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Changing distribution – A lesson from the Airline industry

Price Monitoring

General industry may have introduced web and e-commerce relatively recently but the airline industry was one on the first sectors to embrace e-commerce.

Before the Internet became a unifying force for commerce, airlines had grouped together to form GDS’s (Global Distribution Systems). These GDS’s gave airlines the ability to distribute their product (seats and fares) through Travel agents world-wide.

In this model, the Airlines manufactured the product, the GDS were the distributors and the Travel Agents were the retailers.   As with all models, complex charges were levied to make the model economic for all concerned.

From those early days of basic fare distribution, airlines, GDS’s and Travel agents have become more sophisticated, with the introduction of dynamic pricing, price modeling, yield management and a whole host of new concepts that general industry is only now catching up with.

However things are beginning to change and the ‘Distribution’ model is under threat with Lufthansa, the German Airline, now imposing heavy surcharges when fares are booked through the GDS.

Lufthansa wants travellers to book directly with them. It would seem that Lufthansa, the owner of the fare and seat wants to control the way sales are made. Not only keeping them closer to the customer but also reducing costs and lower distribution costs.   The approach will also equalize on-line and off-line sales and price visibility.

The power of the Internet and ecommerce is certainly changing the way consumers buy, but it also challenging older distribution models.

Only time will tell if this change is significant for the airline sector, but if it is, without doubt it will transfer quickly to other industry sectors.