Airlines make ‘inflated’ claims of distribution costs

Airlines make ‘inflated’ claims of distribution costs

Airlines’ pursuit of direct bookings has barely any impact in cutting distribution costs despite carriers’ claims to the contrary.

That is the conclusion of a study published this week by aviation consultancy Infrata, which concludes the carriers’ real aim is “to curtail consumer access to independent booking channels”.

Infrata’s report on ‘Airline Distribution Costs’ highlights “the deficiencies in distribution cost calculations presented by airlines” and questions carriers’ motives in attempting to drive more bookings direct.

It was commissioned by the European Technology & Travel Services Association (Ettsa), representing online travel agents (OTAs) and GDSs, and the European Federation of Travel Agents’ and Tour Operators’ Associations (Ectaa) which includes Abta.

The report concludes: “Selling through travel agents using neutral booking platforms (GDSs) is just as cost-effective for airlines as selling direct.”

Yet it notes: “Some airlines impose punitive surcharges and other forms of discrimination against consumers who book through neutral booking platforms.”

British Airways and Iberia will introduce an £8 fee per ‘fare component’ on GDS bookings from November, while Lufthansa imposed a €16-per-booking GDS fee two years ago. BA claims the fee is to cover “additional costs applied through these [GDS] channels” and says agents, OTAs and travel management companies (TMCs) can avoid it only by booking direct or committing to “using an NDCbased connection”. This refers to airline association Iata’s ‘new distribution capability’ (NDC).

But aviation consultant Ian Lowden, author of the ‘Airline Distribution Costs’ report, said: “Airlines seeking to justify a move to ‘direct’ distribution schemes omit important and unavoidable costs. Taking [these] into account, the costs of ‘direct’ bookings and those made through online and offline travel agencies are equivalent.”

The report identifies five areas that airlines routinely leave out of calculations of direct-sales costs: the cost of online customer acquisition, customer service, technology development, payment processing and web search.

It notes: “Airlines have to replicate the advertising and reach of OTAs and metasearch companies [to compete online] and this is expensive.

“TMCs and OTAs provide substantial back-office support for businesses and customers [and] this cost will fall upon airlines. GDSs and OTAs have invested massively in consumer-facing and backoffice technology. This cost will fall upon the airlines if not provided by these companies.

“Costs [of] credit cards and other processing costs are [also] paid by OTAs and agents. These costs will fall on airlines if they move [more] traffic direct.”

Ettsa secretary-general Christoph Klenner said: “Some airlines claim sales made via agents cost them several times more than direct sales. Yet the evidence shows there is no reduction in costs when airlines push for more direct sales, and costs actually increase for some categories of airline. We can only conclude airlines must have other motives to push direct sales.”

Klenner suggested: “One clear motive seems to be avoiding the transparency, convenience and choice that travel agents and neutral travel platforms offer consumers.”

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