Thanks to BNET for pointing me to the Continental Airlines 10-K filing. If I had more time I’d go directly to the source more often, as it is always very enlightening. I’ve lifted a few quotes most relevant to readers of this blog.
“Our website, continental.com, is our lowest cost distribution channel and recorded approximately $3.9 billion in ticket sales in 2008, an 11% increase over 2007… Tickets purchased through our website accounted for 26% of our passenger revenue during 2008, compared with 25% in 2007 and 22% in 2006.”
And this is what leads me to the headline of this post. Talking about online share of revenue is great, but what is of equal or greater importance is the percentage of tickets sold via the website, and how this has changed over time. I know the 10-K can sometimes feel like reading Altas Shrugged (excellent book I read one year ago and just yesterday saw it is 12th on a list of the world’s longest novels), but it is surprising to put so much quality information in a securities filing and leave out this piece of important information. Speaking of quality information, here are some other nuggets:
“A significant portion of our revenue, including a significant portion of our higher yield traffic, is derived from bookings made through third party global distribution systems (“GDSs”) used by many travel agents and travel purchasers…We use the internet to provide travel-related services for our customers and to reduce our overall distribution costs… Although customers’ use of the internet has helped to reduce our distribution costs, it also has lowered our yields because it has enhanced the visibility of competing fares offered by low-cost carriers.”
There is no doubt internet is lowest cost channel, and there is no doubt that travel agent sales via the GDS are higher yield as business travellers are often using TMC’s and buying more last minute fares than leisure travellers. What I have a harder time agreeing with is the final line of the quote above. The market has changed, consumers can compare information easier due to advances in technology, and all passengers have many more purchase channel options than in the past, but it is living on another planet to blame the internet site for causing their yields to drop – unless of course you close the internet site, fly the planes half empty, but are then happy because you can say your average ticket sold is worth twice what it was before. If you want that, then just start a business class only airline. We all know what happened to those.
I decided to dig a little deeper into the 10-k and work out a few percentages of my own apart from the airline supplied online ticket revenue increasing year on year by 11%. In the same year of 2008, average ticket price across the entire airline rose by 8.4% to $232.26, passenger numbers declined by 3.2% to 66,692 and the increase in the website’s share of passenger revenue rose by 4% (a one percentage point increase). Taking a rough approximation for yield, and in the abscence of the numbers I was asking for above, it could be fair to assume that the increase in per passenger ticket revenue from the direct online channel actually grew at a faster rate than the indirect channel in 2008. I know I’ve had to join the dots here, and some of the dot are opaque or missing, but I’ve done this to illustrate how so many people totally miss the point when they just parrot the line that online is a low yield channel, without looking at the whole of airline distribution picture.
And before I totally finish with Continental for today, take a look at this line from yesterday’s Houston Chronical
And then the line from the CEO:
“Larry Kellner said “the business cycle is continuing to decline” and made it clear that fewer passengers could mean fewer phone agents to take their calls…”
It almost sounds like they are unhappy that a drop in inbound calls will lead to less seats required to answer these calls. Any other airline in the world I have ever met would be over the moon with glee if increased online adoption, channel migration related to post sale servicing, redemption sales moving online etc meant less inbound calls – in fact the best airlines today are indeed doing this very well. I assume the CEO in his reference to fewer passengers is trying to use an emotional appeal to get more people flying Continental, but he might paint himself into a corner if and when passenger numbers do increase, especially if increased online adoption at Continental.com still mandates reductions in call centre headcount.