Airline Weekly - February 22, 2016
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Airline Weekly - February 22, 2016

Sexy and They Know It: Once dull, now dynamic, distribution is becoming central to airline strategic thinking

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Sexy and They Know It: Once dull, now dynamic, distribution is becoming central to airline strategic thinking

“Distribution is not only strategic,” Delta’s marketing chief said in December at a Travelport investor day event. “It’s sexy.”

Once upon a time in the airline business, managing distribution was largely an exercise in cost reduction, acting no different than a farmer with a fatalistic attitude about the price of corn—the market will pay what the market will pay. Nothing sexy about that. In this world, a low-cost carrier could gain a lasting competitive advantage by foregoing distribution via travel agencies and global distribution systems. Those that didn’t go that far nonetheless still focused their efforts on negotiating lower commissions and fees.

Today, however, distribution is about much more. Airlines no longer see themselves like farmers trying to sell a commodity over whose price they have little control. Rather, they fancy themselves like the world’s most glorified retailers—Starbucks, Amazon, Apple and so on—whose products and brand power can command hefty price premiums. Sexy, no?

Distribution platforms, as it turns out, are becoming the foundations for airlines to achieve a wide array of marketing goals, like product differentiation versus rivals, recognizing and rewarding high-value customers, promoting new products and services, fine-tuning market segmentation and recognizing that different customers value different things. Distribution is even becoming a key tool in fighting battles against competitors, as American discussed in its latest earnings presentation—enacting a new anti-ultra LCC strategy, it said, is “more about distribution, probably, than anything else.” No longer are airlines just shipping off their raw schedule and fare data to be aggregated in global distribution systems, so that travel agents can view the data as if they were looking at corn prices at the mercantile exchange—how boring! As Delta likes to say: “A seat is not just a seat.”

But it’s through their own distribution channels, rather than outside channels, that airlines have made their biggest strides so far. On their websites, most importantly—but also via their call centers, airport kiosks and emerging mobile platforms—carriers are removing bottlenecks in their ability to communicate and foster relationships with customers of all types, who are traveling for many different reasons and with greatly varying sensitivity to price. Airline efforts to do so, in essence, boil down to three key innovations: fare branding, personalization and what you might call showcasing.

Airlines are no longer just selling tickets, priced at this or that fare, with these and those fare rules. Instead, they’ve evolved into selling branded products, each offering different amenities—or lack thereof. The Air Canada “Flex” product on domestic routes, for example, provides an... (441 of 1,763 words)

Also Inside this Issue:

Can you think of any two airlines with greater disparity on labor certainty? Air Canada, with most of its workers locked into decade-long contracts, is growing with confidence and earning solid profits despite a home market battered by the oil shock. Air France/KLM, in contrast, can’t seem to get the labor concessions it needs from French unions, leaving its growth prospects uncertain and its financial results—although a little better than usual last year—persistently awful.

Air Canada was also involved in perhaps the most newsworthy aircraft order of the young year. Last week, it pledged a big commitment to the CSeries, lifting—for the moment, at least—Bombardier’s broken spirits.

Other aircraft orders sprang from the Singapore airshow, including an A350 deal from Philippine Airlines. The assembly of industry executives, meanwhile, debated the status of the aircraft market, and how supply and demand will react to the new world of cheap oil.

Despite cheap oil and its pernicious effects on Gulf economies, Qatar Airways is proceeding with plans to buy into Italy’s sickly Meridiana—but only if unions agree to heavy jobs cuts.

There’s no job cutting in the U.S., but that didn’t stop United’s mechanics from rejecting a contract proposal. Southwest’s ground workers, on the other hand, narrowly approved a new contract.

Elsewhere in the U.S., Virgin America lagged its peers once again as trouble in Dallas weighed on revenue. The Big Three and Hawaiian won better Tokyo Haneda access. And three U.S. cities will get new Norwegian flights to Paris.

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