Airlines in the Asia Pacific region need to mindful of leveraging the major trends this year, which include the growth of capacity-driven growth and the power of the emerging BRIC (Brazil, Russia, India, China) markets, in addition to maximising opportunities through a multi-channel strategy, ancillary revenues and the mobile explosion. This is the view of Ho Hoong Mau, Division Head of Airline Distribution at Abacus International, who highlighted these key trends at the recent Abacus Chinese Carrier Conference.
“The travel industry is undergoing a period of immense change. The East is set to take over the West in terms of new traveller numbers and technology continues to change the face of the industry as well as redefine how we conduct our business,” said Ho. “Airlines must therefore be quick to adapt and adopt the right strategies to keep themselves at the forefront,” he added.
To stay ahead in the industry, however, Ho highlighted that airlines should continue to be mindful of leveraging the major trends this year.
“Looking at market growth in China as well as other BRIC countries, capacity-driven growth driven through airline and route expansion, and airline growth driven by multi-channel strategy, ancillary revenue and mobile; great opportunities are apparent for the airlines to each take advantage of. These key trends provide new commercial impetus for airlines to work together with key travel solution providers to deliver top results,” he said.
Despite greater penetration in recent years by the online direct booking model, this has mostly come at the expense of airline call centre and ticket offices. According to Ho, there is evidence of a “reverse channel” shift to the travel agency has taken place in 2009-10.
“Airlines need to look at the bigger piece of the pie that travel agents currently serve in order to tap the myriad opportunities available and to differentiate themselves from the other airline competitors,” according to Ho.
“Online growth is not synonymous with supplier direct; in fact, recent data suggests that online unique visitors to online travel agent outnumber supplier direct sites by 2:1. It is critical for all industry players to separate the truths from the hype,” he added.
China is set to become the biggest contributor of new travellers by 2014, contributing 214 million out of 800 million global new travellers. As China continues to liberalise its air transport industry, its major airlines are expected to gradually shift their focus from domestic to international markets to become competent global competitors.
Other air travel giants are on the rise with the increasing affluence of Brazil, Russia, India and China – countries that are collectively called the BRIC nations. The BRIC account for nearly 30 per cent of the world’s land area, 42 per cent of the global population, 18 per cent of the world’s GDP and 15 per cent of global trade volume. Over the next five years, business travel in India and China will grow at rates of 5.3 and 6.5 respectively. In addition, the BRICs are expected to make up 50 per cent of global air travel demand by 2050, up from 15 per cent achieved in 2008.
According to Ho, this sharp increase in air travel heavily concentrated in the Asia Pacific region means that airlines in Asia have to be prepared to cope with the increased demand. It is already evident that the large Chinese carriers are making their intentions known that they will deploy more of their capacity on international flights as they face increasing pressure from the high-speed train in their own domestic markets. India too is on a high trajectory of growth and the underlying travel demand is so robust that travel bookings were not affected at all by the recent Japan earthquake and tsunami.
Airlines are also adopting multi-channel distribution. Travel agency channels will continue to maintain their roles due to prevalence of wholesale models in Asia, the need for aggregation of the huge amount of information out there and management help in the complexity of travel. Likewise, consumers’ high propensity to purchase at travel fairs and travel in package tours, growing business travel (where TMCs dominate) and growing emergence of Asian OTAs help to ensure a healthy and competitive travel agency channel.
In 2010, airline-direct website sales weakened while online travel agent sales have escalated. According to SITA, more than 50 per cent of tickets are now sold through travel agents (online and offline) as compared to 40 per cent which are sold through airline-direct website.
In the Asian market, it was anticipated that both direct and indirect channels will achieve steady levels. Nevertheless, Ho added that airline carriers must be aware that Asia is complex and non-homogenous. For example, while online penetration is considerably high in Singapore (due in part to the conditioning of consumers to do online DIY transactions by LCCs), online penetration in countries like Hong Kong, Taiwan and many others are still poor. It is also very clear that the rate of growth of OTAs is higher than those of supplier direct.
“Airlines need to be very clear about the true ROI of each channel. The yields that airline sell on the Travel Agency channel is usually higher than those sold by online supplier direct. In addition, airlines need to fully account for the potential hidden costs in the online supplier model such as advertising costs to bring eyeballs to website as well as credit card merchant fees,” Ho stated.
Recognising this complex market, Ho stressed; “The future belongs to the airlines that are adept at executing a multi-channel strategy.”
“The coming years are exciting times for the airline industry,” said the Abacus executive. “Airlines need to invest in technology, prepare for these changes and find the right balance to work with a GDS partner, or risk losing the chance to capitalise on markets that will drive outstanding profits and values in the years to come.”