Fare Enough to Buy

Uggg...

The dreaded “SDC” – Second Day of Conference. Actually – for Phocuswright, it was actually the "Dreaded Third Day" because they had some other lame pre-Phocuswright session that many people also went to.

The highlight for FMV was the FareCast session where Hugh Crean presented some interesting facts and characteristics:

* Farecast has 5 different suggestions for customers when they look at fares, and it turns out that they will recommend that a customer “Buy” their flight 85% of the time...

* Although customers can search Orbitz, Travelocity, Hotwire, Expedia and other Online Travel Agents – FareCast still sends a customer to an airline website 85% of the time. Honestly – we really can’t understand that those other 15% of the people are doing – unless it’s some sort of multi-carrier flight.

* It turns out that FareCast is correct in their prediction approximately 75% of the time, citing an audit that sampled 44,000 quotes.

Question: Is 75% accuracy good? Especially given the fact that you would predict a Buy 85% of the time. Fares going up is the default - therefore FMV things the REAL guage of accuracy is what percentage of the time can you predict that the airfare will go DOWN.

Hugh repeatedly says that Farecast is data-driven, not marketing driven. FMV likes that they are pretty much trying to tackle the most relevant problem of the traveler “when should I buy a ticket?”. However, what would be the difference if you had a site that just said “buy” every time?

Don't be afraid, I'm a friendly gnome

Michelle Peluso of Travelocity gave a presentation about the site's new interface, without talking about the new interface. Well played.

Instead, she discussed a huge study performed by The Gnome, which indicated that over 42% of Internet consumers who start travel shopping at an OTA book at an OTA, while over 46% of consumers who start shopping with a supplier book with a supplier. The Gnome's conclusion? Internet consumers already know where they are going to book. Sure, they shop around, but it's only to avoid buyers' remorse. Therefore, channel shift is over, and OTAs and Suppliers can peacefully co-exist in a Utopian partnership.

Peace sells, but we're not buying. Consider these facts:

* Al Lenza of Northwest Airlines felt that OTAs and suppliers are not partners, rather the parties simply have a business relationship.

* In the spirit of partnership, Peluso spouted that Travelocity could terminate their business with Kayak (a succesful supplier marketing vehicle), "in about two hours". Nice.

* Further, Peluso felt that The Gnome would not acquire at-risk air inventory since it's "not good for the carriers". Exxon would say the same thing about a carrier fuel hedge.

This felt like a total schmooze play by Travelocity. Sure they're a buddy now, because they're struggling to add value over the supplier sites and meta's. But if they get a chance,they'll pounce on both with the rusty shiv hidden in their hat. Keep an eye on that Gnome.

OTA Booking Fees: Why?

Intereting realization at Phocuswright that Priceline is no longer charging a fee to consumers for air bookings. Why? To build their brand reputation as a low-price retailer.


They confessed at PCW that, for these bookings, they don't really add service value over a carrier site, and they don't offer the customer care tools of their OTA peers. Bravo! What have we been saying for some time?


Don't look for other OTAs to match, because they've invested too much in pitching their service proposition to throw away that revenue stream. Unless Priceline is able to make up some ground in share of course, which may be unlikely, but actually could happenen. Especially through savvy partnership with meta's.


The important takeaway here for FMV is that this is another chink in the armor of the OTAs. We simply beleive that they are really going to struggle to stay relevant in the long run when: a) meta's are there to provide cross shopping, b) carriers remain commited to driving shift to internal channels, and c) traditional Travel Agent's provide a much clearer service proposition, for a competitive fee...

The Buzz was NOT Palpable

OK, OK - we are late with Phocuswright posts - but we'll post our thoughts over the next few days...

The "big" (aka "paid") announcement on Day 1.0 @ PCW was the launch of a new travel web site site called Vibe Agent. Sit down, you're not going to believe how awesome this is. It is a site that combines (are you sitting?) hotel reviews, with meta-search, with social networking.


You can't make this stuff up. Maybe it's always been this way, but the travel space is starting to feel like the cliche world of Hollywood. "Let's make a SitCom about the GEICO Cavemen" sounds a lot like "Let's mash-up The Long Tail with Travel 2.0".

Best of luck to Vibe Agent. Seriously. More importantly, why are we writing this blog and not starting "Travel-Wad.com"? Which will get us a yacht quicker? Hmmm....

Hello from Phocuswright !

Hello from sunny Orlando, where this year’s Phocuswright Executive Conference is being held at the Omni Hotel - which is pretty much in the middle of freaking nowhere, Florida. There are NO restaurants nearby except for a Chili’s, and if you registered late and didn’t get into the Omni – you guaranteed yourself a 17 mile hike to the nearest Marriott or Radisson (read: Dump).

BUT – it is the best travel conference every year, and highlights how badly some of the others really suck. Good lineup for Day 1 so we’ll log some entries a bit later.

Drinks on my company!

For those living under a rock, Southwest announced some new changes to their fare structure and product this week.





We love the throwback strategy of using alcohol to entice business travellers. But otherwise, it's just more of the carrier moving away from it's no-frills past to embrace some complexity in order to drive more revenue from business customers:

• Bonus rewards credits for higher fares?



• Preferred boarding and seating for loyal travellers?



• Opaque and incomprehensible fare structure?

Hey! Who are you and what have you done to Southwest?

The inevitable has happened.

US on-line travel sales now exceed off-line travel sales. PhoCusWright has released their seventh annual on-line travel overview. Per this synopsis, PCW reports that online travel sales hit 51% in 2007, and should continue to grow to 60% in 2009.


We always take this stat with a grain of salt, since it's typically computed in dollars rather than transactions. Either may be appropriate for a given argument, but it totally depends on the case you want to make. Regardless, we'll agree with the conclusion: on-line channels will continue to grow despite their setbacks and possible risks to brandloyalty.


We'll be keeping it real at the PCW executive conference next week, so we'll keep you posted on the latest buzz.

No good deed...

This is a little off the usual Fares material, but it highlights a risk of onboard sales, so here we go:

The Chicago Tribune reports that during October, Delta Airlines is offering passengers pink lemonade for $2, with proceeds going toward breast cancer research. Great call. The problem is, some enterprising onboard staff started offering "Pink Lady Cocktails" (vodka with the lemonade) for only $3 additional. Health professionals in the know alerted Delta that alcohol consumption in fact INCREASES breast cancer risk.

Doh!

Delta tells the Tribune that the clever product bundling will stop. Is that the end of the story? Maybe.

Who out there thinks that Delta has really strict controls on the sale of lemonade and collection of donations? Closer to Fort Knox or the take-a-penny tray at 7-11? In fact, who would wager that if a passenger opted for alcoholic lemonade, the $5 went to exclusively to Delta to cover the vodka (which probably is counted like gold bricks)? That leaves nothing for the charity!

We also know that flight crews HATE collecting this type of money since they have to sign for it and are responsible for any shortfalls. Delicate balancing act for airline exec's to keep in mind as they continue to expand onboard sales - - especially for non-consumables like video player rental...

Actung Baby !!

Hello from CASMA in the Ritz-Carlton Berlin! We’re at the Fall session of CASMA, which basically means “not in North America”. The theme this year is “Breaking Down Walls” – which kind of makes us cringe a bit. We think it must be tough for an entire city to be associated with a wall that was TAKEN DOWN like 20 years ago. At least some of the Chinese one is still there!

Anyways – your intrepid FMV bloggers are on the scene and here are some notes from day one:

- The buzz-word of the conference is “Ancillary Revenue” and it seems that everyone is trying to figure out extra revenue streams, and trying to copy the Air Canada model- either by creating a family of fares, or charging for extras. We’re talking cars, hotels, baggage, insurance, and others. And YES - someone did crack a "charging for the bathroom joke" - that seems to never get old.

- The best new revenue ideas we heard was the selling of airline gift cards on board, the ability to pay a fee to reserve an empty seat next to you (if available), and taking a portion of currency exchange. For example, some airlines let you pay in US Dollars or Euros – and a bank facilitates that change. Why not use a 3rd party and split the commission fee made on that transaction?

- There was an interesting point that Ryanair may actually be the best airline in world at delivering consistent customer service!! Yes, that sounds totally wrong, until you also remember that they are very clear to the customer that they only do two things: They get you there on time, and they get you there for rock bottom prices. Ryanair consistently has the best on-time metrics of any airline in the world.

- A few airlines like Ryanair and AerLingus are set to get their costs of distribution to turn NEGATIVE. Yes, you read that right – this is set to be a revenue opportunity for some since they already recoup the costs of credit cards and certain channels by charging extra. It was reported that a GDS asked the #2 at Ryanair at a prior conference what it would take to get Ryanair to list in the GDS and the response was “not until the GDS pays us 5 Euro for each ticket”.

- Finally – we think the tide is turning on alternative forms of payment. It looks like Paypal is finally gaining traction in the Airline market (with US Air, Southwest, Northwest, and Midwest) and it looks like other forms of Direct Connect payments are being explored. All this sets the stage for a big war on Credit Card fees – if you think the GDS battles were bad a few years ago – you haven’t seen anything in the upcoming credit card battles !!

Ok – we’re about to go out and check out Check-Point Charlie, and hope there is more to the city than a defunct wall...

We use miles for magazine subscriptions

Another article in The Wall Street Journal to fuel passengers' frustrations with frequent flyer plans ("Mileage Plans Add to Flier Ire", 10/17/2007). There are some nice factoids in there to illustrate just how pervasive, yet useless, plans have become (e.g., Northwest Airlines has 510 partners for WorldPerks, including 41 new partners this year).

The best gem comes from American Airlines. To support their argument that reward seat availability is NOT declining, a spokesman notes that frequent flyer travellers actually increased from 2005 to 2006, from 7.2% of passengers boarded to 7.5% of passengers boarded.

That sounds impressive, but it's actually misleading. Especially if you take a look at two other facts:

1) If you look in the American Airlines' 2006 Annual Report - it tells you that the number of award redemptions was actually FLAT for the period at 2.6 million [tickets].

2) During the same period, AA's "Passenger Boarded" (segments) volume increased 0.1% (per Airline Business Magazine statistics).

All this tells you is that the Frequent Flier Passenger-Boardeed has increased - but NOT the number of actual tickets. This suggests that frequent flyer availability is tighter, and these fliers are having a tougher time booking direct fligts. But kudos to American for representing the numbers to their favor.

OK - Extra credit for Airline Numbers Nerds follows. AA's PB's in 2006 were reported to be 98.139 million. 7.5% of that means 7.360 million PB's were associated with 2.6 million reward tickets. This yields 2.83 PB's per reward ticket, which is a bit higher than a common industry assumption of 2.5 PB's / Ticket.

FMV has learned long ago that you have to go into the numbers to get the real story - Any time you need a peek behind the WSJ's numbers, you know where to find us.