Can Airlines Manage Their Channel Costs in Real-Time?

Since the late 1990s, airlines have been working to shift demand from indirect channels to direct channels to bypass GDS fees and travel agency commissions, and to offer a more personalized retailing experience.
2 min read
08/04/21
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By Mike King
Director, Strategic Relationships, DataArt
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Can Airlines Manage Their Channel Costs in Real-Time?

Market forces require airlines to balance demand from both direct and indirect distribution channels:

  • Many companies require employees to shop and book via indirect channels. Usually, this is done through Travel Management Companies or other corporate booking tools.
  • Unmanaged corporate and leisure travelers often prefer shopping on indirect channels like OTAs and Meta-sites to obtain pricing comparisons.
  • Airline loyalty members tend to shop on airline websites for leisure travel to maximize loyalty benefits.

Direct distribution has costs of its own, including Google Ads, meta search referral fees, and technology/infrastructure costs. Over time, the cost of direct distribution has increased due to competition from large OTAs.

According to a study conducted by Infrata, the gap between direct and indirect distribution costs has narrowed to a nominal amount. The study notes that network carriers with large home markets (>60% originating traffic) do not experience the same channel-switching cost increases as network carriers with small home markets (<30% originating traffic) or regional carriers.

According to the Infrata study, the average cost per click in Google Ads is between $1 and $2 on the search network, and the average CPC on the Display Network is under $1. The most expensive keywords on Google Ads cost $50 or more per click. If a consumer searches 22 times for the best flight, there is the potential to incur (in an extreme case) around $50 in ad fees, which is ultimately passed on to the passenger.

Given that Google Ad costs vary by market and the number of bidders, it is beneficial for airlines to measure and compare channel costs in real time during the shopping and booking process. This lets airlines restrict shopping and booking by channel when Google Ads or other online marketing costs exceed the cost of using an indirect channel or a less expensive online channel.

DataArt is developing a reference architecture for monitoring real-time channel costs. This will enable airlines optimize their distribution spend. By monitoring the shopping source, airlines will be able to approximate distribution costs and restrict availability of higher cost channels for lower yielding fares. This will be a nice addition to an airline’s real-time revenue management tools.

We are interested in investigating proof of concept with airlines that want to evaluate real-time channel cost management. Please contact DataArt travel experts if you are interested in discussing future collaboration.

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