LONDON -- Low-cost
carriers from around the world could be trying out a new
distribution model.
The hallmarks of
the new model include no-cost GDS participation and easily booked,
non-interline connections between two or more low-cost carriers --
with customers asked to assume some or all of the cost and
risk.
For now, migration
to the new model is tentative, as few low-cost airlines have yet to
sign on for these newly emerging options, and many may remain
resistant. Ryanair, the European low-cost juggernaut, for example,
still considers even the mention of possible GDS participation
offensive.
"We're very happy
to distribute through Galileo provided they pay us $5 per segment,"
Ryanair COO Michael Cawley quipped in his speech here at the World
Low Cost Airlines Congress, which covered a host of LCC issues on
Sept. 18 and 19.
But it became clear
at the conference, with more than 80 airlines represented and more
than 550 airline and industry-related attendees, that the industry
had reached the stage where products had been developed to make
broader distribution and easily booked "no- frills connections"
possible -- and that some airlines would give it a try.
The LCC market
penetration is still growing, but its maturation reached the point
where many carriers are beginning to look for more options to
increase ticket revenue and to fill seats at non-peak times.
Various GDS and connecting flight options are being offered or
attempted, and a session on distribution overflowed with
attendees.
LCC interest seemed
high if the carriers could distribute in a way that fits their
low-cost models.
"What they're
trying to do is to use traditional channels in nontraditional
ways," said Ron Peri, CEO and chairman of airline reservations and
distribution systems company Radixx International.
Consider GDS
participation. This is not unheard of for LCCs, particularly in the
U.S., where the newly deregulated GDSs began offering lower-cost
options. And LCC participation in GDSs, even if it's at the lowest
participation levels, also has picked up slightly
worldwide.
But it is still a
relatively rare occurrence in the airline sector, which has lived
by the direct-booking-only mantra.
Hahn Air's plan
Hahn Air is looking
to change that with its e-Alliance product, which it said would
offer any carrier access to a GDS without adding any complexity or
cost to the airline. That's because Hahn Air will take care of all
the complexity, and the customer will take care of all of the
cost.
Hahn Air's primary
business is offering global sales and distribution services to
other airlines -- it operates only one charter aircraft of its own
-- making use of its advantages as a fully IATA-certified and
ticketable airline. Agencies already can and do issue Hahn Air
e-tickets for travel on its hundreds of airline
partners.
After seven to
eight years in business, e-Alliance is Hahn Air's first product
aimed specifically at LCCs. With Hahn's model, the airline client
provides and maintains full control over schedules and fares, but
Hahn Air files all the fares, flights and rules with the GDSs under
the client airline's two-letter designator.
That means the
flight is displayed in the GDS under the airline's own name with
real-time availability to more than 70,000 agencies in 90
countries, including all of the big corporate agencies and online
travel agencies. It also means the e-ticketing of all flights is
under the carrier's own identity.
Customers see the
operating airline's name and flight number on the e-ticket; Hahn
Air only reveals its role to people who know how the tickets are
numbered. And because Hahn's e-ticket number is the proof of
payment, customers don't have to pay by credit card.
Hahn Air collects
the money from agencies through BSP or ARC, settles earnings with
the airline on a sold- or flown-revenue basis, depending on the
carrier's preference, and provides the sales report to the
airline.
Thus, LCCs gain GDS
access without the complexity added by the administrative
requirements, because Hahn Air does all the work. Airlines also get
the service for free because the payment to Hahn Air comes from
passengers via an automatically charged "validating-carrier
ticketing fee" that is included in the ticket price.
The amount of the
fee varies based on the total fare, but will typically range from 8
euros to 13 or 15 euros, Hahn Air said. The belief is that LCC's
fares are low enough relative to competitors that the prices still
will beat the competition. (At press time, the euro was trading at
$1.41.)
"We heard from
low-cost carriers over and over again: If it costs anything, we're
not doing it," said Steve Knackstedt, Hahn Air's airline business
group director for North America, the Caribbean, U.K. and Ireland.
"If customers are willing to pay for it, I think the low-cost
carriers will be very happy with that. ... It gives them the
opportunity to use a distribution channel that wasn't there
before."
Hahn Air is
recommending that carriers put only high-yield fares in GDSs, so as
not to undercut their Web site sales, though it isn't making that a
requirement. Knackstedt said Hahn Air was promoting the service as
a revenue supplement that could perhaps provide 7% of a carrier's
revenue, by way of higher-yield bookings that generally come from
business travelers.
Clickair's solution
The Hahn Air
product isn't the only potential GDS solution for LCCs. Barcelona,
Spain-based Clickair said it had gained free access by funneling
all of its GDS access through fellow Spanish carrier Iberia, which
owns 20% of the LCC.
Iberia, which is in
the GDSs at the highest participation levels, puts its code on all
of Clickair's flights, and in the GDS Iberia acts as an
intermediary for Clickair, which gets flights displayed under its
name.
Clickair CEO Alex
Cruz said Clickair fares posted in the GDS included 6 to 11 euros
added as a surcharge to help Iberia pay for its additional internal
platform, its overhead and its GDS and distribution costs, plus a
little extra to provide some ancillary revenue. Iberia also
benefits by getting more destinations in its network and the
potential for more feeder traffic to increase load factors on its
flights, he said.
Cruz said he knew
his solution was not for everyone and that Iberia's stake in his
airline made it easier, but he said he thought other LCCs and
traditional carriers who were not in alliances could also find a
"win-win situation."
The Dohop model
Dohop.com thinks it has
found a win-win solution to help LCCs and unaligned traditional
carriers make it much easier for their customers to book
connections. To date, most LCCs have left customers to make
connecting arrangements for themselves by going to various
carriers' sites, figuring out which flights work together as a
connection, then booking each separately online.
A few airlines have
tried to encourage this process. Among them is low-cost,
all-business-class Maxjet, whose Web site offers a connections page
that lists some flights that would work. It also offers a link to
the other carrier's home page. Dohop's solution goes well beyond
that.
Launched as a
consumer site in 2005 with a search engine for LCC flights, Dohop's
search results included calculations of the best connections, if
necessary. It later expanded to include all scheduled flights
worldwide.
Early this year, it
also began licensing its technology. Dohop executives said Canadian
LCC Westjet started using the search tool in January to help its
customers find connecting flights. Three airports in Turkey are
putting it on their Web sites, too.
At the LCC
conference, Dohop publicly unveiled its next step: the Dohop
Connection Platform for Airlines, which executives said they had
been discussing privately with about 25 carriers.
With this new
product, a participating airline provides a link on its Web site to
a Dohop-run Web site branded with the participating airline's name.
Customers use that site to search for flights on the participating
airlines, find two flights that will work together under the site's
parameters for what constitutes a safe connection and then lets
customers book both flights.
Customers provide
all the required information for booking just once, but the
technology actually is processing each booking separately, with two
separate payments, two tickets and two confirmations. The traveler,
however, receives just one itinerary.
The product is
designed to be used by two or more airlines that reach agreements
to partner, with one airline paying a referral fee to the airline
that originated the booking. That, and the licensing fee to Dohop,
would be its only direct expenses.
Possible complications
One potential
roadblock is that LCCs have shunned interlining because they don't
want the complications and expense of transferring bags; potential
disputes over which carrier is responsible for a bag that does not
make it to the next flight or gets lost; or the responsibility for
a missed connection, rebooking or hotel stay that might be
required.
Bookings made with
the Dohop product would not be interlining, but the airlines have
fretted that even without interlining, consumers will hold them
responsible if something goes wrong.
Dohop tries to deal
with that by making customers agree before completing the booking
that they are assuming the risk. Before they can book, they must
check off boxes affirming they read and understood disclaimers that
they are on their own if they miss a connection and must pick up
any checked bags after the first flight. Dohop reported that of the
millions of bookings on its site since the company launched, only
20 people have complained.
"People seem to be
able to understand the conditions," said CEO and founder Frosti
Sigurjonsson. "This is not trying to be perfect. It's trying to be
better than nothing."
Dohop said its
research showed that a carrier such as EasyJet could serve nearly
six times as many destinations if it made use of all possible
connecting, one-stop service with other carriers; a small carrier
such as Iceland Express could go from nine destinations to
145.
Dohop would not say
specifically which airlines are currently expressing interest, but
word at the conference was that JetBlue was among them. That seems
logical, given JetBlue's plans for a partnership with Aer Lingus
and its stated desire for more such deals with international
carriers flying out of New York's Kennedy airport.
For carriers still
worried that customers might hold them responsible for connecting
problems, Norwegian Air Shuttle's solution might hold some
promise.
Norwegian Air
Shuttle lets customers book connecting service on its own flights,
with the airline transferring bags, but with a fee of 4 euros per
segment.
That fee is placed
in a reserve fund that the airline created to reimburse passengers
for such things as mishandled baggage or the cost of hotel stays or
meals due to missed connections.
FlyNordic's
president, Maunu von Lueders, said the benefit to his airline would
be that it could sell more seats without risk or cost. "The
customer has released us from risk by buying the insurance," he
said.
To
contact reporter Andrew Compart, send e-mail to [email protected].