A new generation of smartphones and tablet computers are quickly transforming – if not revolutionizing – the airline and travel industry with travel agents, the global distribution systems, travel management firms and carriers anticipating rapid change in how airline seats are sold. “The world in 2012 is a digital one,” says a new analysis of the next five years in airline distribution commissioned by the International Air Transport Association (IATA).
More than one billion people have Facebook accounts, the new analysis by Atmosphere Research Group, a respected think tank, says. The statistics – underscoring the scope of changes that will impact distribution, are formidable.
Atmosphere estimates there are more than 200 million tweets per day on Twitter, Apple sold 2 million iPhone 5 smartphones in the first 24 hours the devices were available to pre-order.
“Every day, more iPhones are sold worldwide than babies are born,” Atmosphere says in its study, “Future of Airline Distribution - A Look Ahead To 2017.” Nine in 10 UK online leisure airline passengers have high-speed Internet access in their homes, as do 94 percent of the online leisure passengers in France, Germany, and China, 95 percent of Brazilian passengers, and 98 percent of U.S. online leisure airline passengers.
The world’s airline passengers are online citizens, the Atmosphere study says. Authored by Henry Harteveldt, a co-founder of the Atmosphere Research Group the study says consumers are “empowered through their extensive adoption of various consumer technology devices. Passengers spend noticeably more time on the Internet each week than they do watching TV, meaning they will increasingly turn to the web for their travel planning, booking, and servicing - and expect airlines and their authorized intermediaries to be able to take care of them in their digital channels.”
“Spurring future growth of the Internet as a travel planning, booking, and service channel is mobile, namely smartphones and tablet devices. Mobile is the most important, and most interesting, contributor to eCommerce’s upward spiral. Passengers are more likely than the general population to own smartphones and tablet devices, with substantial growth expected due to these devices’ growing capabilities,” Atmosphere says.
Passengers show strong interest in using mobile devices to plan and book flights, illustrating their comfort with these devices, Atmosphere’s analysis says. “Airline executives expect mobile to generate 7 percent of online direct sales in 2012. By 2017, Atmosphere expects 50 percent of online direct bookings will be made on mobile devices - with even more ancillary purchases made through mobile, given the devices’ portability and ease of use.”
Worldwide eCommerce sales will reach US$1.4 trillion in 2013 with travel the largest eCommerce category, led by airline ticket sales. In the U.S., it’s estimated that business and leisure travelers will spend $85.7 billion online for airline in 2012 - nearly 58 percent of total online spending - increasing to $110.2 billion (56% of total) in 2016. Upwards of 4 in 5 passengers are bookers, and they book most - though far from all - of their flights online, Atmosphere reports.
“To continue to capture the online bookings they get now, and to earn even more, will require more than just the use of new gateways like mobile. It’s essential that all players involved in airline distribution understand online passengers’ mindsets,” Atmosphere says, urging industry stakeholders to consider several key points:
• Overly complex experiences send travelers to higher-cost offline channels. Among U.S. passengers who buy travel online, 82 percent say it’s easy to plan and book trips online - so easy that they buy 84 percent of their flights online. The 18 percent who don’t find online travel planning and booking easy book 21 percent less of their flights online - and are 15 percent more likely to buy from an offline travel agency compared to passengers who find booking easy. Passengers want simple, straightforward planning and booking processes - though these processes can’t omit choice and relevant flight details.
• Control is as important in booking flights as in buying a cup of coffee. The typical Starbucks shop offers more than 87,000 variations of the drinks it sells. Hotels offer “pillow menus”. Consumers can customize almost any good or service, including cars, smartphones, and apparel. Passengers may accept that airlines can’t be the first to offer customization tools like buttons, sliders, and other similar controls that make flight shopping easier by letting travelers filter the flight search results they receive.
But Atmosphere warns, their patience with airlines, however, will not last long. “As passengers see these tools deployed on other websites, they will expect airlines to offer comparable functionality as well.”
• Travelers want both good prices- and the opportunity to indulge themselves. Among leisure passengers, getting a good price for a flight is - understandably - important. A critical mass number of passengers allow their budgets to dictate their destination.
“Distribution channels, including direct and third-party websites, must be able to engage passengers by merchandising offers that appear at the proper point during the shopping, planning, and booking processes - and which are made more useful though the use of well-written copy and good-quality visual content,” Atmosphere says.
“Importantly, back-end data software must exist to help airlines and authorized distribution partners identify the passengers -- or their travel agencies - who are, and who are not, most likely to be interested in these to improve conversion and sales,” Atmosphere says.
The report is of special significance not only due to IATA’s involvement but the rationale it provides for IATA’s New Distribution Capability (NDC) which has the potential to radically change how airline seats are sold.
The study notes that airlines want “commerce platforms that can support extensive fare and product transparency, dynamic pricing, rich basic and ancillary product merchandising and retailing, and the ability to reliably and securely process the massive volume of shopping sessions. Importantly, airlines are also eager to see new providers enter the airline distribution/commerce space.”
According to the study, “distribution is no longer an adequate way to think about how airlines must sell their products” because it implies process – “when airline executives instead are increasingly focused on results. That’s why, by 2017, what airlines currently call ‘distribution’ will be replaced by a focus on channel-based, value-creating commerce.”
Unanswered in the Atmosphere study is if the travel industry is prepared to cope with rapid changes – in technology, marketing, financing, infrastructure, training and client services– that a new distribution capability may mean.