A few years ago, a large smart client, asked me to explain to him how prices are constructed from different vendors in the world of airlines, and how these were managed through the GDSs, the yield management and the various channels. And after I explain the maze he told a very smart statement … “Inigo, but what you’re telling me is that the road to a perfectly competitive market is unstoppable.”
The truth is, and has been more than 5 years since that meeting, he gave in the target (speaking about point to point travel, and not complex itineraries). Perfect competition meant that if I buy a ticket at a certain time, the same price is easily accessible by any user who is looking for the route at the same time through different channels. Therefore, the final suppliers are forced to admit that the price per channel segmentation Reserve lose weight every day (I am not saying that it do not exist, I am saying that it is going down). The one who really segments the price is the time of purchase, supply and demand for a certain good, and the flexibility of the traveler, not the channel anymore. This seems obvious, it was not before, and paradoxically, firms in an imperfect market and despite his ability to purchase with a strong volume, did not buy adequately travel because the opacity of the market segment allowed the supplier to sell more expensive fares to business travellers, aided also by less competition and lack of transparency.
The key is to “be just a click away” than 1000 different ways to book the same service, put a terrible strain to the TMC and the Airline to set the rate, and gives a guarantee of transparency in the price. The paradigm of access to information is Google, I guess you know Google Flight (still only operating with U.S. origin) and Google Hotels, two amazing tools that can change some organizations. The funny thing is that for high competitive online city pairs (San Francisco- Los Angeles) Google Flight gives a zero price differences between different suppliers (same product). It is obviously a sign that we are in a market so transparent that it is inevitable that the price formation tends to equalize. There is noise from the prior untouchable GDSs indicating that Google tools anti-competitive (and probably right because Google still is not an NGO, and therefore may prevail paid content visibility), but it is undeniable that they have sought an exceptional search engine.
[Delta / Virgin and United advertised exactly the same price for a San Francisco – Los Angeles … apparent total commoditization (note the ancillaries)]
Obviously, there are negotiated rates. But the consideration of its use has become a “cap” for most companies. This is worth several blogs and I dwell on the world negotiated later. It is true that the segments transportation, hotel and car are very different in their behavior and analysis.
What does that mean? price differential search capacity is going to be worthless? Nor so, there is content that is not as readily available (LCC), and there are destinations and destinations (the example is a very mature market and almost perfect in terms of transparency). But it is clear that there are critical issues that affect those purchase prices (especially early booking), working on them for optimal management is part of the ham. That a TMC (Travel Agency of Business Travel) provider offers me the best price at a given time, have long been considered a hygiene factor (ie non-differential and minimum), if you also talk about simple products without too much value in their management, it is clear that the client does not pay for the management of the reserve (specially the value of getting the lowest fare). When anyone can get that price, the management has little value (book an shuttle air ticket or a train ticket). And if we also implemented an OBT, it is clear that the valuation of my provider is not on the management of the fares. Customers pay for the added values such as: the management of the travel policy, billing, reporting, security, ease of payment and process, troubleshooting, etc, and not by the simple booking flights.
Do all this well and efficiently is not easy, and only the good ones are able to provide value without incident in the relationship, and above all act as contributors to the best solution tailored to each client, reducing costs in the process, and adding creativity and flexibility. What is the worth that value is another topic for another blog …
I hope you have served,