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Not How ... but Who ...

Future thinking

I am still unable to get out of my head, that Priceline are able to spend $3.5 billion on internet PPC advertising and Expedia an eye-watering $4.2 billion

( according to Tnooz )

Let's just put that into perspective. $3.5 billion. For that money, you could get about 40 Boeing 737's - certainly enough to start quite a reasonable sized airline.

British Airways spent a total of £126.8 million for 2013/14, Easyjet £47 million and Virgin and close third at £42 million. Now, I am no money expert, but even allowing for the figures for BA et alia, being in 2013/14 and converting Sterling to Dollars, 126 million quid is not a patch on 3.5 billion bucks. If you want to see more on spend, check this link.

Travel Tech has blinkered airlines into thinking that how they sell flights will be some sort of panacea. GDS systems - bad, NDC - good. It is almost a re-run of the early 90's and the RyanAir revolution, where those same airlines were blinkered into thinking that agents were a waste of space and that the internet is the means of selling for the future. Granted, the internet has become the place to sell. Trouble is, it is not the individual airlines websites doing all the selling (as airlines had hoped) - it is those of the likes of, say Priceline.

Entry into the market of selling air tickets online (and, I would venture, hotels and car hire) is not cheap. You will need to spend enough to make a showing against outfits that have 4 billion bucks in their back pocket. Even a basic campaign (and there is no guarantee that you will see anything for your money) will set you back about, say $20,000 a month. That figure is a ball-park figure for selling pretty much any product or service, given a fair sized market and is not specific to travel. For travel you can estimate a lot more.... way more.

What does all this add up to? A long time ago and an ongoing mantra of mine has been that the tail will wag the dog. When airlines (and other travel providers) sold mainly through agents, there were big airlines with lots of small retailers. The service provider being in the position, therefore, to be be able to dictate to the plethora of small retailers (true, there were/ are some large TMC's in the mix, but the basic premise still holds true)

That position is changing rapidly. There are a small number of very large retailers selling an awful lot of any given airline's product - and that size of product is rising rapidly as the large online retailers head rapidly towards a critical mass (if they have not got there already). Perhaps one of the reasons why NDC is pursued with vigor, has nothing to do with airline distribution costs, rather more to do with those very large retailers demanding a more cost effective means of accessing product.

Not forgetting, of course, that the likes of Priceline are not (yet) regulated to the extent of a GDS system. A GDS system has to provide a neutral display. An online website does not. Given the (daily growing) predominance of major online retailers then the influence that any slight change in the positioning of any given airlines product, could have on a hotel group or airlines' sales, then the question has to be asked if an airline would be better suffering the slings and misfortunes of an "outrageous" GDS, rather than having to find the financial muscle to prevent certain online major retailers dropping their product offering down a notch or two.

Still, though, most airlines and hotel groups act like dogs surrounding a person with a juicy bone. They are slave to the false mantras of things like "owning the customer" , continue to penalise their best customers and are busy nickle-and-dime-ing the last vestiges of brand loyalty out of anyone not sitting in first or business class.

The new consideration should be how to disrupt these major online players. It is the airline or the hotel group that should be able to drop $3.5 billion on their marketing budget, without a second thought, not a retailer. The time has come to stop thinking about how to distribute the product and start thinking, especially given the long-term dangers, about who is distributing the product.

(Murray Harrold is a homeworking business travel agent. If you would like to have your travel organised by an agent backed by an American Express agency, with full reporting systems, call 07768 180314)

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