Sameer Bagul, EVP and MD at Clear­trip Mid­dle East, ex­plains why air­lines should se­cure closer part­ner­ships with OTAs in or­der to bet­ter man­age com­pet­i­tive chal­lenges

Aviation Business - - CONTENTS -

Sameer Bagul delves into the im­por­tance of OTA part­ner­ships for air­lines

Af­ter over two decades of evo­lu­tion, on­line travel agents (OTAs) have be­come an in­sep­a­ra­ble part of to­day’s travel in­dus­try. Val­ued glob­ally at $1.6 tril­lion in 2017, the on­line travel sec­tor con­tin­ues to ex­pe­ri­ence ro­bust growth across the world and in many mar­kets, OTAs rep­re­sent more than half of on­line travel book­ings. Of var­i­ous play­ers in the in­dus­try, air­lines have ben­e­fit­ted the most from the emer­gence of on­line travel agents, cap­tur­ing new mar­kets and cus­tomers, im­prov­ing ef­fi­ciency, and mak­ing enor­mous cost sav­ings.

Within a short span of time since their in­tro­duc­tion in the mid-90s, on­line travel agents have sprung up and have in­creas­ingly cap­tured mar­ket share. Of­fer­ing users an easy-to-search data­base of travel providers and a re­ward­ing book­ing ex­pe­ri­ence, OTAs have been con­stantly re­defin­ing the travel ex­pe­ri­ence us­ing tech­nol­ogy, which tra­di­tional brick and mor­tar agents couldn’t lever­age as much. For con­sumers, the ar­rival of OTAs marked the be­gin­ning of an era of abun­dant travel and ac­com­mo­da­tion choices as well as lim­it­less pos­si­bil­i­ties of per­son­alised ex­pe­ri­ences.

As op­posed to the early days of on­line travel, the travel in­dus­try has been ex­pe­ri­enc­ing a tremen­dous in­crease in the num­ber of trav­ellers as well as in the fre­quency of travel. While greater con­ve­nience, bet­ter prices, brand recog­ni­tion, loyalty, and deals con­tinue to be key driv­ers of cus­tomer growth, the in­creas­ing adop­tion of quick, sim­ple and se­cure dig­i­tal pay­ment so­lu­tions have fur­ther ac­cel­er­ated the pen­e­tra­tion of OTAs across user cat­e­gories.

Un­chal­lenged Growth

The growth of OTAs in many global mar­kets has been phe­nom­e­nal. In Eu­rope’s travel distribution, OTAs ac­count for just more than half of on­line travel book­ings, whereas they cur­rently rep­re­sent 39% of the on­line travel mar­ket in the US and are pro­jected to reach 41% in 2020. In the Asia Pa­cific re­gion, on­line travel agents are the fastest­grow­ing on­line distribution chan­nel, with their ag­gre­gate gross book­ings pro­jected to soar 68% from 2017 to 2021. It is worth men­tion­ing that the on­line travel mar­ket in Asia is grow­ing three times faster than the to­tal mar­ket with a pro­found an­nual growth rate of 17%.

In the Mid­dle East, which has some of the world’s high­est in­ter­net and smart­phone pen­e­tra­tion rates, the on­line travel mar­ket is still not pen­e­trated to its ac­tual po­ten­tial. How­ever, it’s ex­pand­ing at a strong 40-45% year on year growth rates and now rep­re­sents 15% share of to­tal book­ings in 2017, whereas off­line chan­nels grew at only 4% dur­ing the year. Ac­cord­ing to Fitch Group re­search re­port, UAE’s e-com­merce is wit­ness­ing a strong year on year growth of 25% and is poised to reach $27 bil­lion by 2022. Sim­i­larly, the on­line travel mar- ket is ex­pected to wit­ness a ma­jor leap over the next five years on the back of a tech-savvy young pop­u­la­tion with an ap­petite for travel, com­pet­i­tive airfares, and eas­ier travel reg­u­la­tions.

OTAs have in­vested heav­ily in on­line mar­ket­ing ecosys­tem and drive more ef­fi­cient cost struc­tures com­pared to sin­gle air­lines. This helps OTAs with driv­ing a large amount of traf­fic to air­lines and ef­fec­tively re­duc­ing the cost of cus­tomer ac­qui­si­tion.”

Win-Win Re­la­tion­ship for Air­lines

There is no doubt that the in­te­gra­tion with a Global Distribution Sys­tem (GDS) such as Amadeus, Trav­el­port and Sabre pro­vides a wider reach for air­lines. How­ever, distribution costs have al­ways re­mained very high, with per per­son per leg cost typ­i­cally $8 to $12. Sim­i­larly, metasearch en­gines charge 2-4% of the to­tal trans­ac­tion cost. On the other hand, OTAs can of­fer air­lines sig­nif­i­cant cost sav­ings from GDS with di­rect in­te­gra­tion into their reser­va­tion sys­tems, and in­no­va­tive air­lines that have setup strate­gic part­ner­ships with OTAs have of­ten seen their mar­ket share grow quicker than what they are able to achieve or­gan­i­cally.

OTAs Pro­vide Ac­cess to Cus­tomer Base

OTAs con­tinue to grow their cus­tomer base as they pro­vide con­sumers with a broad range of in­for­ma­tion at the early stages of travel plan­ning, al­low­ing them to com­pare flights by var­i­ous pa­ram­e­ters, such as price, class, and book­ing dates and tim­ings. To make them more ap­peal­ing to trav­ellers, on­line travel agents have also opened a new world of re­ward in­cen­tives to complement air­lines tra­di­tional fre­quent flyer pro­grammes. Savvy trav­ellers are not only get­ting their ex­ist­ing fre­quent flier miles, when book­ing through OTAs they are also ben­e­fit­ing from their mem­ber­ship pro­grammes. For ex­am­ple on Clear­trip, fre­quent book­ers get an Ac­tiv­ity voucher on the 3rd book­ing, free room night on the 6th book­ing, and a free flight & ho­tel voucher on the 12th trip. This has helped Clear­trip to en­joy one of the high­est rates of re­peat cus­tomers among its peers. OTAs have in­vested heav­ily in on­line mar­ket­ing ecosys­tem and drive more ef­fi­cient cost struc­tures com­pared to sin­gle air­lines. This helps OTAs with driv­ing a large amount of traf­fic to air­lines and ef­fec­tively re­duc­ing the cost of cus­tomer ac­qui­si­tion.

OTAs Im­prove Yield for Air­lines

OTAs ef­fec­tively open their large cus­tomer base to air­lines in­ven­tory and help cus­tomers tap into the early book­ing fares which are lower than the ac­tual book­ing fares. This helps air­lines im­prove rev­enue man­age­ment and prof­itabil­ity as book­ings in ad­vance aim to fill up the air­lines’ seats, which give them the op­por­tu­nity to sell higher rates closer to de­par­ture dates.

Peer­less Part­ner

With their part­ner­ship with OTAs, air­lines also ben­e­fit from lower costs of distribution com­pared to that of other sell­ing chan­nels and gain sig­nif­i­cant cost sav­ings in cus­tomer sup­port.

Un­like other play­ers, on­line travel agents have built cus­tomer ser­vice sys­tems to sup­port cus­tomers be­fore, dur­ing, and af­ter a flight.

As air­lines are in­creas­ingly faced with de­clin­ing profit mar­gins, it will be ideal for them to seek ways to re­duce distribution and cus­tomer ac­qui­si­tion costs. To im­prove cus­tomer growth and re­ten­tion, air­lines have in­vested sig­nif­i­cantly to en­hance user ex­pe­ri­ence on their web­sites, how­ever, they have strug­gled to keep up with the pace of in­no­va­tion. The air­line in­dus­try will ac­knowl­edge with­out hes­i­ta­tion that there is no greater so­lu­tion than di­rect in­te­gra­tion with key part­ners to solve air­lines’ pain points.

Sameer Bagul, EVP and MD at Clear­trip ME.

OTAs ef­fec­tively open their large cus­tomer base to air­lines in­ven­tory.

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