ORLANDO -- Start-up and new-entrant airlines are being touted as
the solution for all sorts of airline competition woes, especially
the need for lower fares at hub airports. But that doesn't mean
they'll necessarily be good for agents.
There is an indirect effect -- incumbent airlines often try to
stave off new competition by offering agents a higher commission
for maintaining or increasing their market share or by threatening
to penalize them if they don't. That can be viewed as either a
potential boon or a squeeze play.
But how about direct effects?
Two new carriers -- National Airlines in Las Vegas, and jetBlue
at New York's Kennedy Airport -- demonstrate how different the
answer to that question can be.
At the International Airline CEO conference for Latin American
and Caribbean carriers in Orlando, the leaders of National and
JetBlue described how they are succeeding as new airlines. After
their speeches, they spoke to Travel Weekly in more detail about
their distribution policies and the role agents play in their
plans.
The case of National illustrates the potential upside for
agents.
The carrier, which turned its first monthly profit in March, its
10th month of operation, is actively courting agent business by
paying 10% with no caps for airline tickets and 12% on the total
price of its National Vacations tour packages.
The airline won't change that "as long as it's working. And it's
working," said Michael Conway, National's chief executive
officer.
Conway said 65% of his airline's business is booked by agents.
The business the airline has gained by offering the better rate, he
said, has offset the extra distribution costs for the carrier.
Most airlines have it backwards, he said, because "they spend an
incredible amount of energy trying to eliminate the travel agent
contribution, despite it representing more than 50% of the revenue
they're generating. We'd rather try to put our energy in trying to
maximize the resource, rather than trying to replace it."
National does offer Internet-only fare specials -- "We have to
[do that] to be competitive," Conway said -- and sells 20% of its
tickets directly over the Internet.
But it also launched a Web site exclusively for agent use, and,
Conway said, "we aren't focusing on one distribution channel over
another."
JetBlue is taking a different approach. It pays 5% with no caps,
and Internet bookings already range between 20% and 25% of
sales.
Chief executive officer David Neeleman said the airline is
aiming to push that number to 50% by year's end. The carrier isn't
offering Internet-only fares yet, but "we have to, obviously, to be
competitive," he added. It also may offer other incentives, such as
free LiveTV on flights for on-line bookers.
JetBlue also is planning to offer phone bookings with voice
recognition, so customers, if they choose, can complete the
transaction over the phone without talking to anyone directly.
About 10% of the airline's bookings are done via CRSs. But
Neeleman, who founded a travel agency early in his career, said the
role of the agent is changing.
The airline isn't ignoring or shunning agents. But "I think our
participation with agents will be more with those that package our
product or figure out a way to provide value to customers" by using
jetBlue, he said.
For example, he said, some agents are booking jetBlue to fly
customers to Fort Lauderdale, Fla., for cruises. Because jetBlue is
inexpensive and is creating a savings for the customer on air fare,
the client will be more willing to pay a fee for the agent's
services, he said.
Given the need for new entrants to hold down costs so it can
offer low fares and still make money, and the potential to use the
Internet and other technology to cut distribution costs, jetBlue's
approach might seem the more likely route for other new entrants in
the future.
At National, Conway doesn't disagree -- but turns it into a
reason why agents should continue supporting his airline.
"My instincts tell me [the future approach] will be more like
jetBlue's, which hopefully translates into a higher appreciation
for what we're doing," Conway said. "We're clearly swimming
upstream from our competitors, but we think it's working."