Airlines Bite the Web that Feeds Them

Continental Airlines sent shudders through the online travel world by saying it would no longer pay commissions for fares sold on certain Web sites.

This is not the first time such a declaration has been made by an airline, and the big fear is that it won’t be the last.

Given the impact of the September 11th attacks, and the fact that some airlines have already resorted to withholding meals (now there’s Draconian punishment) and keeping the peanuts under lock and key, Continental’s declaration can be seen as both downright logical … and completely insane.

Perhaps even during these rocky times, the major airline companies still write the rules for their industry. But by shunning Web travel sites, the airlines are biting one of the hands responsible for feeding them.

Two Hands, No Waiting

Of course, other hands feed the airlines, too. That would include your hand and my hand, conveniently consolidated by the U.S. government into a US$15 billion dollar rescue package.

One by one, airlines are lining up for their handouts. And in the process, they’re making sure that everyone knows they can’t afford to pay for airport security either.

So why shouldn’t the airlines turn around and try to squeeze a few additional dimes out of the online travel agents? Why stop when you’re on a roll?

Friend or Foe

Well, here’s why they should stop. The future of travel planning is online, and not even the airlines would deny that’s the case. The Web offers airlines the dream of fully automating the sales process, taking all those pesky employees right out of the mix.

The Internet also offers the promise of immediate access to fare information as well, through a host of channels that will ultimately include wireless devices and the TV set.

Consumers love the new options. And, in theory, so do the airlines. But theyll love it a lot more, they think, once their own Web sites are front and center.

See, what the airlines are asking themselves is, “Why share when you don’t have to?” Like all good, aggressive American businesses, they’ll bully the middlemen — in this case, the online travel sites — however they can.

The thing is, it’s all a bit reckless.

Shortsighted Move

Yes, the airlines are run by smart people. But even they can’t possibly predict what the future holds. Messing with Travelocity now, when it may yet become the dominant online travel agent in a few years, is a big risk.

Sure, other airlines may well follow Continental’s gutless lead — announced in a one-paragraph press release that concluded with the assurance that the airline would have “no further press comment” on the matter.

Of course, Continental doesn’t want to comment further. What is it going to say? That it can’t afford the fractional commissions? That the Web isn’t an important source of fare sales?

Either way, Continental looks silly.

No airline wants to have to explain a shortsighted move like the withholding of sales commissions from Web travel sites. The more that they try, the more words they’ll have to eat when the future sneaks up and bites them in the tail section.

What do you think? Let’s talk about it.


Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.


6 Comments

  • Continental has to be THE WORST AIRLINE ever to grace the sky. Overbooked, poor in-flight customer service, inept, you name it and Continental sucks. I would fly any other airline.

    So Continental pulling any punches is going to have little effect on my pocketbook.

  • I will paraphrase a line from the movie the Rainmaker, “Continental must be stupid, stupid, stupid.” Why on earth would you abandon the lowest cost form of ticket distribution, and one which clearly represents the future? Only two reasons I can think of. First, Continental plans to cut all commissions and do negotiated deals with specific sites . . . not a bad plan but one that certainly has caused heartburn for online travel shareholders. Or secondly, because Continental is so desperate to cut costs that they are selling the fire hose to pay the mortgage on a burning house. I’m hoping for the former.

    • > Why on earth would you abandon the lowest cost form of ticket distribution, and one which clearly represents the future?

      Answer: Because it’s not, and it’s not. Selling tickets on the web through a middleman is not the future – it’s the present, and it’s not the lowest cost – otherwise they wouldn’t have made a fuss about the fees.

      If they have a plan in mind this could well be a smart business move. Maybe it’s bad for the consumer and bad for the shareholders of online travel sites, but if it’s good for the business then it’s a good move for Continental to make. If they pull a move like Southwest and end up *really* cutting distribution costs, then more power to them. They’re certainly helping themselves out of the fierce price competition that online travel sites create.

      Now I guess they’re going to have to live on their reputation… (however good or bad that may be).

      • Ah, a person who understands the airline distribution channel! You are 100% correct that the online distribution channel, through online agencies, are not as inexpensive as they seem. The usually fall somewhere between phone (airline 800#) and traditional agencies (because of the commission cap imposed on them). The cheapest, least expensive and most efficient channel for the airlines are their own web sites, bar none. Unless, of course, they are paying someone else to provide the technology for them, in which case they’re probably paying a transaction fee or some contract-based fee to the supplier of the technology. They can get around that by building it themselves, or purchasing the technology (and its source code) outright, then depreciating it like any other asset while contining to make refinements.

        I predict we’ll see the airline’s site become more of a powerful player for each of the airlines, and most, if not all, of these other little online agencies go the way of the DoDo (hope I spelled that right). Expedia, Travelocity and Orbitz will still be around to duke it out for the reason I mentioned above (selling their technology). And for the record, the online site with the most kick-ass booking engine is Orbitz, which they purchased from ITA Software. It rocks!

  • I disagree with your assessment of Continental’s decision. Traditional travel agencies have considered commissions almost an entitlement, which explains their reaction when the airlines finally realized what they were paying for. Agencies do not sell a specific airline, and you end up doing most of the work yourself. This is akin to Kraft paying the local supermarket a commission every time someone buys a package of Mac & Cheese.

    Before I knew better, I assumed that the customer paid a fee for the agency’s services. Only when I found out that it was a “free” service that I began to think, Boy, that’s dumb of the airlines! And soon enough, they figured it out too and began to cut commissions. Now, with their own sites and Orbitz – which does not earn a commission but a transaction fee – they can cut out the middleman again. They don’t need them, since they have their own sites and now a direct competitor (Orbitz). And if you think this doesn’t work, look at Southwest. They do not deliver their product through traditional GDSs…just phone and it’s web site. And it has over 50% of its sales online and doesn’t pay a fee to anyone. That’s why they have been making a profit for the past 20+ years.

    Let the airlines cut the commissions! If you don’t need a middleman, why keep them alive? This will also kill all of the other little online agencies that don’t make any sense, like Cheap Tickets, The Trip, Cendant’s new Travel Portal, and the like. If a person really wants to use these services, let them pay for it! I’m sure Mr. Jones and Mr. Barton will figure something out, or retire on their stock options!

  • Nonsense.

    Why not cut out on-line travel sites?

    Airlines can do web travel as well as anyone.

    Independent web travel sites have no loyalty to an airline.

    Airlines already cut out real travel agents who provide much more than web sites.

    Let the on-line sites get their money from the flying public just like real agents do.

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