Online travel agencies (OTAs) are an important distribution channel for airlines, accounting for 1 in 5 flight bookings. Connected to global distribution systems where they access real-time information about availability and fares, OTAs provide a convenient platform for customers to search for and book travel products such as flights, hotels and car rentals. In return for commissions on direct bookings, the OTAs take on some of the airline’s marketing burden, investing in online advertising which improves visibility for the airline.
Low-cost carriers (LCCs) are currently seeing continuing success within a competitive industry. With high fuel costs and a slow global economy eating into profits for larger carriers, only the budget airlines are showing consistent profit and expansion. In fact, according to RDC Aviation, 2017 was the best performing year ever for LCCs, whereas the IATA predicts a 12% slump in profits in 2018 for the biggest airlines. The success of the LCCs comes despite arguments that air travel has become ‘commoditised’ because of OTAs, with customers unable to distinguish between providers.
There’s been some friction between OTAs and travel providers recently. The OTA’s commission costs prompted some in the hotel and airline industries to shift away from these channels, promoting direct bookings, believing these fees to be the difference between profit and loss. But the reality is, the increase in demand generated by OTAs drives volumes and incremental revenue. This is supported by Marriott International’s turnaround: An initial proponent of anti-OTA direct booking campaigns, the hotel chain is now leveraging Expedia’s packaging technology to drive new customers to their portfolio of brand.com sites.
Underlying this shift in sentiment is the fact that OTAs are typically an incremental source of customers for the travel industry. According to Expedia, less than 0.5% of customers search for a named hotel brand when performing a hotel search.
It’s clear that the increase in demand generated by OTAs helps drive additional volumes, but if an OTA sells the same low fares as the airline’s own website, how is it possible to increase average fares and grow incremental revenue?
Growing revenue with OTAs
Research from the global distribution company Amadeus showed that additional demand increased the load factor for LCCs. It also demonstrated that the rise in demand has a significant impact on fares: Additional demand from OTAs actually increases fares (0.8% for every 1% increase in demand) twice as much as it increases load factor (0.4% for every 1% increase in demand).
Amadeus concluded that this fare increase was due to low-fare seats selling more quickly. As demand grew, the airline’s revenue management system responded by increasing fares for the remaining seats, meaning that the same seats are sold at a higher price, resulting in an overall increase in fares and revenue across all distribution channels.
Although all travel agency segments show the same benefits when it comes to increased volumes and higher average fares, these are seen much more clearly with OTAs. According to Strategy&, a recent study found that consumers favoured OTAs as the sites with the best prices, rating them highest in terms of both price availability and breadth of options for flights and hotels.
The benefits of OTAs for travellers
OTAs offer information from a number of different travel suppliers such as airlines, hotels and car rental agencies. They offer a one-stop shopping experience where the customer can access and compare travel options.
The sites enable customers to easily compare prices, schedules, location and other features. For air travellers, OTAs display prices, flight schedules and seat availability for any number of airlines on a particular route, a selection of comparable itineraries, lowest fares, flight duration and number of stops. They offer user reviews and ratings on a number of points including value, baggage handling, check-in experience, punctuality and seat comfort, and they provide inside information about destinations.
These functions go hand in hand with the preferred shopping habits of today’s digitally savvy customer who increasingly uses online channels for search and booking across multiple devices, and who uses experiences shared on social media to inform their decision-making process. Low-cost tickets are no longer enough to attract enough customers and generate a profitable business for LCCs. Airlines need to focus on customer satisfaction and engage their passengers through social media to add value.
Strategies for LCCs to succeed with OTAs
1. Offer your full range of competitive fares
According to Amadeus, LCCs showing their full fare range attract up to twice as many bookings from OTAs.
2.Adapt your product offering for OTA customers
Consider tailoring your offering to the business and corporate sector to achieve higher returns. Create exclusive bundled offers that customers will be happy to pay extra for through an OTA.
3. Let the OTA work for you
On average 10% of itineraries are subject to change, which can create a time-consuming, expensive workload for the LCC. An OTA will work as an extension of the sales team and offer good customer service when plans need to change.
4. Work in partnership with OTAs
An airline advertising on an OTA website can achieve an increase in bookings of up to 60%. This brand exposure is a powerful way to drive incremental revenues.
5. Understand what the OTA needs
The best way to form a profitable relationship is to understand what the OTA needs to serve its customers and run its business. An OTA wants to provide exceptional customer service through a seamless booking experience and a wide range of travel planning options. It wants to retain customers, build customer loyalty and work together with partners to achieve the best result.
Integrated flight booking capabilities through the airport website
Small airlines gain much value from the exposure offered by OTAs. The development of Cloud-based booking and CRM platforms like Rezcomm Travel opens up the market, meaning budget airlines can benefit from integrated booking systems that link airlines with airports via a brand-matched booking platform.
Today’s customer believes that booking through an online travel agency is cheaper. The perception is that an airlines’ own website simply doesn’t offer as much value. Passengers are often even willing to pay extra to have the ‘one-stop-shop’ experience that allows them to buy flight, hotel, car hire, parking, lounge and fast track from a single brand (the airport) that they trust.
If you would like to speak to Rezcomm about our integrated e-commerce and flight booking software or if you would like help with your airport’s marketing strategy contact the team today.
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