eyefortravel - Travel Distribution India '06

Changing face of travel distribution

Travel distribution in India is evolving and isn't too far behind the curve with regard to international trends. Bhisham Mansukhani takes a peek

Getting the product out to consumers in the most effective and economic manner has been the holy grail for any vertical and travel is not an exception to this industrial objective. Technology has become virtually ubiquitous to any strategy concerning distribution.

Here again the travel industry has commendably adapted. Rising from the traditional model which had ticketing agents at its centre, the industry has seen the evolution of a number of channels in both the brick and mortar space and the virtual world of the Internet. This phenomenon has neatly paralleled the emergence of serial revolutions in the travel space such as the low-cost carrier and budget hotel boom, ballooning corporate travel spend and the spread of mass tourism culture to developing countries that unlocked unprecedented demand. In a way, the sophistication of travel distribution worldwide as well as in India has been dictated by the above.

Along came the GDS

The `travel agent', as archaic as the term may sound, still remains the most-mentioned entity within the transactional loop and doesn't appear, even in the age of rampant broadband and the enterprising do-it-yourself traveller, nearly as dispensable as is carelessly referred to.

The Indian travel agent in particular is a bit of an industrial legend for the level of personal service, the returns for which he has hitherto benevolently written off to what is an inherently Indian cultural given. This is however now changing in a way that testifies to the internationalisation of the Indian industry. Distribution-wise, this reflects in the growing bouquet of services he offers, apart from airline ticketing which so far accounted for 95 per cent of his business. Here it would be important to introduce the key `enabler' that has allowed the travel agent to broaden the vistas of business as well as revenue. To say that a GDS is best used to block airline seats is to say that television is best used to watch the news. GDS companies have become not just inventory distribution software providers but partners of the community. What was once a miracle of convenience for the agent is now a given he can almost take for granted. This complacence has no negative connotation but is rather a rich tribute to the evolution of the GDS.

It almost seems like the days of bulky airline schedules and heated telephonic exchanges with airlines never really happened at all. The role of the GDS over the years went quickly from checking seat availability to checking fares and then ticketing. Now that final link, ticketing, has become the most basic function. The agent can today do just about anything on the GDS. From making special arrangements for a passenger with a medical condition to creating a full-fledged FIT itinerary and sealing a confirmation without a single phone call. The level of detailing with a GDS is virtually absolute and without the teething overheads. This makes the agent's participation level in the entire reservation process more active.

With the introduction of GDS, many concepts came into being - Electronic Data Interchange (EDI) within a supply chain, the first commercial real-time application, the realisation that computers had many other applications. It has helped the agent concentrate on servicing and expanding customer base. The cycle of a transaction has also been scaled down. Not content to stop at that, GDS is actively looking at more innovations in so much as providing airlines with solutions to distribute their group business and apex fares. The most inherent advantage that the GDS has, and one which it must capitalise on, is rail products and mid to lower segment hotels. This will add to the existing database of suppliers for agents.

But with modernisation, there have been problems too. The airlines penalise agents if there are any technological errors. Consequently, agents say there has been a rash of ADM (Agency Debit Memos). Some even fear that GDSs could eventually supercede the agent. Analysts seek to allay this fear saying that GDSs can only cataylse their business, not invade it. GDS companies are in fact offering agents the facility of having their own web page through which they could service key clients, particularly in the corporate space. The demand and sales volume growth of travel products and services has also gotten a shot in the arm as distribution chains take root into India's land-locked interiors. Global Distribution Systems (GDS) are now increasingly looking at shifting their focus as well as competitive premise to secondary cities with their template of technology and training support to tertiary cities.

Distribution within secondary cities has taken off almost suddenly with an increase in air access, rise in consumerism and anticipated demand that have drawn travel agents, airlines and GDS into latent markets, which now ranks as some of their most promising. The proliferation of travel agencies has deepened as the process of acquiring an IATA accreditation is a lot easier. The domestic aviation map has consolidated and more capacity is being added. The idea of overseas travel for leisure and business purposes has changed dramatically. Put simply, travel has now become a very achievable prospect.

Not viewed as a threat just yet but a growing tribe is the number of incidental travel agents who don't have retail as a core business but serve as tertiary routes of distribution, as either sub-agents to the travel agent or as domestic airline ticket distributors (for offline carriers). These individuals have hit the ground running in so much as not relying on their suppliers for commissions but charging their customers a premium for the product or service they provide. Behemoths like AFL have launched travel shops across the country that allow clients who would otherwise shy away from Internet bookings, to book onsite, thereby eliminating barriers to layered markets.

While a lot has been said and written about how the GDS have sought to add value to the travel agent's business, their relationship with the airline and how that has changed from a core functional perspective over recent years is just as, if not more, pertinent to the overall travel business and the future of their relationship. While the GDS's core function remains effective distribution, it also has the incumbency to lower the airlines' costs and help them strategise. They do this by analysing their processes and adding value wherever they can by helping them enhance their yields. One of the GDS for instance has a solution which allows airlines to communicate with travel agents at the time of selling.

This in a way allows airlines to advertise so the operational interface doubles up as an effective medium of communication, making for targeted marketing. It is also important for the airline's revenue accounting system to be integrated with the reservation solution in order to derive perspective which could be incorporated in the revenue accounting process. Airlines can ascertain the fare that an economy seat should demand at any point of time using dynamic pricing solutions. There are several pricing buckets within this that are controlled through a yield management system. Early bookings attract a lower price while the last minute ones don't and this can be controlled through the GDS. Many airlines use very sophisticated systems to actually reject low yield business. They control their flights to get high yield traffic so they will not have fares available in lower classes, depending upon the time of the year. The number and level of sophistication of the solutions that airlines have available to them from the GDS depends purely on the different levels of 'connectivity' they have with the GDS. There are typically four starting with basic inventory distribution that has certain constraints leading up to the premiere level that is big on dynamic pricing and distribution. Real time connectivity gives the airline more control; it brings down their unit cost. It works on the winning combination of higher yields and lower cost of distribution.

Non IATA: Unlocking the latent avenue

While there are no available official estimates of non-IATA agents, they constitute approximately 45 per cent of the overall agent community and are more likely to be found in areas that typically lack access to the IATA agent.

If any non-IATA agent is acting as a franchisee or an outlet for an established travel agent and the IATA certified travel agent effectively underwrites the airline and GDS risk by certifying him, there is a large chunk of business generated by non-IATA agents. The moot question is whether we should wait for all of that business to get consolidated under IATA. Non-IATA agents serve as an effective extension of IATA agents but airlines and GDS will deal with them only if an IATA agent takes responsibility for the inventory. The rise of the consolidators has been the veritable lifeline for the non-IATAs who have fitted into their networks, enjoying access to large ticket stocks and higher margins so much so that IATA agents, in spite of their additional financial incumbency, are also part of these networks. Such a scenario seems tailor-made for GDS companies looking to capture the non-IATA market. It is hardly surprising then that certain GDSs have created a fare distribution mechanism for the consolidator community to enhance their non-IATA agent's business. The software which enables the wholesaler to distribute his fare to his set of agents is a recognition of the permanence of this set-up and is probably the precursor to more sophisticated software for this platform.

Travel portals cometh

Travel websites had been hitherto presumed a complimenting bridesmaid to the orthodox brick and mortar format, their plight compounded further by the burst of the infamous dotcom bubble in the late nineties and a sudden commercial aversion for all things Internet.

Travel portals in India have begun to arrive with the surety of not just sustenance but profit, tapping affluent travellers and creating revenue streams that exceed the basic holiday package. Indian travel sites have thawed through the cliché of being information processors for curious, iffy surfers. They are making money.

Analysts believe that good travel portals have two inherent USPs. First, travel lends itself naturally and easily to the visual and immediate Internet medium. It is a product that the Web can almost tangibly display to users and customers. Second, travel portals instantly respond to a user's quest, ie, they provide travel information and an ability to query and transact in real-time online. Unlike a vanilla portal that may skim the surface of varied and general information and then lead nowhere, thereby frustrating users, a good travel portal will target a traveller's needs, offer choices and fulfill his travel requirement. It is a formula for success.

Today after the shakeout, there is a healthy respect for the Internet space and travel people are using Internet as a distribution business model instead of wanting to encash a quick buck. One needs to have a specific focus on the Internet space, with an emphasis on innovative products, reaching out quickly to the subscriber base and encashing referrals.

The challenge for travel portals, most experts point out, is to make a compelling case to the potential passenger to make the computer screen the literal one-stop shop for sealing travel transactions - no need to get out of one's comfort zone, meet a counter staff or mull over a brochure. The travel portal has to replicate that entire process with a thrust on customer convenience.

Reigning in the ability of the portal to manage transactions in isolation, experts proffer that online rather than offline consultancy should as complimenting the portal. Consultancy can be looked at as an added advantage. Investing in technology eventually helps tighten the noose on operational costs, besides making operations a lot more sophisticated. It makes good business sense for conventional travel companies to transcend their business to the Internet space. Agents should really want to become a dotcom as there are certain inherent advantages that accrue to both - them and the customer, resulting from a cost-savvy model.

Where does India figure?

Most big travel companies are looking at India as a very vibrant space. To better understand the so called enigma of survival in the relatively uncharted Web space, one should perhaps look at the requirements of the different traveller profiles. Long haul and short haul travellers make markedly different kinds of purchases. Buying a bus-like short haul flight is fast becoming part of our everyday lives. Purchasing long haul travel requires far greater consideration. Itineraries are likely to be more complex. Stays will be longer and trip expenditure is greater. These travellers are far more likely to want to consult a travel planner with a range of ad hoc questions that cannot be addressed by automated systems.

Long haul travellers have a much lower propensity to book online directly. The traditional model of an online travel business, established by organisations such as Expedia and Travelocity, is to invest heavily in supremely competent technology and recoup this investment through high volume sales. Rather like airlines, these companies have high fixed costs that need to be amortised over high volume of sales. High fixed cost businesses suffer badly when revenues fall and this of course is an issue that airlines are now facing. However, unlike airlines, online travel companies' fixed costs are mostly sunk. They do not have high operating costs, their investment in technology and marketing has been all upfront.

Air Deccan sells exclusively through its website and offline offices. The Indian Railways website has gone a long way in engendering faith in the efficiency of selling and buying a travel product easily off the Web. While almost all travel companies have web-brochures, most still don't know how to maximise and promote their usage within a potential market. The reason why the pitch this time around seems a lot more favourable to dotcoms to consolidate is the changing profile of the traveller and the social landscape of the country. Indian travellers are ready to put up credit card details and passport number on a secure site; they buy their railway tickets online and shop on auction sites.

The unanimity against tolerance of malpractice needs only an effective solution, which although is being currently pursued at an organisational level, observers feel, requires a more pervasively integrated approach. Duplicate bookings, dual automation, fictitious booking, etc are affecting the already suffering travel agents. A comprehensive revenue integrity programme is the only real way to rectify the revenue leakage caused by these problems. World over, this programme is recognised to be the best working solution. In the US, an airline uses a module called Journey Control, which eliminates point-to-point bookings when more than one flight is necessary to get passengers to their final destination. Creating a reservation that includes connections is booked from schedules or availability display that includes the passenger's complete origin and destination (O&D).