Shearwater Blog

The inaugural award in this category went to NCR for some questionable implications from their research that went out in a press release earlier this year. But the winner this week comes from from a group calling themselves Continental Research;  no relation to the airline as far as I can see. Their infringement is minor compared to NCR, as the real reason they have won this award is because of the way one of their findings has been hyped up and reported elsewhere, such as this headline: Car rental sites more popular than blogs for holiday information.

But why on earth Continental Research in their report even waste their time asking 750 online participants what sites they visit when searching for travel comes as a complete mystery. Last week I was scathing of those in business who blindly swallow survey data without the slightest hint of a critical mind. Some of the things in this research report are probably useful, such as UK consumers’ intended travel destinations for 2009, but asking people what types of sites they visit when planning a vacation is utterly useless. It reminds me of the following hypothetical example:

We surveyed 1,000 people and asked them how many minutes per month they spent looking at porn sites on the internet. Every respondent answered zero, so therefore we conclude that online porn sites have no visitors.

If you want to know where online travel buyers are searching, ask someone like Hitwise or Nielsen who will give you real facts. Neilsen have come out saying 67% of internet users are browsing blogs and social networks and it accounts for almost 10% of their time. And Nielsen would know as they monitor actual usuage of the internet from their global panel of consumers. Surveys have their place, but not for determining peoples’ internet browsing patterns.

Later this week I’m planning to add to the Hall of Shame with another post on more travel related market research I’ve seen that adds absolutely nothing to the combined sum of knowledge of those working in this industry; but today it is the opposite, as here is a research report that covers a very worthwhile topic. 

Pingdom monitored the uptime of 42 international airline websites during a period of four months. The findings are definintely confronting, as they name names - just the sort of thing I know that readers of this blog love, but which sometimes I have to be a bit more restrained on. So why don’t I turn the post over the findings from Pingdom’s study:

• The most reliable. Only 13 out of the 42 tested websites (31%) had a 99.9% uptime or better: KLM (99.99%), United (99.98%), Japan Airlines (99.98%), Frontier (99.98%), Virgin Blue (99.96%), Open Skies (99.95%), Skynet Asia (99.95%), British Airways (99.94%), ANA Sky (99.94%), Air France (99.93%), NWA (99.92%), Eva Air (99.92%), Southwest (99.91%). American Airlines was close to enter this list, with 99.89% uptime.
• The unreliable. 26 out of 42 (62%) had less than 99.8% uptime, which is what we consider the minimum acceptable limit for such important websites. In this sense, 62% of the airline websites failed this test.
• The ones with the most problems. 5 out of the 42 websites (12%) had less than a 99.0% uptime. That is the equivalent of more than 3 days and 15 hours of downtime in a year. These sites were JetBlue, Cayman Airways, SAS, Korean Air and Egyptair.

Keep in mind that they are measuring just the airline homepage, whereas from my experience the much more common problems are downtime/unreliability with the faring technology, or even more likely, problems when linking to an external PSP during the booking flow. But I take nothing away from the work Pingdom have done, as for a market research study designed to generate some press and hopefully get them a few more sales leads, this one is excellent stuff. 

If you want to read the full report, here is the PDF file.

Lars Denlew, director distribution and e-commerce at Gulf Air:

“At Gulf Air, it is up to seven times more expensive to distribute through a travel agent compared withthe web”

That is just one of the interesting quotes in a very interesting article from Flight Global earlier this week. The reason it is worth a read is that is is jam packed with so many decent quotes from airline executives. Here are a few more:

It’s like someone trying to drink from a fire hydrant” is how Marc Rosenberg [former vice-president sales & product distribution at Air Canada] compares the job of today’s executives with airline distribution in their management portfolio.

“In 2009 there needs to be a big focus on merchandising,” said Ornagh Hoban, vice-president strategy & marketing at Datalex.

That quote gives me a chance to again use my favourite mantra of the good shopkeeper – Retail is detail. And then another stat for anyone comparing levels of direct distribution between airlines.

…Brussels Airlines with 65% of its sales in 2008 coming via this channel, compared with 27% via the web.

That’s all for today, but I’m working on a few more detailed posts for later this week.

I’ve always found people ordering their meat medium-rare or medium-well done to be somewhat like the person who always orders the half-half pizza with different toppings on either side - a bit too indecisive for my liking.

So how does this relate to Clickair? Honestly, not much, except the word rare in the first line of the above paragraph. I recently saw a piece from Victoria Moores saying Clickair (The Iberia controlled LCC merging with independent LCC Vueling) had launched what sounded like a price guarantee. Seeing as I was pushing that very same idea a while ago, it caught my attention.

Unfortunately for various reasons my visit to the Clickair website wasn’t quite what I was hoping for. Firstly, the “Lock Your Fare” feature would be better described as chargeable on hold bookings – it is definintely not the price guarantee model I was promoting to airlines. Secondly, at least for home market customers in Spain, there is an option on the payment page to buy online pay offline and there is no charge for this service (it does say introductory free offer). I’d feel pretty stupid if I paid to put my booking on hold when effectively these Clickair La Caixa bookings have a similar effect, albeit with a shorter on-hold period. But if the intention is to ensure you have a flight secured before booking a hotel, then anything more than few hours should be sufficient for most people when they are at the actual point of purchase. Maybe this is one of these examples of my personal views being way off how the general populace actually behave, for as CEO Alex Cruz is quoted as saying:

“It takes about 30 minutes to see [web initiatives like this] working. During the first two days we generated low five-digit numbers just from the fees, and we had a 60% conversion rate. It’s another revenue stream.”

So it could be that part of my criticism above is off the mark, but what about that screen shot. It has been so long since I tried to write HTML, but to me the Clickair logo that should be part of the background template page seems to actually be an independent image on the page; you can see this by the dotted line bordering the image (this dotted line was on the screen, not added by me). Two problems with this are that it obscures part of the pop up explanatory text detailing the “lock your fare” feature, and even worse, it was almost impossible to continue as the image box covered most of the close this text link, meaning everytime I tried to click “close” I accidentally clicked on the logo and activated an unintended link. Very frustrating process, but it didn’t end there. After finally getting rid of the pop up text, I couldn’t even select the shaded check box you can see beside the fare amount. I was using Interent Explorer version 7.0 but I must have tried clicking the mouse 10 times to no effect. I’ve got no idea how I had such a negative experience with this functionality when according to Alex Cruz others are buying, but from what I saw, this development should have spent a little bit more time in the kitchen, as what I was served up was not even half cooked.

Another interesting observation from the Clickair site was an offer to charge me €1 for an SMS of my itinerary and then an SMS to remind me the day before my flight. Does anyone really pay for this? At least KLM promised to send me an SMS if my flight was delayed, as this would actually be of some value to most people. But good on Clickair for trying, and maybe people are clicking that box without even really thinking about it. 

Finally, whilst on the topic of Spanish carriers, I received an email from Spanair telling me they have launched destination content on their website in partnership with Unaira. Just last week I was looking at the stats for another carrier that has launched the same type of product; a major carrier that has probably done a better job than most of integrating this content into various parts of their website -their sales figures were nowhere near what they should have been. This category has huge potential, and I’m working with airlines today on innovative ways of increasing their sales significantly but the message here is don’t be dissapointed when your initial expectations are not met as it can be can be fixed. It really isn’t that difficult to ramp up these sales figures significantly, but the answer is not spending millions on tighter website integration as a first priority. Seeing as the answer is part of my conference presentation on May 12th in Miami, I suppose I should end this post here; I’ll definintely add more on this topic later. Thanks for reading.

In yesterday’s post I made one of the cardinal mistakes of journalism. I buried the lead. I spent the first 80% of the post on definining ancillary revenue, meaning most readers would have fallen asleep before reaching the innovative new practice from United of cabin staff charging on board for seat upgrades. Later that day I was talking to someone in America who told me the United practice was limited for weight and balance reasons, but I would have thought it was more limited by there only being a small number of ”Economy Plus” seats available. It is a bit hard to pull the same stunt as US Airways did when the passenger can actually see the seats on offer.   

On a different topic, if you enjoyed my Bow Tie post (I’m amazed at the way that one spread via word of mouth after a few early mentions; it is still leading daily page views) then take a look at this post from Travel Weekly linking to The Atlantic magazine. They were very kind to mention me in the same story as their link to The Gift-Card Economy, but I’d go so far as to say most people (especially those outside the airline industry) would almost certainly find the Altantic article much more interesting than my Bow Tie Model.    

I’ve lifted one paragraph below that I found particularly revealing:

“In an experiment, Shu and Gneezy first surveyed 80 undergraduates, asking how they would feel about a gift certificate for a slice of cake and a beverage at a local café and how likely they were to use it. Forty-two survey participants were asked to consider a certificate good for three weeks, and 38 were asked about a two-month certificate. More than two-thirds of the group with the longer deadline said they would use such a coupon; only half of the group with the shorter deadline said they would. Shu and Gneezy then ran the experiment in real life, with a different group of 64 undergraduates. Half the participants got certificates good for three weeks and half for two months. Both groups were far less likely to cash in their cake coupons than predicted. And contrary to predictions, the shorter deadline encouraged more indulgence. Ten out of 32 people redeemed the three-week certificate; only two of 32 used the two-month pass. “

I’ve always been skeptical of people making decisions in business based purely on survey data, especially when often what people say they will do is very different to what they end up doing. I’ll be keeping the above text in mind next time someone claims some amazing insight that we must all adapt to whilst waving a survey report high in the air.

Finally, I was a bit harsh on Expedia a month ago when I wrote the following:

“With all this impressive innovation happening at Expedia, I just wish they’d invest a bit more into their white label hotels offering.”

The follow up to that line is that  I was told earlier this week by a customer that Expedia are planning to release superior reporting options in May which will enable airlines to drill down on actual hotel properties booked etc. I seriously doubt my words had any influence on that enhancement, but at least it is good news for their existing customers.

 It been a while since I’ve mentioned one of my pet topics, that being the lack of a industry standard definition of what is and what is not to be classified as ancillary revenue. In all honesty, the topic was getting a bit boring, but then when I saw United mention the same topic (in bold below) and I couldn’t resist posting it here. Text below is from this press release issued by United.

Q2: How have United’s efforts to generate ancillary revenue performed year-over-year?

A2: United has been a leader in the industry’s move toward unbundling and the generation of new ancillary revenue streams through our Travel Options by United program and has launched a number of innovative products that provide customers with the choice to purchase products and services that offer comfort, convenience, rewards and peace of mind. Ancillary revenue and fees have increased to a total of $259 million this quarter. These revenues consist of Travel Options products such as Economy Plus upsell, Premier Line and Award Accelerator, as well as ticket change fees and first and second bag fees. On a per passenger basis, ancillary revenues and fees have increased by about 60% this quarter to approximately $14 per passenger.

Q3: Which fee and ancillary revenues does United include in passenger revenue and which are included in other revenue? What impact did fee and ancillary revenues have in the quarter?

A3: There is not a consistent industry practice among airlines regarding the recording and classification of ancillary and other revenues. Some ancillary revenue products, such as premium seat upsell revenues, are consistently recorded by most airlines as passenger revenue. Certain other ancillary revenue products, such as first and second bag fees and ticketing and change fees, are classified by some other carriers in other revenue. For United, first and second bag fees and ticketing and change fees are recorded in passenger revenue. Increases in these fees resulted in a two percentage point improvement in consolidated PRASM year-over-year.

And from then I saw something much more interesting from the associated earnings conference call:

“Last month we began the move to a cashless cabin domestically. Such a move will further enable our ancillary revenue strategy.For example, we can now enable flight attendants to upgrade customers to Economy Plus while onboard.”

This sounds great for a number of reasons, especially if it means what I think it means. It sounds like if you are stuck next to an unappealing or unhygenic or un-anything customer that you don’t like the look of, you pay to move seats. There is no risk of offending the person next to you, as you are really purchasing extra legroom, but the ability to have flight attendants charge for this service on board the plane is a stroke of genius.

You probably wouldn’t expect someone who makes a living partly by pushing the concept of increasing airline ancillary revenue to actually admire a company offering bundled pricing, but please read on. Gary C. Kelly – Chairman of the Board, President and Chief Executive Officer of Southwest Airlines was asked a question a few days ago by a stock analyst and he gave a very good answer:

Bill Greene – Morgan Stanley

I am wondering, Gary, if we can talk a little bit about the ancillary opportunities. You sort of talked about the non-fare opportunities. If you look at the loss this quarter, I could be wrong, but I would guess that if you had had bag fees in place you could have actually gotten to a profit, because it wouldn’t have been that big of a jump. Given what the other airlines have experienced, bag fees certainly contributed to the revenue line. So, what is the thinking: why not put those in place given that most of the airlines now have that bag fee in place?

Gary Kelly

Well again, a very fair question. I think from the top down I would argue that our revenue results would demonstrate that we are somehow doing something different than our peers, because the revenue results are better. Number one, you have to either agree or reject that argument, but we would argue to you that our load factors and our revenue production is superior to what we’re seeing and especially compared to the legacy carriers. Then, of course, it becomes a question of answering well why? I think we would acknowledge that there are a number of things that we’re doing that will contribute to the revenue performance and arguably a superior revenue performance. But, the bottom line assessment that we’re making today is based on all of the research that we’re doing. We believe that we’re having a meaningful impact in creating awareness among customers that we are virtually alone in not charging the bag fee. That is translating to higher demand for Southwest Airline. This is an environment, as you well know, where of your two basic pools of passengers, business and leisure, we are more dependent upon people on personal business than ever and they’re the most price sensitive and, of course, the bag fees hit the most price sensitive people the most. It doesn’t take too many additional customers to pay for the bag fee charges. In other words, if you lose one customer that is sort of the equivalent of, however you want to add it up Bill, but it is certainly a handful with not 10 or 12 bag fees. It is just our view that customers are becoming actually more price sensitive than ever. Southwest Airlines is a very well known, value brand, if not a low fare brand, and we are getting all kinds of recognition on that point today. Finally, it is at least my personal view that if we were to begin charging bag fees, than I am not at all convinced that it would be revenue positive and it would certainly be disruptive to all of the things that we’re trying to do to build the brand. Again, in this environment where you are more dependant than ever on personal travel, you just really risk losing customers to competitors. It is a very, very competitive environment out there. We know that for a fact and we just need to make sure that customers are giving us credit for the fact that we don’t charge the bag fee. Again, the bottom line argument is we think that we’re getting that credit.

When I think back to companies over history that the stock market has fallen in love with, I see a history of CEO’s ramping up the stock and managing the company for the analysts maybe as often as I’ve seen good managers who really understand the business and manage the company in the long term interest of the shareholders. The key difference is that the love affair with the first category of CEO is always shorter, and always ends in tears.

Gillian Gibson from Amadeus made some good points at the Travolution conference in London yesterday (click here for a good summary of the other presenters), but don’t interpret that as contradicting what I have written above. She makes the point that there is more money in a la carte than in traditional forms of ancillary revenue like hotels and cars. Obviously this is the case when you can modify the GDS to sell a la carte via the travel agency channel, whilst most of the traditional ancillary revenue commissions only come from direct channel customers. Make no mistake about it, Amadeus is investing millions in a la carte technology, as clearly the airlines want to be able to sell it via all channels. But the point with Southwest above is that as much as the incremental revenue from a la carte fees will be a good thing for the airline industry, there will always be branding positions that if well enough defined and properly appreciated by consumers, mean that one or a few airlines can go against this trend, and maybe even benefit.

I’m not recommending other airlines automatically follow Southwest, as to do so slavishly would be a huge mistake, but I am recommending that any move into a la carte and ancillary revenue or any type of significant change made by the airline should be done with the brand in mind. This is just common sense. It seems Gillian made a similar point about airline brand integrity when talking about choice of third party ancillary revenue partners in her presentation.

Here comes Priority Club Connect from InterContinental Hotels Group. Yes, another travel social networking site. In their favour, they do have 42 million Priority Club Rewards members (how many are active?), but I’m not putting any of my hard earned cash backing them as one of the eventual winners in this space. I’m not sure how committed they are to the venture either, as their own blog has one post dated April 8th from Steve Sickel, SVP Multi-Brand Marketing, and then nothing more in the almost 2 weeks since.

From the press release:

“Members using Priority Club Connect will have the unique opportunity to be bloggers on the site, upload photos and video content about their travel experiences and get details about special offers available only through the community.”

I’m guessing the few people with blogs on the site to date are insiders, and looking at this screen shot, there are still a few bugs to iron out. Why would anyone think there was added value in building a new site allowing travellers to create blogs and upload photos – so many other sites already do it, and do it better. Special offers available only via the community – ah, now someone is starting to get it, but it is only one step out of maybe 20 required to make this a success. 

Back in January this year I did a quick roundup up what some of the airlines like BA, QF, AF-KLM, VS , (comment added LH), and some of the American carriers were doing in social networking. I don’t cover hotels much as there are plently of bloggers who know the field much better than me, but I’m far from convinced that a hotel chain is the natural owner of a travel social networking site.

http://www.tourdust.com

That said, on my last review I decided that none of the airlines had got it right yet, but AF-KLM seemed to be the closest. I haven’t spent too much time researching travel social networks lately, but I saw a recent post from Alex Bainbridge that did look at the start-ups going after this space and also ended with a healthy dose of skepticsm. I’m really looking to engage a few major airlines in some private discussion on social networking at the upcoming industry events I will be attending, as I am convinced that one to three major airlines can win this game, but you wouldn’t guess it from what we are seing today. As an aside, it is interesting how going from a link in the above post, took me to another site by Ben Colclough asking whether travel social networks are actual businesses or are they really works of art? Next thing I’ve got Ben promoting a week of horse riding through the snow in Southern Transylvannia and I’m thinking how tame my vacations are by comparison and when can I go.  

And in a roundup of a few other ancillary revenue related items that I have seen recently, KLM (whose in flight sales I discussed once before) have signed with GuestLogix, and TUIfly Nordic have signed with Paf to sell their inflight scratch cards.

Since posting about the Bow Tie Model late last week it has become my most viewed page ever - more than three times as popular as any previous post. Thanks to great word of mouth from existing readers, and thanks also to tweets from Dennis and Alex and a post from Tim – apologies if I missed anyone. But rather than reflect on past work, one should never forget the saying that yesterday’s newspaper is today’s fishwrapping. Considering that, what topic is on my mind today?  

I thought the old practice of having to confirm a flight was dead. But I’m impressed with US Airways resurrection of this procedure. After only recently finding out about it, I’ll even go so far as to say that other airlines should also rethink it. How can this be, especially when I make my living out of reducing back office inefficiency and by reducing the need for inbound and outbound non-sales calls. Why would any airline want customers to contact them when the fare has been paid in full and the ticket has been issued?

http://www.stuckinthemiddleseat.com

 The clue comes from this USA Today article. From what I can gather US Airways allows passengers to avoid the dreaded middle seat by paying an extra amount starting at $5 per segment and then getting a window or aisle seat near the front of the plane. These  are refered to as “Choice Seats” but from the story in USA Today, one man claims he paid $10 per passenger assuming they would all get exit row seats and instead they were shunted from existing allocated seats in row 8 into identical seats in row 15 after paying $10 per person for Choice Seats. The response from US Airways:

It’s unclear why Tait was offered the option of Choice Seats at all, since his original seats in row 8 are normally considered Choice Seats, says US Airways representative Valerie Wunder.

I’d be wondering too! But don’t underestimate the beauty of what they are doing here. OK, so implementation needs a bit of fine tuning, but I have to give full credit to whoever thought of this. The invitation to upgrade was made in an email asking the passenger to reconfirm his flight. With everyone in business so paranoid about being called a spammer these days, cloaking an upsell opportunity under the guise of an essential pre-boarding email is very creative indeed.

That said, I’m still very much in favour of adding a pre-selected check box near the end of the online booking flow asking passengers to opt in for promotional emails specifically related to that journey, but there will always be a need to send some essential emails to every passenger between booking and departure. Using these emails to generate ancillary revenue can be done a lot smarter than just sticking ten to twenty links near the base of the message selling everything from hotels and rental cars to purchasing vacation homes, SIM cards, credit cards and everything in between. Are Ryanair reading this? Hard to be critical when they make so much per passenger on ancillary revenue, but even the best can always improve.

Finally, and on a different topic, I’ve copied below what I will refer to as the “choke on my coffee” quote from the weekend. It comes courtesy of Qantas CEO Alan Joyce: 

He says the company is also trying to get better value for money when it comes to information technology systems. “We spend around 3.5 per cent of our revenue on IT,” he said. “Jetstar [100% QF owned LCC subsidiary hosted in Navitaire] spends less than 1 per cent of its revenue on IT, [but] probably has better systems because the systems were designed for a new start-up carrier.”

I’ve got enormous respect for Ross Love and James Goth, (and of course Qantas) but that quote has Boston Consulting Group written all over it.

Using a Bow Tie to Make Optimal Marketing and Technology Investments

The Croatians are credited for inventing the cravat which then evolved into the bow tie, but as successful as they have been in pushing Dubrovnik and the Dalmatian Coast as a tourist destination in recent years, they haven’t yet used the bow tie to try and explain consumer purchase behaviour in the travel industry. In recent months I’ve been thinking about two upcoming conference presentations I am due to give in May, first in Miami and then in Bangkok, and how best to explain my thesis that airlines can maximize return on investment by putting more focus on the time between ticket purchase and flight departure. I’ve decided to refer to this as the Bow Tie Model.

Late last year I asked a colleague to trawl through all of the bookings created in one month using aggregate data from the approximately 80 airlines using the Amadeus e-Retail internet booking engine. My question was this: Tell me the average number of days between purchase and date of departure. I also asked this same question for products that would typically be referred to as ancillary revenue. The results were as follows:

• Air: 44.1 days
• Hotel: 41.7 days
• Rental Car: 19.4 days

When I presented these results at the Ancillary Revenue Airline Conference in Budapest in November 2008, I referred to it as the Late Buy – Early Buy Continuum (slides, audio). The purpose was to show that airlines focusing solely on website cross sell were not targeting passengers at the most likely point of purchase. In short, unless you are considered a destination website for non air content, you will not be optimizing ancillary revenue just by adding hotels, rental cars and destination content to airline.com. The disparity in timing of purchase between air and non air became even more apparent when looking at international travel and online redemption of frequent flyer travel. Using one major airline to illustrate this point, we found the average days prior to departure for purchase of air tickets was 76 and 82 days respectively. “Destination content” from a tiny sample size came in at 24 days prior, but due to low volumes, ineffective marketing, measurement being on days to consumption and not departure of first air segment etc, I’d recommend totally ignoring this number. When done properly I would expect to see an average of around 7 days for this category of product.

The Bow Tie Model

So how did the Late Buy – Early Buy Continuum evolve into the Bow Tie Model? And why is it relevant to direct sales channel managers within an airline? Part of the answer lies in this diagram:

Attend any conference on travel industry innovation, and the majority of start-up companies present will be competing in the phase from the moment a person decides they may want to travel somewhere up until the point in time when the decision is made on where to purchase the flight. Apart from an endless supply of start-ups, you also have established metasearch sites, destination guides, trip blogs, photo sharing sites, opinions from friends and family, and even government tourism boards all competing to influence the consumer’s purchase decision. Google research found that the average traveller spends 6.7 weeks searching the web and performs 8.1 travel related searches before booking. Over time the range of influences is narrowed down, a destination is chosen, and a flight is purchased. At the exact point of buying the flight there are no other influence factors, and immediately thereafter the destination is committed and a whole new phase begins, with an ever widening source of influence factors coming into play regarding the chosen location, right up to the point at which the person arrives at the airport to board the plane. This is this phase where influence translates directly into dollars.

The final part of the above diagram is shaded grey, as one challenge for the airline is to bring forward as much of this passenger expenditure as possible into the phase between air ticket purchase and day of departure. In-flight sales compete with airport duty free and cause excess inventory to be carried on board. Purchases made when the passenger arrives at their chosen destination yield no ancillary revenue to the airline. For these two reasons, and the fact that on board sales is not my area of expertise, I will not address these two phases any further.

This model is still very much a work in progress, but I intend to continue working with existing and new airline customers to fill out the different phases with hard numbers to back up these assertions. It is becoming clearer to me by the day that in an environment of financial belt tightening and increased scrutiny on ROI attached to marketing and technology innovation, that an airline putting a heavy investment focus on trying to be a leader at the point of “inspiration” is missing the point; especially when so many more agile competitors, including competitors without a direct revenue objective already dominate. The smart and successful airlines will be the ones investing in more effectively selling at the points where they have much better information than anyone else; this is during the booking flow and especially once the passenger name record has been created.

May 2009 Update: Most numbers above have been updated, so please refer to the new data.