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Yeild Managment VS. Price Transparency

(Image showing India’s static Airline pricing structure. From the Boot - Thanks Tim and Ram)

Robert Crandall, former Chairman and CEO of American Airlines, has called yield management “the single most important technical development in transportation management since we entered deregulation.”

The world is getting smaller, and travel pricing information is easier to acquire then ever before, much to the chagrin of revenue management analysts. With trends towards openness and transparency, the question has to be asked, can the travel industry maintain its elaborate yield management structures, or will consumers be able to circumvent their efforts?

Yield Management -

Yield Management has, since approx 1990 when airfares were deregulated, effectively raised revenue margins. It is fundamentally accomplished by separating price points based on demand and consumers willingness to buy. It is most effective when a good is perishable, being that it has no value after a specific time (when the tour bus leaves, empty seats are lost).

You can see this in effect in most businesses in the travel industry, most notably the Airlines, Rental car, Hotel industry, and it is also starting to appear in the destination activity vertical. You have probably seen this in effect. Consider the last time you booked a flight online; The general rule of thumb is the further out you book a flight, the cheaper it will be (I know there are many exceptions), the closer the flight is, the less availability there is, and the demand is therefore increased as is the price.

How is the Internet changing this?

While elastic pricing will be around for some time, the ability for consumers to track pricing and trends is also increasing. The simple example from Cleartrip at the top of this post demonstrates how easy it is becoming to track the historic price point of every major carrier in India. Yapta is also making waves in the industry for giving consumers a tool that will essentially counter price fluctuations in the Airline industry. It tracks specific routes of interest, and allows you to buy at a historically ‘cheap’ price point, then if the rate drops further, Yapta connects you will a rebate cheque from the airline. So this is the first step in equalizing price points across different demand points.

A glimpse into the future

The ever secretive travel industry is starting to evolve; with the prominence of Internet booking, and supplier direct reservation capabilities, consumers are now given more choices as to where they can purchase their travel products and packages at the best price. Taking these trends towards transparency, it is my opinion that the age of the multi-tiered, dynamic segmentation are going to start to fade. This will be facilitated by the increased focus on upselling of ancillary product as proven effective by Ryan Air.

However, those last minute flights are sure to cost you an arm and a leg So for now the responsibility is still on the consumer to plan ahead, and it is easier then ever to do so.

What do you see? Will consumers always be subject to an every fluctuating price scheme?

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The long tail of travel - Niche tour operators can now unite

The longtail concept has been around for a long time. Chris Anderson popularized it in his creatively name book “The Long Tail“. The Wikipedia definition is that “The distribution and inventory costs of these [longtail] businesses allow them to realize significant profit out of selling small volumes of hard-to-find items to many customers, instead of only selling large volumes of a reduced number of popular items. The group of persons that buy the hard-to-find or “non-hit” items is the customer demographic called the Long Tail.”

This concept has been applied to the tourism industry, and there is quite a fit. PhoCusWright brought this to our attention at the Sept 2007 conference in Florida, and Alan A Lew wrote a great article on it in 2006.

In Mr. Lews article he makes some claims about the long tail market. “The long tail market has huge potential. However it is highly distributed and highly individualized. Therefore, accessing it requires marketing and distribution channels that are both broad and deep. To sell relatively less popular products requires being able to store smaller inventories and being able to minimize distribution costs.”

Being in a business that is attempting to help small and niche tour and activity operators, these books and articles have influenced my business development. In an attempt to provide a solution that encompasses all of the many facets and challenges for marketing and distributing a long tail tour providers product, we have revamped our product, Rezgo.

We are releasing Rezgo Free on June 1st, and are confident that this solution will consolidate the long tail of tour and activities.

We recognized that suppliers needed more than simple book-now functionality; we found that they need a tour management and distribution suite that centralized all of their sales channels. We found that tour operators were more concerned with power and simplicity then with a “feature rich, function less” system.

Rezgo Free eliminates all of the traditional barriers that tour operators face when trying to adapt a new technology. It is intuitive, 100% free to sell products through their website, and it also has the capabilities to increase distribution and consolidate all of their sales channels. This will help ease companies into structuring their products for online sales, and will give them a platform to grow their business with expanded Internet distribution and marketing.

Offering this solution for free is a challenging proposition for the business stake holders, but empowering tour operators to standardize their products will help the long tail of tourism flourish. What do you think? You can find more information on www.rezgo.com.

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2.5

Germany embraces travel industry communities.

Communities are powering the internet, collaboration is the new norm, and Germany is the new Hotspot for Travel Industry internet communities. They will be hosting 2 grass roots events in a one month time period, Tourismus Camp and the PhoCusWright Bloggers Summit@ITB.

On February 9th, the first TourismusCamp (think Barcamp meets tourism) was hosted in Eichstaett. This meet up was organized by my associate, Jens Oellrich who will also join the me at ITB. Here is a link to the event wiki, translated into English.

I have had the pleasure of coordinating the first international bloggers summit; the PhoCusWright@ITB bloggers summit is bringing a group of over 30 bloggers from more then a 12 different countries together. This event is combining a Tips From The T-List workshop that is open to the public, exclusive blogger interviews with travel industry executives, access to the great PhoCusWright conference information and some good times.

We have brought the bloggers together into one place for everyone to stay up to date on the latest blogger content, go to itb2008.tipsfromthetlist.com for photos, videos and the latest blog posts from an international group of bloggers on this amazing event!

http://feeds.feedburner.com/TourismTrends

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2.5

Were do GDS’ fit in? - The strength of the Middle Man

What does a GDS do?
Well to sum up a bloated technological legacy system, they connect travel suppliers with those that want to buy the travel products; an electronic travel product catalog or marketplace if you will. The primary users of GDS’ are travel/internal agents (through a CRS) and consumers (through an Internet portal/OTA).

Why are they needed?
GDS’ work well with the traditional distribution system thinking, clients or customers can go to one centralized location to find their travel requirements. This relationship is controlled by the GDS and the reservation is processed through their distribution system. This simplifies the booking process for most of the stakeholders.

What are the challenges?
Consumers, resellers and suppliers are charged a premium for using this ‘travel catalog’; a premium that is not cheap. As online technology becomes more accessible, suppliers are opting to offer online sales capabilities through their own websites, thus cutting off the GDS completely.

What does the future look like?
Travel Suppliers are finding that they are able to cut out the GDS and Travel agent, offer similar sales functionality to their customers, and increase thier bottom line. That is a danger for the GDS.

One area that holds promise for the GDS’ is the amalgmation of online communities with a travel retail component. As online sites develop into niche communities, travel products will find a natural integration. Sabre has recently launched a business travel social network named ‘Cubeless’ (sounds like a way to order a drink..) that looks to unite business travelers as they globe trot for their company. My friend Norm Rose was interviewed for BTN Online about social networking for business travelers:

“Most corporate travel managers think about broadcasting out,” he said. “The idea of getting feedback and having the visibility to that is not yet on the radar of many travel managers, but can serve a valuable purpose of cultivating the natural tendencies of travelers wanting to talk to each other.”

Cubless will be launched with American Express travel. I am curious to see if business travelers are the most effective market for this social community as they may already have a number of other programs, meetings and platforms they deal with. What do you think, are GDS’ evolving fast enough? What do you see as the next steps?

http://feeds.feedburner.com/TourismTrends

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2.5

Mobile Booking Hype?

Is mobile travel technology bringing the next wave of travel e-commerce?

The numbers look convincing. The International Telecommunication Union (ICT) states that in 2008, 50% of all (over 3.4 billion!) people will use a mobile phone. Compare that to 10% of the world with Internet access, and it would seem wise to back a technology with 5 times the number of users. However, there are several factors that mobile technologies need to overcome in order to facilitate large ticket e-commerce.

The booking technologies that companies are proposing are relatively straight forward. Soren Langelund, Asia regional director for Mobile Travel Technologies shed some light into this area:

“Asia’s airlines, hotel groups and travel intermediaries can enable their customers to make new bookings and self-manage existing reservations via SMS, via the browsers on their mobile phones or via a downloadable mobile application. This provides a highly convenient service when users are on-the-go or have no access to an Internet-connected PC. “Online” travel is no longer just for PC Internet users.”

Now this sounds very promising, and I am fully supporting the advancement of mobile technology (I have an N95 to prove it), however, finding what is needed for a consumer to perform all of these tasks, not just technologically, but psychologically and economically as well, will shed some light into the viability of these new technologies.

Firstly there has to be a willingness to book travel tickets via electronic means. The current trends for online booking are showing a decline in the number of users that are willing to book online. The decline was cited by PhoCusWright, which found that online travel booking by Internet-using travelers had fallen to 62% in 2006 from 68% in 2005. Bookings among those who usually arranged travel offline increased to 31% in 2006 from 25% in 2005. Henry Harteveldt from Forrester summed it up in the Times when he said,

“Customers are tired of spending two or three hours trying to find the airline or hotel or vacation package that meets their needs,”

There will be great advances in semantic Internet booking technology that will bring lost customers back to online booking, but the point is, there are few great interfaces that will continue to retain customers and force growth. Can you see a mobile device with the capabilities for powerful online booking if there are still major issues surrounding booking through PCs?

Secondly, there has to be trust in the medium. The publics trust in online bookings and reservations has taken quite some time to develop. Every time my Mom hears a story on the news about a computer virus, she will give me a call and warn me that my information is not safe. This conception is common. Can you see the public willing to shell out thousands of dollars though a mobile device? News stories like this one do not help.

Thirdly, there must be usage of a mobile Internet connection, that is if the program/app is to book live inventory. The fact is, most people use their mobile phone for talking, based on ComScores Oct 2006 research, U.S. mobile Internet usage is at 19% and Europe averages 29.2%. I am sure that these numbers are slightly higher in recent months, however, average people are not using their phones for complex operations. I was only able to find research on the G8 countries as the mobile Internet penetration rates are lower elsewhere. So I am curious as to how we will see killer mobile apps for travelers without a large mobile Internet user base.

I got the opinion of Fred Ghahramani, founder of airG, owners of the worlds largest mobile community. Here are his thoughts on mobile travel bookings,

“It’s possible that I’m completely missing the point, but for most people purchasing an airline ticket is an expensive out-of-pocket investment - something that the average person does maybe once a year. So they’ll probably take their time, do their research, shop around, and these are all things that are done on a PC or in person at a travel agent. In contrast, most transactions generated on a mobile phone are impulse buys, a ringtone here, a small video there etc. Now there’s definitely going to be really busy people out there that travel in high frequencies for business that are not spending their own money, but most people like this already have in place a support network of secretaries, assistants, and corporate travel agents. For these reasons, I can’t really see buying airline tickets on your mobile phone to become a mass market practice. Now there will always be other applications, perhaps skytrain tickets, movie tickets, etc, so it should be interesting to see the market develop.”

As devices become more robust, and as data access rates lower, mobile computing will be ubiquitous with travelers. In the immediate future I can see apps for directions, local tours and attractions, recommendations, destination information etc, but I have difficulties seeing mobile bookings for large ticket items. You can see some examples on the iPhone app site. Apple currently has 42 apps dedicated to travel, one by Travelocity. Am I wrong? Do you book large ticket items over your phone? Let me know what you think.

http://feeds.feedburner.com/TourismTrends

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Joe Buhler - Expert Interviews

I had the pleasure of talking with Joe Buhler today about DMOs, the Travel Industry and eCommerce. It was a fascinating conversation that was recorded, that is until a power-spike reset my computer, so I will summarize our talk, but it will not be verbatim.

Joe has a world of experience in the Travel industry, he has work with Kuoni Travel, Switzerland Tourism, Euro Vacations, and is currently a Senior Destination Analyst for PhoCusWright, the Executive VP for Level 9, and Principal of BuhlerWorks, a strategy-marketing & eCommerce consulting service for the Travel and Tourism Industry.

We focused our conversation on DMOs and the future of online distribution. Again, this is a recap and is not verbatim.

Phil: Do DMOs have a future with Web 2.0 technology and eCommerce?

Joe: DMOs traditionally have been resistant to be early innovators in the online travel space. They are resistant because they basically are risk averse and have a long history of set standards and procedures they follow. Also, their current marketing and advertising relationships do not lend themselves to having a powerful online presence.

Phil: How do you see DMOs role evolving?

Joe: DMOs have great potential to gain revenues for their organization through enhancing their web presence. They currently provide great content, pictures and directories, but are leaving site visitors wanting more. Back when I worked with Tourism Switzerland we identified the four steps in the travel booking process, Dream, Learn, Plan, Go; DMOs are helping with some of the first steps, however potential visitors are having to go to external partners to complete the experience. We see some of the DMOs adding basic hotel booking capabilities and wanting an award for their “innovation”, when there is so much more that they should do to position themselves as the source for one-stop planning and purchasing a trip to a destination. We see sites like Kango, that are incorporating semantic search capabilities, and generating relevant content that visitors are looking for. If DMOs could harness this technology, and pair it with full vacation planning, then this would add tremendous value to DMOs site guests and stake holders. DMOs have the power to bring small stake holders like hotels or tours and attractions, together; they are the authority on that geographic area and guests are looking to plan and book. DMO website needs to address those needs or else they will loose credibility and relevancy. “Travel Websites in general including those of DMOs need to catch up with customer expectations”.

Phil: What are your predictions for 2008?

Joe: I see the start of an incremental shift beyond Web 2.0. (Lets hope the numbering system ends with 2!) There will be more supplier initiatives to selling their product directly, thus cutting into OTAs revenues, also long tail product will start to find a place on the web. Hopefully we will see some DMOs acting as an aggregator of long tail products. OTA’s will have to focus their technology efforts on offering customer-designed dynamic packaging including for multiple-destination trips. Only this type of bundling allows for margins being added, which is not possible for single commodity component sales. Otherwise their margins will have to come from elsewhere like the recent media based deal by Expedia with IHC.

Joe had many other insights to share, however they were erased by a strike of my electricity. If you are interested in contacting Joe for consulting work, you can find his contact information on his blog, BuhlerWorks.

http://feeds.feedburner.com/TourismTrends

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2.5

Activity Pre-booking? Who Does It?

Have you found that booking an activity or tour is the last step in a tourists’ travel plan? Quite often, independent tourists will wait till they arrive at a destination before they consider what activities and tours they want to take.

Is this changing? Are people now pre-booking their tours and activities before they depart to a destination?

There are large online travel agencies (OTA) sites like Expedia.com and Travelocity.com now gives tour suppliers the opportunity to add their tours and activities to the websites. While this will definitely help the tour company with distribution, it will also lower their margins. I posted some research in August that really put this in perspective.

While it may be difficult for companies to sell directly to consumers, there is a growing trend towards direct booking with a co branded online reservation engine. (Predicted to be 62% of all bookings by 2008) Small tour companies have to realize that the money payed in commissions to online travel agencies could go to driving traffic to their own websites, this would lower margins and give the tour provider greater control of their inventory and advertising message.

What distribution channels have you found to be the most useful? Are you selling your tours through Expedia or Travelocity?

http://feeds.feedburner.com/TourismTrends

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Trust the Masses?

Joe Buhler found a study from Marketing Vox that analyzed over 1300 online product reviewer’s motivations. The results look good for those that are embracing this new wave of consumer involvement. They found that:

 

Fully 90 percent of respondents say they write reviews to help others make better buying decisions, and more than 70 percent want to help companies improve the products they build and carry.

The study also found that 79 percent write reviews in order to reward a company, and 87 percent of the reviews are generally positive in tone.

 

These findings should quiet the critics for user generated reviews. Do you embrace UGC in your reviews? What have you found?

http://feeds.feedburner.com/TourismTrends

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2.5

Orbitz - Steve Barnhart

Steve Barnhart just finished his talk on both the long tale and the long tail of Orbitz.

There are more demands for the long tail of travel then traditional customer products, like Amazon or iTunes.

Steve was really inspired by Chris Anderson’s book on the long Tail of Distribution, and noted that the economics of the long tail of tourism require three unique criteria:

1. Proliferation of stuff or democratization of production.

2. Access or the democratization of distribution

3. Niche Marketing or the Connection of S&D

1. The proliferation of stuff does not come out the the same in travel. It goes far beyond inventory access and focuses on customer risk aversion.

The big challenge of the long tail inventory is getting the consumer to access that inventory. Consumers try to avoid financial risk especially when there is a ‘veto issue’. The ‘veto issue’ is when there needs to be something for everyone in the ravel group, this would allow a vacation package have a activities or services that would make all of the travel group to have a better vacation. He recommends making an offering that is applicable with more demographics.

More inventory won’t move consumers along the tail.

2. Easy access - every step or touchpoint along the way. Orbitz is trying to ease the access of bookings with relevant information along the way and smoothly integrate all of the travel systems. Make search and transactions easier to use. They are making a multi-currency multi-lingual platform. Going beyond simple, but making relevant.

3. Niche markets - Experiences are infinite, but locations are finite. You must know that things in the long tail are in the fat tail for others. Travel has always had access to more then the best selling locations and activities, the fact that people want to go to key locations will not change. The biggest focus of any company should not be to convince customers to go to obscure product, but to make the long tail come to the fat tail. In other words, tell new people about old things.

The question period had one great question that related to Rezgo ; “How do long tail products fit into Orbitz?”

The answer was music to my ears “There is a wealth of opportunity, but not many suppliers, no desks for service counters, and lack of computer systems. There is more value there then anyone in the chain. We are looking into filling that niche”

Basically integrate with Rezgo.

http://feeds.feedburner.com/TourismTrends

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