April 2009

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.

clickair-lock-your-fare-problemUnfortunately 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.

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