The ultimate challenge for every airline: truly global indirect distribution
Global indirect distribution seems to be a mission impossible for every airline, no matter its size or business model. Many small and regional airlines do not have a strategy in place at all. And even the bigger players are often not unlocking their full potential. The industry seems to be in silent agreement that a distribution infrastructure that will allow a carrier to do business with each and every travel agent is simply unachievable. But why?
The reason lies in the complex interplay of processes, underlying risks and in the nature of global streams of payment. Of course all airline professionals are aware of the different components that need to be established when one aims to take indirect distribution to a global level. Airlines wanting to distribute via indirect sales channels have to make countless informed decisions. They have to define key markets and secondary markets. They have to decide on memberships in Global Distribution Systems (GDSs) and Billing and Settlement Plans (BSPs). They have to invest in databases and computer reservation systems. All of this is costly, time consuming, risky and brings additional – and unwanted – complexity to an airline's organisation.
Therefore, small and regional airlines often rely solely on a direct distribution strategy while the more established carriers who are already selling successfully via travel agencies are limiting their business to key markets only. Everyone simply seems to accept the unwritten truth that a truly global indirect distribution strategy is unattainable because it is too costly, too risky and simply not worth the effort.
This is clearly a missed business opportunity! Direct distribution is typically successful in local, not global, markets. In addition, many target groups cannot be reached via an airline’s own website alone. Take business travellers for example: many companies today negotiate special contracts with travel management companies (TMCs) to get better conditions for their employees based on the large number of transactions. And the leisure travellers who are used to booking their flights online often use the big OTA websites to do so –which get their content (surprise!) through the GDSs.
Therefore, for airlines wanting to be profitable and having a vision of expanding beyond the status-quo, complimenting a direct distribution strategy with an indirect one is a must-have. The lack of experience with the tools of indirect distribution such as the Global Distribution Systems (GDS) or Billing and Settlement Plans (BSPs) are no excuse!
There are many solutions out there and airlines of all business models just need to find the right fit for their needs. Airlines who are already participating in at least one GDS can, for example, easily expand their reach by forming strategic interline agreements. They can then sell their services on the ticket of the validating partner carrier in markets where they do not have a BSP-membership but where the partner has the respective agreements in place. Hahn Air, for example, is a scheduled IATA airline and is participating in all major GDSs and almost all BSPs in the world. Forming an interline agreement with the distribution specialist will give a partner the option to be issued on the HR-169 ticket and therefore will expand a carrier’s reach to potentially 100,000 travel agencies in 190 markets.
But an interline agreement is not the perfect solution for every airline. Challenges are clearly on the technology side when it comes to the reservation process, passenger handling and accounting. Revenue management is another aspect which needs to be carefully considered. Not every airline has the knowledge and the financial means to form their own GDS contracts. But this is a prerequisite for an interline agreement. And even if they manage to overcome this hurdle, we should not forget that in order to sell their services in specific markets via GDSs, these airlines also have to join the local Billing and Settlement Plans (BSPs) which can be challenging and costly too.
For these airlines, it might be a better option to completely outsource their indirect distribution instead of facing this costly and complex endeavour on their own. With the product H1-Air offered by Hahn Air’s sister company Hahn Air Systems, for example, airlines can delegate indirect distribution while at the same time eliminating risk and complexity. One of the major benefits is that they can enter the GDS world immediately and with only one partner, instead of joining each GDS separately. At the same time, Hahn Air System’s airline partners don’t need to invest in the IT infrastructure or settlement vehicles traditionally required to sell via GDS channels. By selling their flights via the Hahn Air Systems code H1, they gain incremental revenue and tap into the global market.
The beauty about solutions like H1-Air is that they are quick and cost-efficient vehicles to complete an airline’s distribution mix. Carriers with ambitious goals can leverage on the partnership to expand their own knowledge about indirect distribution and GDSs. A company like Hahn Air Systems can then serve as an entry point for them to form their own GDS agreements and ultimately take their indirect distribution to the next level.
Next steps may involve, for example, investing in their own GDS interfaces and forming interline agreements, for example with Hahn Air. Combining H1-Air with an HR-169 interline agreement, an airline can build a complete indirect distribution strategy from scratch. While Hahn Air secures global availability, the airline can focus all of its efforts on its primary markets where it can join local BSPs to sell flights under its own IATA code.
With all airlines facing fierce competition and businesses running on thin margins, there is no doubt that more and more airlines will see the need to master truly global indirect distribution. The winners will be those who have a sustainable, flexible and expandable strategy in place.
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