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Indian Air Wars


Budget airlines, travel portals on collision course

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Mar 31, 2008

Up till now makemytrip.com, travelguru.com and other travel portals were offering among the cheapest airline fares. That is about to change.

Budget airlines have begun negotiations with these portals, also known as online travel agents, to reduce their commissions.

They also want to make the fares offered by travel agents costlier than theirs by loading on some extra charges if the ticketing comes through them.

Low-cost airlines have been driven to initiate these moves because their distribution costs have been rising as sales of their ticket through agents move up, while sales on their own website decline.

Currently, budget airlines are paying close to 2-3% commission to the agents.

To promote sales on their portals, the agents sacrifice part of their commission by passing it on to the airline customers.

This makes the fares of travel agents a cheaper than that offered by the budget airlines on their websites.

Such a price difference has seen ticket bookings on travel portals swell even as it is shrinking on the airline websites.

The website sales of no-frills airline SpiceJet Ltd had dropped from 40-45% a few quarters back to 30%. Though other budget airlines did not share their figure, they confirmed that their website sales have also been depleting as flyers flock travel portals to fish for attractive fares.

All this has adversely affected the cost economics of the budget airlines, fighting hard to check spiralling costs of jet fuel, HR and others.

"What we are seeing is that as we sell more tickets through the travel agents nour distribution cost is mounting. We want to correct this by slashing the commission rate of travel agents and also ensuring that the fares on their portals are slightly higher than ours.

At present, we offer our inventory (seats) to them at the same price that is being offered on our website," said a senior executive of the budget airline.

Hawking tickets through their own website is the cheapest distribution channel for airlines. Low cost airlines like Ryanair and EasyJet sell close to 95% of their inventory on their own website.

The rest 5% gets distributed via call centres. Most budget carriers in Europe try to keep their dependence on travel agents as low as possible. Some of them even shun them completely to get a price edge over their rivals.

In India, budget airlines are selling close to 15-30% of their tickets through the travel agents and 25-40% on their own website. They also use call centres, airport counters and traditional travel agents to distribute their inventory.

Analysts say such distribution model is detrimental for low cost airlines' balance sheet. Also, with higher fares starting to impact airline demand, budget carriers can no longer afford to ignore this cost.

Over the last three months, travel portals (baring Makemytrip.com) and airline websites have seen a huge drop in the percentage of global internet users who visited their sites.

Analysts say this could be because travel industry witnesses lean phase during January-March every year.

But even as they look to rationalise their distribution cost, they say that they cannot completely do away with the travel agents.

"They play an important role in promoting an airline by providing information like flight schedules, fares and other to their users. What we are looking at is rationalising the overall distribution cost," said a senior budget airline executive.

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Budget airlines, travel portals on collision course
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