A clear battleground is emerging around the airline's efforts to capture high yield traffic through low cost distribution. First I need to clearly define what I and the industry mean by the term "high yield traffic". In a simple sense, high yield refers to the travel segment that is willing to pay a higher fare for a perceived value. This may sound counter intuitive as leisure customers browse or use meta-search for comparison shopping and corporate customers push for lower fares based on volume discounts. A focus on high yield customers is not a new thing, as I recall listening to many GDS executives at different travel conferences over the last 4-5 years who preached the benefits of using GDS distribution as a way to access high yield customers (no doubt a heated discussion this year as GDS try to re-sign the major carriers to full access agreements). At the heart of this high yield focus is the belief by travel suppliers that they can offer a differentiated product to attract customers. Historically business travelers would often choose more expensive flights based on short travel windows, schedule advantages (non stop verses connections), ability to upgrade, airport preferences or other factors. Obviously the emergence and high adoption of Self Booking Tools (SBTs) has allowed larger corporations to control and track this behavior at the point of sale. So who is the high yield customer? An obvious answer to this question focuses on the large mid-market (corporations that spend between $2M - $12M on air annually) which has been slow to adopt online booking (26% according to the latest BTN report) and where many 2nd tier and 3rd tier TMCs continue to hold on to customers. The recent resurgence of airline corporate portals are an additional attempt by the carriers to attract the mid-market to their direct channel. Rather than limiting this focus on just the mid-market, I would argue that every single customer including leisure shoppers, small and mid market business travelers and large corporate travelers are potentially high yield customers, provided the airline can truly differentiate their products by demonstrating the value associated with a higher cost. This value may be in terms of a superior schedule, the ability to sell seats at different prices (aisle or window seats vs middle seats) , inflight amenities such as satellite TV and inflight wireless internet or the ability to upgrade to a more comfortable seat. In one sense, in an effort to differentiate, the airlines may in the midst of their own version of what we've seen in the hospitality market regarding the recent "bedding wars" among the major chains. Will the airlines succeed in differentiating their products and capture higher yield customers? The jury is still out and I would love to here your thoughts on the subject.
Tuesday, March 07, 2006
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Completely agree. Carriers are going to have to start getting very creative in how they create value in their product to continue to compete for the high-yield business. Competing on price/journey time just isn't enough.
Interestingly enough, if you look at the truly lowest cost of distribution with the most flexibility to support product differentiation you'll find its the carrier sites...not the GDS/GNE discussions as has been the focus of much distribution debates.
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