Airline Distribution - “COD War II” is breaking out

My career in the airline business started back in the 1980’s, when European GDS was in its infancy and Tim Berners-Lee was yet to invent the World Wide Web. Back then, national airlines such as British Airways, KLM and Lufthansa pretty much owned the newly-emerging reservation screens sat on travel agent’s desks in their respective country markets. Apart from cutting costs by reducing the number of reservation agents required, these dominant airlines were very easily able to load the dice by ensuring that their seat availability appeared on the first display screen for any given city pair or, better still, the very top line.

Research showed that 80% of seats sold came from the first display screen with 80% of those from the top line. Sabre, owned by American Airlines, was the undisputed leader in distribution technology and this worried European carriers greatly. The fear was that if Sabre gained a foothold in Europe, it would be their reservation system - screen bias and all - sat on travel agent’s desks and not those from their own distribution arms. And so began the amusingly-titled “COD War”. This acronym stood for ‘Control of Distribution’. So powerful was screen bias in influencing customer choice that sizeable cash incentives were introduced to encourage agents to choose one reservations system over another.

In such a heated climate, legislative control was inevitable. Now unable to unduly influence the market, airlines abandoned their investments in GDS and today, Sabre, Travelport and market leader Amadeus are all independent entities, under huge pressure to survive and thrive in the face of the internet and new distribution capability (#NDC).

The unprecedented proliferation of the internet has spawned a plethora of large online travel agents and travel ‘Meta Sites’ investing in Google Search and frictionless booking technology positioned to attract tech-savvy millennials - the ‘get there' generation. What was once booked over the phone with an airline, by a bricks-and-mortar travel agent, is now transacted in an instant on smart devices. And these transactions also include hotel bookings, car hire and other ancillary products and services.

Such is the scale of investment by OTAs and Meta Sites, it is a real challenge for airlines to keep pace and has prompted one of the largest - Ryanair - to openly declare itself on a mission to become “the Amazon of Travel”. This acknowledgment that even Ryanair must ‘morph’ into something more than an airline or face being commoditised by other more powerful entities is a massive ‘wake-up-call’ for the entire sector.

Whether Ryanair - or any airline - will be able to harness the disruption taking place in the channel of airline distribution to their advantage remains to be seen. But for now, what is important is that all airlines put third-party distribution high on their agenda and in doing so, learn the lessons of the past.

Is History repeating itself?

Just as airlines sought to load the dice back in the 80s, the power and lack of governance of the internet is now offering the same window of opportunity to OTAs and Meta Sites. The dominance of Google means that searching for travel vendors is simply down to how much the vendor is willing to pay to appear on that infamous first screen. Worse still, an individual vendor's flight displays can operate in the shadows of the internet, remaining outside legislation designed to create a fair/level playing field. We already see a diversion of revenues away from airlines as OTAs discount base fares - in order to appear higher on search results - only to then mark-up ancillary revenues by as much as double the prices charged by an airline itself. This lack of control creates a negative customer experience and the perception of being ripped off. Operationally, passenger contact details are lost or incomplete and the airline misses out on valuable upsell/cross-sell opportunities, potentially costing millions.

The philosopher George Santayana is credited with the famous line, “Those who cannot remember the past are condemned to repeat it.” And so, in conclusion, airlines that learn the lessons of the past will significantly enhance their potential to build commercially interesting relationships with channel intermediaries of the internet and beyond. Conversely, those that choose to ignore these lessons will be outgunned by ‘Booking Bots’ and ‘Scrapers’ (see Expedia vs Ryanair) and left powerless to transact directly with their own passengers…

Jon Soars is a Director with e-DNA, an internet company designed by experienced airline professionals to monitor third party channel behaviors and protect inventory from abuse by booking bots and scrapers using machine learning.