into the equivalent of kayak and report back. I end up doing all the research on my own, and simply calling and telling them what to book. Think a travel agent has ever, in the history of travel agency-ing, used something like farecast to determine whether a flight was a good deal and recommend whether to buy? Or known who partners with whom (particularly beyond the main alliances), and what fares earn miles? Or given you a heads up on little details like whether a route is RJ vs. mainline? Or done anything other than take your dates and read back whatever expedia spits out… ?
They are a dinosaur of an industry. Evolve or get left behind.