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A little different approach to OTWCs this month (I hope) … some focused responses to a number of media or friends’ comments. I’m trying to teach myself how to “blog” better.

 

 

Eastman's "Off-the-Wall Comment(s)"©  …

It is this transformation in how society uses the new information technologies … the “gadgets” of our society … that is having the greatest impact on the airline and travel industry.

The current focus within travel distribution is the focus on (a) GDS by-pass via the new entrant distribution platforms like ITA and G2, (b) the rapid evolution of airline owned direct web sites and (c) the many variants of interactive digital packaging by mega-Internet, now-responding mega-corporate agencies, and meta-search solutions.

The author has often noted in past OTWCs that the primary “glue” holding the traditional distribution process together was … and remains … airline ARC and/or BSP settlement. While only a small percentage of hotel settlement passes through the Pegasus commission tool, the only way to settle for air travel remains via an ARC/BSP approved agency or with the airline direct – using hard cast, checks, or credit cards.

Obviously, an opportunity for the airline/travel agency distribution structure is to be a leader in the transition to the “digital payments” suggested above. It is likely that a traveler’s “smart phone” will enable “check-in”, “boarding”, as well as payment in the very immediate future. Consider the productivity and efficiency advantages of such tools. Still, it is more likely that the inherent structures and traditional “way-of-doing-things” will inhibit the airline community from leading in this transition.

Accordingly, it is more likely that a few “pioneering” airlines and other travel vendors will lead this transition into the future … likely as a part of integrated interactive travel product packaging. And as Southwest and JetBlue have led in the initial transformation of the airline seat product … the airlines and travel vendors that move aggressively in the settlement arena will gain new and measurable market share.

 

Eastman's "Off-the-Wall Comment(s)"©  ...   

It never ceases to amaze me how often we hear these kinds of remarks as new technology solutions begin to “interface” with users … or more importantly, those threatened by the new technology.

1. Initial users of bank ATMs provided the same kinds of complaints.  Citibank, among the first to implement ATMs – actually removed ALL of their ATMs at one point in time because of similar feedback… before realizing their mistake. Citibank now has the largest ATM network in the world.  ATMs that make the news these days are the ones that are broken into or stolen.

2. Initial users of Internet booking engines experienced virtually identical problems … and generated almost identical comments … particularly from the “agents” whose jobs were threatened (as may well have been the case with the Sheraton employee).  Internet booking engines that make the news these days are those that expand their services beyond travel. 

3. Like the banking and airline distribution systems, most major hotel chain information technology platforms are of legacy architectures.  While not as “legacy” as the airline systems, integrating them with contemporary kiosk technologies requires people that can “walk both sides” of the technology idiom; i.e. people that understand the fundamentals of both the legacy architectures and more contemporary Internet Protocol structures.  While both sides will tell you “they understand the other” – the reality is that very few really do.  The kiosk problem noted before is likely a result of that conflict.

4. While I’m a great admirer of Chris Elliott, both as a writer and as a marketer of his writing skills -- like all good independent writers, it is necessary to find some sort of “hook” around which to build and sell a story to a media outlet – particularly in this era where blogs are rapidly becoming substitutes for traditional media as an information resource.  This is a great example of taking a problem that is a part of virtually all new technology evolution within society and turning it into newsworthy revenue.  My congratulations to Chris!

 

Eastman's "Off-the-Wall Comment(s)"©  ...

In February and again last month, I discussed what appears to be the next evolution in travel distribution – the ability to link contextual responses to travel destination, packaging, and pricing queries by travelers and buyers. The salient points of Eric Schmidt speaking in the very global sense of Internet users in general – are particularly valid within the travel industry.

The travel product selling process is virtual – digital, if you will. The physical-ness of delivery of a travel product is when the traveler shows up! Until that point, “product delivery” is little more than promises and dreams!

In travel’s past, airlines, hotel properties, destination companies and bureaus, tour packagers, etc., … used large sales forces to “reach out” to customers – both directly and through intermediaries such as travel agents (in themselves, essentially a sales force). The Internet is decimating these traditional people-staffed sales forces … for the very reasons noted by Eric Schmidt.

The meta-search tools like Google will further change the relationship of the “sales staff” to the selling process. Meta-search is a self-qualifying medium – where prospects self-qualify themselves as targets. The cost to reach a self-qualifying target via meta-search tools significantly lower than the cost of traditional consumer based mass-media programs. Even more important, “branding” can be more effectively targeted as qualified buyers.

Like so many of the traditional approaches to travel marketing, travel vendors need to recognize and capitalize on the validity of meta-search as (a) one of the most cost effective ways of reaching target prospects, (b) using the “millisecond” of exposure that meta-search response advertising provides to ensure it is your product that induces response, which drives (c) the need to deliver relevant context-oriented responses to meta-search queries in lieu of attempting to attract viewers to content sites.

All too often I meet and talk with travel industry executives bent on saving their particular entity … be it airline, travel agency, corporate travel department. But when challenged as to how to approach this new information and knowledge based world we live in – the response is almost always “more sales force.” Without exception, they all seem to recognize that mass-media is no longer dollar-effective. But stepping past the traditional core of marketing, they revert to the “save-all of selling” … more people. Simply stated, the decision-makers in the airline and travel industry have not yet come to recognize the power and expanse of the digitally-drive knowledge-based self-servicing marketing paradigm.

Eastman's "Off-the-Wall Comment(s)"©  ...

As this and the rest of the story above suggests, I do not believe that the mega-agencies (Internet or otherwise) will dominate air internet booking in the future as they do today. But I also do not agree with the premise that the airlines will evolve to dominate the internet booking in the future, as this story suggests. As an aside, the story provides an evaluation of the strengths and weaknesses of a number of different airline web sites.

The Internet agencies' problem is that they seek to manage and control itinerary content; they are essentially content providers! The airline's problem is that airline seats have become too much of a commodity (as the story implies); and thus, gain little value-add without integrated packaging for most travelers, whether corporate or leisure.

Using this logic, I suspect the long term future of digital interactive booking is tied to interactive Internet packagers that can evolve "custom packaging" on-the-fly; mixing and matching commodity travel product in much the same way Internet media companies capture and channel "views and clicks" via targeted messaging popping up in response to meta-search queries by users.

Still, one of the interim steps toward this perception of where the industry is headed lies is the need for the airlines to regain control of their product distribution. The use of their own web channel management tools supports this new GDS-independent functionality. This will enable the control suggested in the story.

And lest I not be misconstrued, I expect that there will ALWAYS be a market for a niche group of travelers that only buy commodity air travel; with no added "packaging."

Whether one sees "Eastman's vision" or "buys off" on this story's premise – it is probable that there will be a bit of a retrograde in Internet travel-buying as airlines reassert control over their inventory. These tools will not be burdened with the constraints of the legacy architectures of the past nor the traditional distribution structures of the industry.

Eastman's "Off-the-Wall Comment(s)"©  ...

When I first read the accompanying story, the question that first popped up is whether the lack of U.S. carriers in this list is the result of U.S. carriers financial problems, or due to strict FAA/DOT control over radio transmission regulations? In fact, I suspect the latter, but do not really know for sure.

It was my second thought that induced me to put this snippet in this month’s OTWC.

As most of us recognize, driving costs incrementally lower is a critical aspect of survival in any commodity market … because lower costs drive higher margins in a market where price-competitiveness is the dominant criteria for customer choice.

Internet is being “incentivized” to support perceived customer needs, desires, or expectations. But I’m betting that the most interesting aspect of on-board internet for airliner will be its ability to significantly lower the incremental costs of operating each flight!

Just for starters … airlines currently pay messaging costs to ARINC or SITA to transmit operational data between aircraft in the air and ground stations – and upon receipt, the ground stations must manually relay many messages onward. Via Internet messaging, routing will be faster and automatic. Messaging costs will be incorporated in bulk message packets – not the disparate message packets that are used today in air-to-ground (or ground-to-air) messaging.

Further, Internet will allow for much greater message content. It will be possible to alert maintenance teams in multiple sites as to needed fixes while the plane is still in the air. It will allow advance and follow-on passenger service and care support. It will permit airlines to interactively rebook passengers (and cargo) on delayed or weather re-routed flights. Onboard Internet will enable ground operations to better manage and pre-plan the physical aspects of arrivals (and departures); and concurrently facilitate en-route crew rescheduling when needed. Even little operational issues like en-route re-planning, take-off and landing weight and balance government regulation compliance, meal and service complaints will be cost-effectively managed in-flight; rather than in pre or post flight manual reports.

It’s great having passenger demand drive the issue with respect to inducing the FAA/DOT into allowing real-time Internet on-board; but as noted, I suspect that its real value will turn out to be the lowered cost of operating airplanes – and the increased level of in-flight service that interactive information and the sugsequent derived or applied knowledge offer.

Eastman's "Off-the-Wall Comment(s)"©  ...

First … .an interesting editorial!

Second … it summarizes most of the thoughts noted throughout this OTWC … both in the snippets quoted and the related comment(s).

Third … the very relevance of this non-travel industry editorial to what we’re experiencing within the travel community suggests that, increasingly, travel product marketing and selling is becoming more aligned with conventional consumer marketing structures; less separated by the disparate technology distribution platforms that so-dominated travel sales in the past.

This third point is particularly significant when one extends this thinking. As noted in OTWC many times (and above) – the major demarcation between air travel product and other products has been in the digital settlement (payment) process. The airlines were first to build digital electronic and digital settlement processes. Those systems and architectural structures have controlled virtually all of the marketing, flight operations, passenger services, and government reporting for the past 40 years.

Internet technologies have allowed other business sectors to match and subsequently surpass the digital business structures (and related business culture and thinking) – and this has become increasingly apparent in the past five years. These new technologies now “overlay” the older and historic airline business infrastructure – serving new customer needs and expectations that evolved around the newer technology.

Consider these quotes from Jay Campbell’s “The Beat[1]” …

• Airline yields in the first quarter were higher year-over-year from online channels, but lower from bricks-and-mortar agencies, according to American Airlines managing director of leisure, corporate products and international sales, Greg Brown.(The Beat 050305)

• "We fully expect [ECT] to break even later in the year," said Expedia CEO Dara Khosrowshahi, noting that corporate booking and revenue growth continue to accelerate. … According to IAC chairman and CEO Barry Diller, "It's leverage and scale. Once you get to critical mass and you start scaling it, margins really ought to follow. I can't tell you exactly when, exactly where or what, but I think with what the momentum is now, it's an inevitable result." (The Beat 050405)

• Growth in trips booked by GetThere and Travelocity Business as well as their "positive contribution" to adjusted earnings helped drive a strong first quarter at Sabre Holdings, which grew revenues 8 percent year-over-year to $582 million and generated slightly lower adjusted net earnings of $49 million. Sabre shares rose 2 percent in morning trading. (The Beat 050505)

• The United Airlines "gain sharing" program has prompted some travel management companies to begin making a miniscule number of reservations through alternative channels, but it remains unclear how quickly United could reach its goal of processing 20 percent of TMC bookings through "qualifying" distribution systems. United is hoping to qualify a system already used by TMCs before reaching its "magic month," when the one-fifth goal is met and new parties are frozen out of its $5 per-ticket incentive! (The Beat 051805)

Yet these are all new technologies overlaid on the old distribution or inventory structures. In reality, these overlay solution simply cannot stand the increasing demand and expanding expectations of buyers. Airlines, as well as travel agencies, corporate travel buyers, tour operators and the multitude of other travel vendors and intermediaries must recognize that to continue to ignore the knowledge-based change taking place in society in favor of trying extrapolate current processes, cannot survive.

As the editorial above … and The Beat snippets show … buyer demand is forcing integration of buying at the supplier level. But successful integration only leverages the technology demands DOWN to the next layer of production. The airlines and intermediaries that recognize this first and act on this knowledge – are going to leverage themselves well into the forefront of their respective travel service or product segment.

One only needs to “follow the flow of money” to identify that this transition is taking place – and derive both tactical and strategic goals for timely implementation. And it is necessary to recognize and understand – these changes will impact production processes and the core infrastructure of the way travel business is implemented. Accordingly, any effort must include some sort of flexible technology architecture that will permit the core business to rapidly adapt to changes that arise “in the flow of money!”

++++++++++

Enough for today! As an aside, I’d be interested in hearing from any of you that see Off-the-Wall Comment(s)” as an interactive “blog” forum. Are there those among you that would actively participate in interactive feedback or supplemental comments within a blog?

Respectfully,

\\ Richard

Copyright © 2005, The Eastman Group, Inc.   

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[1] The Beat ~ a business travel newswire is published as news happens, 49 weeks a year by Business Travel Beat Inc. A subscription for up to ten individual readers costs $375 per year. For more than ten, bulk pricing is available. Visit this URL to subscribe:

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From InternetWeek Newsletter, 4 May, 2005

Editor's Note: Following The Money : Antone Gonsalves

If you ever want to know what's really happening in business, then follow the money. And nowhere is that more true than on the Internet.

Nearly half of U.S. marketers this year plan on spending more online and less on newspapers, magazines, direct mail and other traditional advertising channels. Driven by changes in where consumers are shopping and getting their information, this shift is expected to lead to advertisers spending $26 billion on the Internet by 2010, or 8 percent of all the money spent in the U.S. on marketing.

Another interesting tidbit from a Forrester Research study… is the lack of confidence many marketers have in traditional advertising media. More than half of the 99 leading marketing companies surveyed said they felt TV advertising would become less effective over the next three years, while more than three-quarters said they expected search-engine marketing to become more effective.

These numbers reflect the growing importance of the Internet in shaping people's opinions and purchasing decisions. The Internet is sure to eclipse traditional media in the same way TV buried radio. The difference, however, will be in the power of online advertising.

The medium holds the potential of being the most effective marketing tool ever. With so much ability to persuade, it will be interesting to see how high, or low, marketers are willing to take the medium in their pursuit of profits.

From BTN Online, 26 May, 2005

International Inflight Connectivity Soaring: Several international carriers recently introduced or expanded inflight Internet access, including Scandinavian Airlines System, which today said it had become the first to offer wireless high-speed connections on all long-haul flights. Others to launch or announce similar services this month included All Nippon Airways, El Al and Japan Airlines, adding to a growing list of carriers responding to customer demand for inflight connectivity.

From The Washington Post©, May 29, 2005



Airline Web Sites, Poised For Takeoff? Looking to book an airline ticket on the Internet? Chances are you'll first head to Travelocity, Orbitz or Expedia. With state-of-the-art technology and access to a wide range of flights on competing airlines, the well-funded Big Three, along with smaller rivals such as OneTravel and CheapTickets, have been able to take a considerable chunk of the action from the airlines' own sites.

But the power may be shifting as financially strapped airlines try to control a bigger share of their inventories. In recent months, the airlines have fought back with steps designed to attract more customers to their sites.

From InformationWeek Daily, 30 May, 2005

Interview: Google CEO Eric Schmidt

[Each of the following bullet points is a thought expressed by Eric Schmidt, CEO of Google, the meta-search tool; in an interview with Thomas Claburn, Editor of Information Week. Nothing has been added, but much omitted for the sake of relevance and reading time.]

• Imagine you're a CEO and you're running a sales force. How can you get your sales force to generate more revenue? Get them more educated, more trained, better tools, better multimedia tools, better account planning, better management—sort of CRM on steroids. [Another] question has to do with the evolution of sales models. Google has shown that a sales model that uses advertising that's search-based is the first place you should put your sales dollar, because the cost per revenue dollar is so low compared to the revenue dollar delivered, over and over again. In other words, if you're a CEO and you have no sales force, the first thing you'll do is put dollars into Google. And by the way, you'll also put them into our competitors. Same argument. And then you'll say so I want even more revenue than I can get from that, then you would start thinking about a sales force. And that's very interesting because that wasn't true ten years ago.

• If I were setting up a business today and I did not have a sales force, I would think long and hard. Before I would build a high-cost sales force, I'd build a low-cost distribution channel first, because everybody is under such margin pressure, and then I would figure out how to lay stuff on top of that. And that's new. That is different.

• It turns out that one of the most bizarre things about [the meta-search related advertising] business is it's actually growing quite quickly …. If you think about it, the person who is ultimately the customer here is inside a company. On a general basis, they're more highly paid than the average customer. They do more searches. They're a better advertising target. ... They are the power users.

• There will be multiple approaches to search. There's no single answer to search. Hopefully, [Google has] the largest footprint, the lowest cost, the most end users. But there're always going to be specialized solutions and we should integrate with them in whatever way makes sense.

• Look at what people do on the Net today. They search and they communicate. [Google is] in both businesses. Do you do anything besides searching and communicating on the Net?

Eastman’s Off the Wall Comments©

May 2005

From New York Times©, May 31, 2005

Is the Check-In Kiosk in the Lobby for Real? By Christopher Elliott

DUST collectors. That is what employees at the Sheraton New York Hotel and Towers call their new automated check-in kiosks, as one guest who has repeatedly tried to use them found. "I was checking in, and try as hard as I might, the kiosk wouldn't cooperate," Henry Harteveldt recalled. He flagged down a staff member and said, "This doesn't seem to work."

"Oh," she shrugged. "You mean our dust collector? It never works." The Sheraton employee had no idea she was confiding to the vice president of travel research at Forrester Research. Otherwise she might not have been so forthright. But that situation is hardly unusual. As these automated check-in machines multiply, the scene is likely to be repeating itself in hotels across the country.

From Information Week Daily©, May 31, 2005

Patricia Keefe, Editor

Electronics, technology, and ubiquitous computing have made the world a far more convenient and efficient place to live. The speed with which the things we can now do get done is as mind boggling as is the rate at which they quickly become obsolete, or melded with yet another cool, useful technology. Just look at the speed at which cell phones have been turned into the Swiss Army Knife of personal technology. Never mind calling, its fundamental use. How '80s. You can use cell phones today to take pictures, send E-mail, run videos, and even signal your fave rock band for an encore. Pretty soon we'll be using them to pay bills on the go--relegating ATMs, hard cash, and physical credit cards to the recycling bin of the '90s. 

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