Tuesday, August 05, 2008

AA's battle with Kayak

There has been a lot of media buzz regarding the announcement that AA was pulling their inventory from meta-search engine Kayak. The news was first leaked by Tech Crunch on July 23rd. The article stated that AA was pulling their inventory from Kayak and considering doing the same for Orbitz, which Kayak uses to supplement direct connections with airlines. As originally conceived by SideStep, the meta-search application would satisfy two important market needs: (1) consumers like to compare fares from multiple sources through a single query (2) airlines could benefit from direct bypass of other more costly channels especially OTAs such as Expedia. SideStep was originally launched as a downloaded application that automatically appeared in a sidebar when the user visited sites such as Expedia and entered their flight request information. Recognizing the challenges with downloaded apps, SideStep a few years later moved to a completely Web-based comparative shopping platform. Other sites such as Mobissimo, Farechase and Kayak soon appeared. (note: Farechase was actually the first such meta-search engine and was acquired by Yahoo! back in 2004). At first the OTAs were very negative towards these new meta-search engines. The only exception was Orbitz where Kayak founder Steve Haftner was also one of the original founders of Orbitz and thus had particular pull with his former company. At the PhoCusWright Travdex conference in the spring of 2005 in Dallas, Bill Bliss at that time a senior marketing VP at Expedia, presented a session on why mega-search was a bad idea due to the lack of customer ownership (meta-search engines do not fulfill tickets, but instead send the user to a supplier or OTA site). This negative position soon changed as the OTAs recognized the value of these meta-search engines in generating leads. In fact as the market dynamics shifted and airlines were faced with skyrocketing price of fuel, most of the major airlines stopped compensating meta-search for referrals. At the same time the OTAs continued to provide compensation to these sites. An insider at one of the major meta-search companies told me that as much as 60% of the company's referral revenue was coming from OTAs. AA's decision to pull out of Kayak was based on this reality where more revenue was being shifted to OTAs rather than the AA.com site. The threat to withdraw from Orbitz is more serious and as of this writing has not been implemented. Unfortunately even the best airlines still miss the nature of the Web. Rather than limiting reference sites, AA and other major carriers should be syndicating their booking engine on as many sites as possible. The Web has an unlimited number of specialty sites and syndication has the opportunity to gain incremental revenue from a variety of sources. Comments by AA and other carriers that their dollars are better spend in SEM (Search Engine Marketing), are a bit silly as their brand is so ingrained in the mind of the American consumer that finding AA.com through Google is not a challenge. The idea whereby all consumer traffic could be generated through an airline's site conflicts with the very nature of the Web which is constantly expanding and fragmenting users based on their interest groups. The consumer wants comparative shopping and actions by AA with Kayak demonstrate a lack of sensitivity to the true nature of the Web.

44 comments:

Joe Buhler said...

Excellent post, Norm describing what has become quite a fight! I totally agree with your statement about AA and other airlines, and I might add non-airline travel suppliers, are myopic in their outlook and rather than be present at as many potential customer contact points as possible try to channel all business directly.

I wonder if they have truly made a cost/benefit analysis of this approach vs. paying for leads produced by third parties.

Not only might they be saving but as you say their approach goes against what the web is all about.

AirValid said...

As Joe said, it is an excellent post.
But still, I have a 2 remarks related to the way people search for an airline on Google.

Users have now a better comprehension of the way Google works and choose pages on long trends like name of airline + destination + cheap flight for example. It demonstrates that they have affinity criteria but also want to compare with prices brokers or travel agencies that could have deal.

The second point is that since airlines have stopped giving commissions to travel agencies, it’s very hard to find the same trip on the same airline with a difference of over 30$ on the prize. If the passenger has a rewarding program with the airline or a credit card he will finally accept paying a bit more on an airline he knows that will also compensated the cash lost by miles for example.

Added to the fact that your usual airline doesn’t necessarily cover the destination you want to go for, it doesn’t seem to be at first sight a good idea for airlines to go for direct business. But don’t forget they now work in Alliance with booking proposals.

Arnaud BILQUEZ

mjnaus said...

I think many are missing the critical point here that most customers don't actually follow the referral from a comparison site to the airline.

When comparing prices on sites such as SiteStep and Kayak, more often visitors do the comparison after which they navigate away from the comparison site towards the page of the airline to make the actual booking.

Mattijs Naus
Cloud9 Travel Distribution

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