Rewarding Sites

FMV caught up on some reading over the weekend, so we'll share the wealth with you. First, we present a review of the new reward booking sites at Continental.com and Delta.com.

One interesting note, author Ed Perkins found that he could not access all of Delta's new functionality without logging in as a SkyMiles member:

"On Continental, you can search for seats without logging in as a OnePass member. On Delta, however, you can get yes/no answers to flights on specific dates without logging on, but you must enter your frequent-flier number and PIN to use the new flexible-date system."

Why would this be? Perhaps most likely, Delta is trying to keep their IT costs down. Or could it be that Delta wants to gather information about where their most valuable customers would like to travel for free? FMV would be shocked, but certainly applaud that effort.

Overall, Perkin's has a common gripe about almost all Frequent Flier programs:

"Sadly, however, improved search capability doesn't increase the number of available seats; it merely makes it clearer, more quickly, how scarce those seats really are."

This may be true since airines typically offer somewhere around 8% of seats available for award redemption, but cusomers now have more ways to earn miles as ever. However, improving the online capabilities are still crucial for airlines because the call center times needed to address award travel are staggering. FMV has heard averages of 20 minutes - so there are huge cost savings here by automating this functionality. Even if it means a little more transparancy on the dearth of seats.

Kudos to both carriers (and American Airlines) for investing in functionality to help users find reward flights. Especially if customers find some surprising rewards they may not have originally considered.

Coffee or tea? Cash or credit?

United Airlines reported a disappointing $150M net loss for the 1st Quarter. FMV could type all day and not fully capture how troubling we find this, so instead we'll grab our half-full lens and focus on the "so-called-solution" (or at least part of the solution) as suggested by United, ancillary revenue.

In addition to trying to charge more to business passengers - United suggests they may consider charging passenger fees for baggage handling and seat selection. United is already on pace to make $100M from upselling EconomyPlus seating to non-elite passengers, so they believe it also makes sense to peek under other rocks. The pessimist would note that with $3.3B in 1Q07 passenger revenue, there's no fast track to UA profits through ticky-tack fees. However, consultant Patrick Murphy (Tralliance Coaching & Consulting) estimates that fees and advertising can generate up to 35% incremental revenue! That's real money.

Word from the UATP Conference is that AirTran, Frontier, and US Airlines are among other carriers considering similar strategies. That's no shocker, considering the industry is dedicating a conference to the topic of ancillary revenue this fall. But FMV wonders, can any carrier's top line revenue actually grow if everyone follows the same service fee playbook? We think the answer is yes, but only for those carriers that can effectively market their repositioned products and we believe that doesn't include most of the legacy carriers.

For example, will UA be able to win new business travellers with high restricted business fares AND a seat selection charge? It may work to some degree for lesuire customers, but we can't see it working enough to make a huge difference overall. Business travellers, who already make up a large majority of their revenue, will either be exempt from these fees, or will resent paying them and perhaps pop to another carrier.

The marketing and loyalty efforts are going to have to heat up - and just add it to the fuel charges.

Yapping About Airline Tickets

Every once in a while, FMV comes across an idea that really makies us consider what it may do to an industry. While reading The Next Net – we may have found such a site. Yapta (still in beta) will actually track your PURCHASED ticket, and let you know if the price went down.

Why do would you care?

There is a little-known rule in the airline industry called the "guaranteed airfare rule." If you buy a ticket directly from an airline and the price of that ticket later drops, you are eligible for a refund [(minus $100)] or a credit voucher [for the full difference].

Think about that. Yes, you would rather buy at the cheapest price possible, but we can’t always time that very well. But this service could be the next best thing – you just get the money back after-the-fact. Granted, it’s in credit rather than cash (we believe that 95% of people would rather accept a credit for the full amount rather than a refund minus $100), but for anyone that travels fairly frequently, that’s still money in the bank.

Implications and reactions? FMV can think of a few:

1) There will be an interesting psychological battle to be played out with FareCast – because these two companies will be on opposite ends of the spectrum. Farecast tries to tell you if you are getting a good deal, and will protect you if you buy their Fare Guard product in case fares rise later. Yapta will track your ticket prices and get that money back for you (for a fee?) if it goes down. Which would a buyer prefer?

2) The obvious skeptics reaction is “airlines will just change their policy and not allow this”. Really? FMV doubts it. We think some carriers will embrace it, use it as great PR, and potentially even attempt their own automation to save call center expenses. Others may be unhappy, cry a bit, but will simply deal with it in the end. To wholly change their policy seems unlikely, though a restriction tweak or two won't surprise (e.g. voucher restrictions).

3) As a side note, FMV wonders what the breakage is for these types of credits. If general retail stores experience a default rate of almost 20% - we bet the numbers are higher for these credits.

4) Others will also say “people will just do this themselves and won’t pay for a service like Yapta to do it for them”. That’s probably true to a large degree. But FMV also can’t figure out why people would pay an additional $5-$6 to buy their air ticket through a online travel agent rather than directly through an airline website...

5) Yapta will be in a unique advertising position because they will know where you are going and the exact dates you will be there! That has amazing potential. Hotels are cars could check out their inventory with specificity and offer better deals and sales. Same for other attractions, events and restaurants.

"We recognize we are throwing a hand grenade into a big industry."

Tom Romary, the CEO, has got that right. First, people will freak out and scoff at this idea. Second, copycats will emerge to provide the same service (think gnome and Galileo-ports). After THAT, it will all come down to execution, marketing, and partnerships.

Regardless of which provider wins the endgame, money back for traveling is a great thing.

Chatting It Up

Earlier in April, FMV commented on a Henry Harteveldt presentation that stated 4% of travelers have used a “web chat” session for customer support. Although hotels have been using this functionality with great success, we were curious when a major airline would step up and offer this chat support. Not only could this satisfy travellers’ need for *some* human interaction - it also could satisfy the airline’s need for a channel that costs less than a fully functional call center.

Well, it looks like Korean Air has stepped up to the plate – Chat in a limited fashion:

Korean Air will launch cutting edge “Live Chat” technology on its dedicated travel agent website to make it easier than ever for agents to get answers to frequently asked questions… information on Korean Air’s products, special offers, ticketing policies and schedule changes…

So – the chat is limited to Korean Air's agency-only portal. In addition, it looks like it’s purely informational and may not apply to detailed itinerary-related questions. However, it’s still a huge step for any airline and we’re now scoreboard watching to see the first US airline that adopts this support channel. Any bets on Southwest, JetBlue or Alaska??

User Generated Marketing

The NBA Finals start this weekend. FMV doesn't care too much, though we'll probably keep an eye on a game or two. If you watch, you might see some new Southwest Airlines commercials, schedule to debut during NBA broadcasts, courtesy of the carrier's customers and employees. As you may know, the Southwest recently asked their fans to submit video spot ideas for their "Wanna Get Away" campaign.

This concept recently took off during the Super Bowl with Doritos, and it's only appropriate that Southwest has grabbed the idea for the airline space. Further genious from the carrier that managed to give customer service nightmares a positive spin with their television series, "Airline". Not only do they (presumably) save some payments to their ad wizards, but they more importantly further strenghten the unique bond they enjoy with their customers. Saving money, stimulating business, AND building loyalty. That's a tasty trio.

So while you won't catch FMV staying up 'til midnight to snag Seating Area A, this is just the latest reason we applaud Southwest's marketing team. View the video finalists here if you don't want to watch the Bulls make a post-season run.

AA's "Not Made Here" ERHF

American Airlines announces an “External Res Handling Fee”:

Effective April 12, 2007, AA Reservations will collect the External Reservation Handling Fee (ERHF) for the service of assigning or changing seat assignments for tickets purchased through non-AA locations. This fee will only apply for those customers who purchase tickets through a ticketing source other than AA or AA.com. It is very similar to the fee we currently charge for itinerary changes. If the customer does not agree to pay this fee, AA Reservations Agents will refer the customer to AA.com, AA IVR (Interactive Voice Response) Systems, or to the original booking source for assistance with seat requests.

Here’s what FMV loves about this announcement:

1) They post this notice on April 10th to be effective April 12th. No foolin’ around there.

2) Not only do they name it awkwardly – THEY CREATE A FLAA (“Four Letter Airline Acronym”) out of it!!

We’re surprised they went with a FLAA instead of the more common “TLA” (“Three Letter Acronym”). You just can’t work with airlines without using these wherever possible. Try this the next time you call AA:

“Will I get charged a ERHF on my ORD / BOS PNR booked thru CWT on a GDS if the ATO messed up my SSR request due to an IRROP and AA.com won’t accept multiple FOP from my POS??”

You simply can’t make this stuff up.

3) They called it an “External Res Handling Fee”?? How weird is that? Why not simply call it a “Seat Assignment Fee” or a “Seat Change Fee”??

This is the crux of the matter - Because they really wanted to highlight the fact you are enduring all of this pain because you went outside of the family!! We also love how they also give you a not-so-subtle reminder that “It is very similar to the fee we currently charge for itinerary changes”

In a way – we can’t help but wonder if agents really brought this on themselves.

Agents (and to a more public degree the GDS’s) keep pointing out that they service the business traveler that yield the higher-revenue tickets. Therefore, the agents’ clientele and service makes all of the higher GDS costs, overrides, “marketing funds” (and other payments the airlines shell out) worth it. FMV distinctly remembers an agency utter the phrase “we service the customer on behalf of the airlines so it’s worth the costs”.

It’s seems to us that American is now saying “Great – thanks for that. Oh, but you can’t have it both ways”. It’s clear the agencies cost more, which MAY be OK if those agencies also take care of their customers. But this model breaks down if the airlines have to pay the agencies more AND also have to shoulder the costs of servicing them. Granted, it does pose tricky customer service issues for the individual flyer – and that’s where we think AA’s real challenge lies.

The traveller is pretty much oblivious to the battle raging between the airline and agency – but still gets caught in the crossfire. AA wants the customer to be mad at the agency - not the AAirline. Call center agents will probably have trouble framing this issue for customers.

And hence the reason why Platinum status members are exempt from the ERHF.

The LCC's are coming!

FMV loves a sweet low fare as much as anyone, especially this close to tax day. But last week's news that Ryanair and others plan to launch transatlantic service with fares as low as $12? Holy frijoles!

Who would have thought that one could cross the pond for a fraction of their passport fee? Some quick googling by FMV reveals that a $12 fare is in fact an order of magnitude less than the actual fuel cost a carrier must burn per passenger for that mission. What can this mean? Welcome to the wonderful world of revenue vs. fare. Breathe in and savor the subtle nuance.

You can rest assured that carriers will collect much more revenue than the $12 fare. Much of it is unavoidable, courtesy of various governments: taxes, PFC's, etc. Some of it is avoidable - but they do it anyways (like the "Wheelchair Surcharge" they charged ALL customers). However, FMV sees some fuel surcharges and other unavoidable "service fees" on the horizon as well. Think Ticketmaster fees on steroids. They've already confirmed optional value-added services fees - food, drink, duty-free, entertainment - so you can be sure others are in the works (e.g. baggage handling, seat assignment, etc.).

Not to be complete buzzkills, just as Megabus "gives away" $1 bus rides to select passengers, so could Ryanair. But not for everyone on the bus. Imagine the Travelzoo traffic when that Hot Deal is posted! One thing's for sure, new competition will certainly introduce some interesting new sales and marketing strategies. And dare we suggest, with launch markets like Islip and Baltimore, "You are now free to move about the planet?"

Top 15 Reward Markets

Given how much we fly - FMV loves frequent flyer reward tickets. One great source to learn more about this corner of the biz is IdeaWorks. Last week they published a new study where they've estimated the Top 15 U.S. markets (based on US DOT data) for reward travel. Take a look, it's an interesting read.

FMV likes the observations and conclusions presented, especially the theory that customers are trying to maximize their reward by choosing transcons. However, maybe that hypothesis deserves a bit longer haul?

"Surprisingly, the major vacation destinations of Las Vegas, Phoenix and Orlando are nearly absent from the list. Florida is completely absent, and Las Vegas and Phoenix only make a single appearance."

We're not really sure why this would be surprising. The study JUST said customers are trying to maximize their rewards - Flights to Orlando and Vegas are plentiful and usually not very expensive given all of the LCC competition on these routes. If we're making the choice to burn 25,000 miles, or pay $200 - FMV may just save those miles for something more expensive.

In addition, note that many of the top markets include major hubs and/or international gateways for US carriers. LAX - SFO - ORD and LGA represent 12 of the top 15 city pairs. Perhaps many of these reward tickets are in fact connecting to an international destination not reflected in the US DOT data?

For example, maybe two seats from the ORD - SFO market were simply United Airlines 1K's continuing on to Maui, Sydney, or Shanghai? Or the Dallas - LGA routes were like that American Airlines commerciAAl with the old guy and his latchkey kid going to New York, but then continuing onward to a "business meeting in London"?

We'd need to ask the carriers to know for sure, and not that Newark isn't a great vacation destination, but we think this expansion of the "more bang for your buck" theory has wings.

Innovation Inspiration

The last bit of conference business at ResExpo / TravelCom was the “Innovator Awards". ITA Software won the "Established Innovator Award" for a company at least five years old. Other finalists included GetThere, Amadeoose FlexPricer, Omniture, and TravelClick.

More interesting was the “New Innovator Award", for a company less than five years old. The winner was FareCast – which is hard to argue against since they’ve been making a huge splash the past year or so, and also won a ton of other "Innovation" awards. An airfare predicition website??!! THAT's pretty cool since they put their money where their mouth is!

(If you get a chance, you should check out the “Travel Start-up Blog” by Mike Fridgen of FareCast).

The thing that really interested us was that, other than DoHop, we had NO idea who these other finalists were – and that’s kinda embarrassing. So consider this a public service announcement:

1) DoHop- A group out of Iceland that has a nice search engine “covering 660 airlines right around the world”. Originally built to search the Low Cost Carriers, they don’t book but they do have a nice interface to filter results.

2) AltiusPAR - They seem to have the complete technology suite for hoteliers - everything from reservation systems, inventory control, and loyalty programs. Although they didn’t win the innovation award, they do win "Best use of B-School buzz words" on their website:

- AltiusPAR combines next generation technology with a dedication to best-of-breed processes to deliver a broad suite of inventory management, central reservations and revenue management solutions for hotel companies…

- The solution and services are customized to match clients' unique business needs while offering flexible financial business models...

- Technology still holds the key to both driving and enabling substantial product differentiation and significantly improving business processes – from real-time access to inventory, transparency across multiple channels, seamless exchange of operational information and access to performance and guest data.

Heh, heh - that's just great stuff.

3) EZ Yield - A software platform that allows hotels to manage all their rates (in different currencies), and inventory restrictions online. It’s hard for FMV to really understand this system since we’re mainly airline geeks, but this seems pretty cool if you can look at all your rates, inventory, and channel supply on a single screen.

4) Open Travel Software / RFP Marketplace. FMV pretty much hates all things related to RFP’s. We hate reading them, writing them, and ESPECIALLY responding to them. So anything that can cut any time out of this process is a good thing. The RFP Marketplace gets the RFP, matches likely providers (with the eye towards the little hotel guys), and then automates the submittal process. Plus they are crazy cheap - $1,000 per year??! Wow.

Congratulations to both winners and all nominees. Now the pressure's on to continue to innovate.

And with that, TravelCom, like our run at the craps table, came to a screeching, jarring, horrible stop. We must have missed the sign out front of the casino where they held a contest to see “who can roll 7 the quickest and lose everyones' money”. FMV came in first and third. We swear we’ll never gamble again. Well, never bet the hardways at least…

Give 'em what they want

Guy Kawasaki, tech evangelist, entrepeneur, venture capitalist, and pretty funny speaker, gave a keynote Thursday evening. The main topic provided guidance on how to innovate; but Guy ended with his "Top 10" complaints about travel booking sites. His gripes ranged from the obvious to the creative. For example:

• Prepopulate the 'return' date with a date equal to or later than the 'departure' date;
• Allow an e-mail address to function as user-name;
• Allow user to have boarding pass faxed to his/her location during on-line checkin.

We can think of many online sites that already address many of Guy's complaints, but obviously Guy is not using those - - or maybe he could use some tutoring. While Guy apologized for ending his talk with a big complaint session, he shouldn't have. Rather, the audience should thank him for one final, important lesson.

Suppliers need to talk to their customers! Find out why consumers like (or dislike!) their online experience at various online sites. Get it right and you're golden. Get it wrong, and best case the customer will call the contact center or shift to an indirect channel; worst case they'll try a competitor.

To that end, one of the most interesting groups we saw at ResExpo (although we also saw them at the FFP Conference in Vancouver in Feb.) was a company called VisionCritical. Most companies just scatter-shot surveys to customers and hope for the best. However, VisionCritical has software that allows you to form a dedicated panel of your customers, send out a surveys to them, and then interact with them as often as you want. The key here is that you can follow-up with your customers online and really drill down on their thoughts and preferences - imagine what you can do with that:

• "This set of customers expressed frustration with our website, what exactly did they not like?"
• "This set of customers are our business customers, what would enhance their experience?"
• "These customers fly a lot, but never use on-line check-in, why?"

For airlines this is ideal. First, they already have good information about their customers (and their booking habits) through frequent flier information to form a solid panel. Second, they readily have a cheap reward system for customers to participate (miles). And of course - they really really need help in figuring out what their customers want.

"Travel 6.0" ?

*** UDPATED - Scroll Down for Updates***

Henry Harteveldt of Forrester Research kicked off the first Keynote address this morning at ResExpo / Travelcom. We love Henry since we find that he actually goes on record with predictions regarding where the distribution industry is going without hedging, and most of his conclusions are based on actual data his company has collected.

So his big thing this year was that the next wave of travel ("Travel 6.0" as he has coined it – Travel 5.0 centered around search, Meta-Searches, and web-based communities) will focus on the digital media for the next 18-24 months. The goal is to "Humanize the digital experience" which includes "Interactions where human benefits are more visible than the technology".

We're not 100% sure what that means yet, but it screams of management consulting speak so look for it in future .PPT's you view soon soon.

Some random facts of note that he threw out:

- 4% of travelers have engaged in a Customer Service realtime chat session.

We think this is a great solution because it solves several problems at once. We consistently hear that people "just feel better" talking to a real person – this solution gives that feeling in a low cost manner. (Over 60% of people that used Starwood's chat support completed a booking). In addition, one service representative can engage several people at the same time providing some cost savings. It seems that any travel supplier would love this system rather than having that traveler pick up the phone for the call center. However, this is probably much easier for hotels, and will be a long time coming before we see it in major airlines.


- The average business traveler has 6.4 digital devices while traveling.

We guess having 6.4 devices makes it easier to leave your 2.5 kids…

My Goodness – MORE than 6 devices?? We personally travel with a laptop, I-pod and cell phone. Oh, our laptop has a DVD – so maybe that's 4? A separate PDA if your cell phone isn't up to the task? A digital alarm clock? Digital razor? Shoe phone? USB Toaster? We're struggling with the 6+ and not sure we buy this one.

*** UPDATE*** Henry Clarifies Via Email*****

I would like to correct one comment.

Travelers don't travel with 6.4 consumer electronic devices, they own 6.4 CE devices. These are travel-relevant devices, which include both stationary items like desktop computers or HDTV sets, as well as portable devices such as laptops and MP3 players.

What makes the fixed-positon devices relevant? They affect how travel firms market thier brands or products, and how travelers see, view, or interact with your messages (or, in the case of devices such as DVRs or MP3 players, have the ability to shield themselves from unwanted marketing
messages).

I hope this helps clear up any potential misunderstanding, and apologize for any inconvenience.

Thanks again - Henry

First - we appreciate the feedback and love the fact that Henry actually read this. Second, the apology should come from us. We looked at the slides again and FMV reported the facts wrong in our haste to get a post in as quick as possible. It does indeed say "OWN" the devices. Serves us right for second guessing Henry. Third - we now shift the other way and say how is it only 6?? FMV has 5 HDTV's between the two of us !!

We still love the concept of the USB Toaster though - "For toast on the go !!"

- 14% of travelers have changed a reservation online.

We're not 100% sure if this is for hotel, car, air or all three.

That's pretty significant if this statistic is for just air – especially given the amount of agent's time this takes up. Agents have to pull up the original reservation, search for the new schedule, wade through all of the rules manually, calculate the new price, add any applicable fees, charges and taxes. It's completely prone to error and takes a ton of call center time (we're hearing up to 20 minutes on average for airlines). It's easy to see that getting the right online experience can be really huge for an airline.


OK – we're off to the craps tables to see if our run of luck can continue. Last night saw a string of three great rollers go on a tear of hitting their points – and we're hoping a run of hardways shows up because one of us can't stop making that bet !!

VEGAS BABY !!

Greetings from Vegas where they are holding the 2007 TravelCom / ResExpo conference!!

This year, they combined the traditional TravelCom and ResExpo conferences into one, but from all accounts, it looks like this conference is noticeably smaller than previous years. In addition, while the past conferences seemed to have a good amount of upper level CIO-type management, it doesn’t seem to be the case this year.

Could it be that there’s just too many tradeshows in this business??

BUT – there is one huge benefit to this conference – we love Vegas! However, you can’t go an hour without someone saying “what happens in Vegas...” That gets old pretty quick. Wednesday was pretty slow, but it was the first day so we’ll see how things pan out. More to come.

Cheer, Cheer, for New Baggage Fees

We check baggage, yes we do! We check baggage, how ‘bout you? Actually, we rarely check bags, but when we do it costs nothing. For now.

You can always tell what’s on the horizon in the airline fee world by taking a peek at what ATPCO is developing. ATPCO developed “fuel surcharge” functionality and all airlines tacked it on. They’re working on fees to simplify ticketing fees (e.g. call center service charge). But hear us now and believe us later – the next step will be a proliferation of baggage fees as ATPCO rolls out filing products that will make collection much easier for carriers.

Many carriers (e.g. BA) have tinkered with excess and additional bag charges. However, Spirit Airlines dialed it up a notch in the U.S., accepting no checked bag unless you pay a fee for that service. The interesting thing is that we haven’t read much negative press about the Spirit policy. People think it’s cute when an upstart leisure carrier does this. And we cringe, because you can bet $25 that in any conversation about the topic you will hear some variation of the phrase “Ha ha ha. What’s next, a pay toilet?” Bank on it.

However, will passengers still laugh it off when the majors implement fees from bag #1?

As a rep from a major international carrier asked at CASMA, should a traveler on a quick business turn, carrying only a briefcase, pay the same fare as a family checking many bags for an extended vacation? Arguably, the family gets more value. Charge them for that service!

This will be an interesting game to watch. Will the fees be positioned as a charge to the family, or a discount to the road warrior? Who will lead, who will match? We don’t envy the players - especially if we have to wait in security lines longer as families fumble with their array of 3 oz. bottles.

More from CASMA: The Hunt for a Killer in Travel

Michael Bennett from Cheapflights.com gave a nice talk on Wednesday, encouraging airlines to consider new marketing methods as online sales (and advertising spending) grow. Mr. Bennett challenged the crowd to identify leading brands in the online space: Search? Google. Auctions? Ebay. Jobs? Monster. Books? Amazon. Each category killer an easy slam-dunk for the sleepy CASMA faithful.

What about the travel vertical? Can any brand dominate? FMV considers the question…

An Online Travel Agent?
Expedia may be the closest to domination, but the gnome’s not a believer, and neither are we – in ANY of the OTA’s. Count the reasons. Supplier-direct sites continue to improve their functionality without fees. The meta’s are gaining a voice and also cross-shop suppliers. What happens if the airlines start to experiment with holding back content? The OTA future value-added service proposition isn’t clear. We leave the rest to you.

OTA’s do offer a consistent storefront to shop and buy a complete travel experience. Is that really a strong enough advantage? We doubt it because many buyers don’t care. After all, not all air trips need a hotel room, or vice versa. More importantly, you can bet that sites with strong air and hotel brands are working hard to offer more robust purchase options for broader travel categories. In fact, go ahead and get it tattooed on your bicep: JetBlue, American, and Midwest Express airlines all said as much in the other morning session!

So a supplier site then?
Could a previously pure-play supplier sell enough travel to become a virtual Allegis, only an Allegis that’s tougher than Chuck Norris? Maybe an airline that’s a really savvy marketer sans the airline snobbery (e.g. Ryanair), but even then, the consumer base is simply too segmented. Try to picture a Willie Loman type booking three-hundred Motel 6 stays each year at SPG.com. You can’t, and neither can we.

So you’re saying it won’t happen?
FMV doesn’t see the travel killer looming on the horizon, but never say never. Well, maybe you could say never if Walmart, American Express, Kayak and Aeroplan weren’t around – but don’t get it tattooed on your bicep. Unless you’re Chuck Norris.