Eastman's Off-The-Wall Comment(S) s1

A little different approach to OTWCs this month (I hope) … some focused responses to a number of media or friends’ comments. I’m trying to teach myself how to “blog” better.

Eastman's "Off-the-Wall Comment(s)"© …

It is this transformation in how society uses the new information technologies … the “gadgets” of our society … that is having the greatest impact on the airline and travel industry.

The current focus within travel distribution is the focus on (a) GDS by-pass via the new entrant distribution platforms like ITA and G2, (b) the rapid evolution of airline owned direct web sites and (c) the many variants of interactive digital packaging by mega-Internet, now-responding mega-corporate agencies, and meta-search solutions.

The author has often noted in past OTWCs that the primary “glue” holding the traditional distribution process together was … and remains … airline ARC and/or BSP settlement. While only a small percentage of hotel settlement passes through the Pegasus commission tool, the only way to settle for air travel remains via an ARC/BSP approved agency or with the airline direct – using hard cast, checks, or credit cards.

Obviously, an opportunity for the airline/travel agency distribution structure is to be a leader in the transition to the “digital payments” suggested above. It is likely that a traveler’s “smart phone” will enable “check-in”, “boarding”, as well as payment in the very immediate future. Consider the productivity and efficiency advantages of such tools. Still, it is more likely that the inherent structures and traditional “way-of-doing-things” will inhibit the airline community from leading in this transition.

Accordingly, it is more likely that a few “pioneering” airlines and other travel vendors will lead this transition into the future … likely as a part of integrated interactive travel product packaging. And as Southwest and JetBlue have led in the initial transformation of the airline seat product … the airlines and travel vendors that move aggressively in the settlement arena will gain new and measurable market share.

Eastman's "Off-the-Wall Comment(s)"© ...

It never ceases to amaze me how often we hear these kinds of remarks as new technology solutions begin to “interface” with users … or more importantly, those threatened by the new technology.

1. Initial users of bank ATMs provided the same kinds of complaints. Citibank, among the first to implement ATMs – actually removed ALL of their ATMs at one point in time because of similar feedback… before realizing their mistake. Citibank now has the largest ATM network in the world. ATMs that make the news these days are the ones that are broken into or stolen.

2. Initial users of Internet booking engines experienced virtually identical problems … and generated almost identical comments … particularly from the “agents” whose jobs were threatened (as may well have been the case with the Sheraton employee). Internet booking engines that make the news these days are those that expand their services beyond travel.

3. Like the banking and airline distribution systems, most major hotel chain information technology platforms are of legacy architectures. While not as “legacy” as the airline systems, integrating them with contemporary kiosk technologies requires people that can “walk both sides” of the technology idiom; i.e. people that understand the fundamentals of both the legacy architectures and more contemporary Internet Protocol structures. While both sides will tell you “they understand the other” – the reality is that very few really do. The kiosk problem noted before is likely a result of that conflict.

4. While I’m a great admirer of Chris Elliott, both as a writer and as a marketer of his writing skills -- like all good independent writers, it is necessary to find some sort of “hook” around which to build and sell a story to a media outlet – particularly in this era where blogs are rapidly becoming substitutes for traditional media as an information resource. This is a great example of taking a problem that is a part of virtually all new technology evolution within society and turning it into newsworthy revenue. My congratulations to Chris!

Eastman's "Off-the-Wall Comment(s)"© ...

In February and again last month, I discussed what appears to be the next evolution in travel distribution – the ability to link contextual responses to travel destination, packaging, and pricing queries by travelers and buyers. The salient points of Eric Schmidt speaking in the very global sense of Internet users in general – are particularly valid within the travel industry.

The travel product selling process is virtual – digital, if you will. The physical-ness of delivery of a travel product is when the traveler shows up! Until that point, “product delivery” is little more than promises and dreams!

In travel’s past, airlines, hotel properties, destination companies and bureaus, tour packagers, etc., … used large sales forces to “reach out” to customers – both directly and through intermediaries such as travel agents (in themselves, essentially a sales force). The Internet is decimating these traditional people-staffed sales forces … for the very reasons noted by Eric Schmidt.

The meta-search tools like Google will further change the relationship of the “sales staff” to the selling process. Meta-search is a self-qualifying medium – where prospects self-qualify themselves as targets. The cost to reach a self-qualifying target via meta-search tools significantly lower than the cost of traditional consumer based mass-media programs. Even more important, “branding” can be more effectively targeted as qualified buyers.

Like so many of the traditional approaches to travel marketing, travel vendors need to recognize and capitalize on the validity of meta-search as (a) one of the most cost effective ways of reaching target prospects, (b) using the “millisecond” of exposure that meta-search response advertising provides to ensure it is your product that induces response, which drives (c) the need to deliver relevant context-oriented responses to meta-search queries in lieu of attempting to attract viewers to content sites.

All too often I meet and talk with travel industry executives bent on saving their particular entity … be it airline, travel agency, corporate travel department. But when challenged as to how to approach this new information and knowledge based world we live in – the response is almost always “more sales force.” Without exception, they all seem to recognize that mass-media is no longer dollar-effective. But stepping past the traditional core of marketing, they revert to the “save-all of selling” … more people. Simply stated, the decision-makers in the airline and travel industry have not yet come to recognize the power and expanse of the digitally-drive knowledge-based self-servicing marketing paradigm.

Eastman's "Off-the-Wall Comment(s)"© ...

As this and the rest of the story above suggests, I do not believe that the mega-agencies (Internet or otherwise) will dominate air internet booking in the future as they do today. But I also do not agree with the premise that the airlines will evolve to dominate the internet booking in the future, as this story suggests. As an aside, the story provides an evaluation of the strengths and weaknesses of a number of different airline web sites.

The Internet agencies' problem is that they seek to manage and control itinerary content; they are essentially content providers! The airline's problem is that airline seats have become too much of a commodity (as the story implies); and thus, gain little value-add without integrated packaging for most travelers, whether corporate or leisure.

Using this logic, I suspect the long term future of digital interactive booking is tied to interactive Internet packagers that can evolve "custom packaging" on-the-fly; mixing and matching commodity travel product in much the same way Internet media companies capture and channel "views and clicks" via targeted messaging popping up in response to meta-search queries by users.

Still, one of the interim steps toward this perception of where the industry is headed lies is the need for the airlines to regain control of their product distribution. The use of their own web channel management tools supports this new GDS-independent functionality. This will enable the control suggested in the story.

And lest I not be misconstrued, I expect that there will ALWAYS be a market for a niche group of travelers that only buy commodity air travel; with no added "packaging."

Whether one sees "Eastman's vision" or "buys off" on this story's premise – it is probable that there will be a bit of a retrograde in Internet travel-buying as airlines reassert control over their inventory. These tools will not be burdened with the constraints of the legacy architectures of the past nor the traditional distribution structures of the industry.

Eastman's "Off-the-Wall Comment(s)"© ...

When I first read the accompanying story, the question that first popped up is whether the lack of U.S. carriers in this list is the result of U.S. carriers financial problems, or due to strict FAA/DOT control over radio transmission regulations? In fact, I suspect the latter, but do not really know for sure.

It was my second thought that induced me to put this snippet in this month’s OTWC.

As most of us recognize, driving costs incrementally lower is a critical aspect of survival in any commodity market … because lower costs drive higher margins in a market where price-competitiveness is the dominant criteria for customer choice.

Internet is being “incentivized” to support perceived customer needs, desires, or expectations. But I’m betting that the most interesting aspect of on-board internet for airliner will be its ability to significantly lower the incremental costs of operating each flight!

Just for starters … airlines currently pay messaging costs to ARINC or SITA to transmit operational data between aircraft in the air and ground stations – and upon receipt, the ground stations must manually relay many messages onward. Via Internet messaging, routing will be faster and automatic. Messaging costs will be incorporated in bulk message packets – not the disparate message packets that are used today in air-to-ground (or ground-to-air) messaging.

Further, Internet will allow for much greater message content. It will be possible to alert maintenance teams in multiple sites as to needed fixes while the plane is still in the air. It will allow advance and follow-on passenger service and care support. It will permit airlines to interactively rebook passengers (and cargo) on delayed or weather re-routed flights. Onboard Internet will enable ground operations to better manage and pre-plan the physical aspects of arrivals (and departures); and concurrently facilitate en-route crew rescheduling when needed. Even little operational issues like en-route re-planning, take-off and landing weight and balance government regulation compliance, meal and service complaints will be cost-effectively managed in-flight; rather than in pre or post flight manual reports.

It’s great having passenger demand drive the issue with respect to inducing the FAA/DOT into allowing real-time Internet on-board; but as noted, I suspect that its real value will turn out to be the lowered cost of operating airplanes – and the increased level of in-flight service that interactive information and the sugsequent derived or applied knowledge offer.

First … .an interesting editorial!

Second … it summarizes most of the thoughts noted throughout this OTWC … both in the snippets quoted and the related comment(s).

Third … the very relevance of this non-travel industry editorial to what we’re experiencing within the travel community suggests that, increasingly, travel product marketing and selling is becoming more aligned with conventional consumer marketing structures; less separated by the disparate technology distribution platforms that so-dominated travel sales in the past.

This third point is particularly significant when one extends this thinking. As noted in OTWC many times (and above) – the major demarcation between air travel product and other products has been in the digital settlement (payment) process. The airlines were first to build digital electronic and digital settlement processes. Those systems and architectural structures have controlled virtually all of the marketing, flight operations, passenger services, and government reporting for the past 40 years.

Internet technologies have allowed other business sectors to match and subsequently surpass the digital business structures (and related business culture and thinking) – and this has become increasingly apparent in the past five years. These new technologies now “overlay” the older and historic airline business infrastructure – serving new customer needs and expectations that evolved around the newer technology.

Consider these quotes from Jay Campbell’s “The Beat[1]” …

· Airline yields in the first quarter were higher year-over-year from online channels, but lower from bricks-and-mortar agencies, according to American Airlines managing director of leisure, corporate products and international sales, Greg Brown.(The Beat 050305)

· "We fully expect [ECT] to break even later in the year," said Expedia CEO Dara Khosrowshahi, noting that corporate booking and revenue growth continue to accelerate. … According to IAC chairman and CEO Barry Diller, "It's leverage and scale. Once you get to critical mass and you start scaling it, margins really ought to follow. I can't tell you exactly when, exactly where or what, but I think with what the momentum is now, it's an inevitable result." (The Beat 050405)

· Growth in trips booked by GetThere and Travelocity Business as well as their "positive contribution" to adjusted earnings helped drive a strong first quarter at Sabre Holdings, which grew revenues 8 percent year-over-year to $582 million and generated slightly lower adjusted net earnings of $49 million. Sabre shares rose 2 percent in morning trading. (The Beat 050505)

· The United Airlines "gain sharing" program has prompted some travel management companies to begin making a miniscule number of reservations through alternative channels, but it remains unclear how quickly United could reach its goal of processing 20 percent of TMC bookings through "qualifying" distribution systems. United is hoping to qualify a system already used by TMCs before reaching its "magic month," when the one-fifth goal is met and new parties are frozen out of its $5 per-ticket incentive! (The Beat 051805)

Yet these are all new technologies overlaid on the old distribution or inventory structures. In reality, these overlay solution simply cannot stand the increasing demand and expanding expectations of buyers. Airlines, as well as travel agencies, corporate travel buyers, tour operators and the multitude of other travel vendors and intermediaries must recognize that to continue to ignore the knowledge-based change taking place in society in favor of trying extrapolate current processes, cannot survive.