Startup Carriers See Travel Agencies in Their Futures

A dozen years or so ago, low-cost carriers appeared to follow the “Keep It Simple, Stupid” mantra.

Their distribution plans were simple. They would sell direct to consumers via their websites.

Their marketing plans were simple. They would appeal to underserved and/or overpriced markets in an egalitarian fashion, with a single cabin class.

Their fare structures were simple, and they could offer lower fares because they did not bear legacy labor costs.

Their operational set-ups were simple. They would not interline or establish hubs, since those practices could slow down their quick turnarounds.

“They had a simple model, and they didn’t see the need for engaging with GDSs or travel agents,” said Alexandre Jorre, senior manager, distribution marketing, at Amadeus. “They were happy with how they filled their seats.”

Changes with growth
Then they grew up.

“They have grown to maturity and become hybrid carriers,” Jorre said. “Some of them reach a growth plateau and seek new ways to grow.”

That’s when low-cost carriers begin to look at the value of the GDS. “We have reach,” Jorre said. “We provide access to travel agents and to customer segments they need to reach.” The GDSs also help low-cost lines form partnerships with other airlines.

To reach new customer segments – travel management companies and their corporate customers in particular – low-cost carriers need to have more sophisticated reservations processes, Jorre said.

Repeat story
The story of maturing low-cost carriers has been repeated over and over again.

Southwest, which began service in 1971, had the simplest of marketing, fares and operations. It is now the largest domestic U.S. carrier, and it is adapting to new realities. Amadeus is working to enable international flying for Southwest by migrating it to its Altéa passenger services system.

Measured by number of passengers carried, EasyJet is the largest U.K.-based carrier. It started out by emulating the Southwest model, and went so far as to urge passengers to “cut out the travel agent.”

Today, it offers assigned seating and business fares, and it participates in all three western GDSs.

New entrants take action
Other new-entrant low-cost carriers have observed these phenomena, Jorre said, and some of them are taking pre-emptive action.

“We are seeing startups go straight for standard solutions,” he said.

Volotea, which launched service from bases in Venice, Italy, and Nantes, France, in April 2012, is an example. Like most low-cost carriers, its business plan centers on aggressive growth.

In a case study of the carrier’s distribution plan, commercial director Didier Legault said, “Our intention from the very beginning was to sell through the GDS: It’s a matter of reach.”

Volotea flies to 50 airports, but it serves some of them only twice a week. That makes it difficult to justify a large marketing budget to attract customers to those routes.

“This is where the GDS channel and travel agents provide such significant value and are very effective in securing reach and scale,” Legault said.

Passenger services systems
That choice also influences the selection of a passenger services system. Some systems designed for startups have not always worked and played well with GDSs. Some new low-cost carriers are looking to systems that can accommodate “hybrid” behavior and future growth.

“You give yourself room to scale your operations,” Jorre said. “It saves you pain when you need to scale.”

He said a key factor for travel agencies is the merging of low-cost carrier information into the same display with other carriers. “You need to have an experience that is similar to any other airline.”