Channel shift: Airlines offer additional discounts for booking sale fares online

The airlines are continually fine-tuning their online pricing and have gone well beyond the Internet fares most airlines now send out weekly to publicize distressed weekend inventory.
An example of this: this month, several airlines took already discounted fares and added discounts of another 5% to 15% on selected routes for consumers who booked these tickets online.
Kevin Connor, Delta Air Line
‘s director of e-commerce and distribution, calls this “channel shift,” that is, moving consumers from traditional channels to a less-expensive channel: Delta’s own Web site. Any booking on the Delta site saves the airline both agency commissions and GDS fees that it would pay for bookings going through a travel agency, both online and offline. Delta pays all agencies a 5% commission; it caps that commission at $10 for online agencies and at $25 for a one-way ticket or $50 for a round-trip ticket for traditional travel agencies. It also pays the GDS an average of $10 to $12 in segment fees (each airline trip has an average of three segments), the source most travel agencies use for finding fares and booking the majority of the tickets they sell.
Such savings are the rationale behind the extra discount Delta gives consumers for booking sale fares online; currently the incentive to book summer specials online is 5%; an earlier incentive that expired last week was 10%. Those savings in commissions and segment fees are even greater percentagewise for discounted tickets with fares of between $100 and $250. Airlines have to pay the GDS for each booking segment that goes through the GDS. Delta is unusual in that its own computer reservation system is not hosted in a GDS. Instead, Delta has Deltamatic, its own internal res system pricing, booking activities and reservations.
Delta is also offering stimulatory discounts online, that is, motivating consumers to buy tickets from Delta that they would not have bought without the incentive of the discount. In the offline world, such discounts have to be large—40% to 50%—to be effective. Smaller discounts do not generate any noticeable increase in bookings. That means the consumers buying those fares would have purchased them anyway; the airline has discounted tickets but generated no new business.
“Someone was going to buy that ticket anyway, we just gifted them $15,” Connor says.
A small discount, that is dropping an airfare from $400 to $380, doesn’t make a consumer say, “I gotta go” in the offline world.
Not so on the Web, where, apparently the timeliness of e-mail notification of special fares and the fact that a consumer who has opted in for such specials is more pre-disposed to buy, make smaller discounts more effective online. Additionally, the Web’s inherently lower distribution costs mean that discounts to stimulate online bookings don’t have to generate the kinds of business that offline promotions must.
For the past year and a half, Delta has been experimenting with a variety of ways of discounting online—a flat fee, say $5 or $10 off—vs. a percentage of 5% or 10%. Delta has found, after conducting these experiments regionally, that percentage based discounts work better.
Other airlines also are using online discounts to motivate consumers to book sale fares online. Continental Airlines announced earlier this month that it would give 10% and 15% off its global sale fares—on selected routes—when consumers purchased those fares on www.continental.com. The 15% savings were flights from the U.S. to select overseas destinations in Latin America, Asia and the Caribbean; the 10% discounts were for sale fares within the U.S. and to Canada and Europe. Similarly, American Airlines is offering an additional 10% discount on sale fares when those fares are booked online. It is also offering Web-only specials on transcontinental fares between select cities.
United is currently offering low fares between Florida and the Midwest at united.com
. Additionally, travelers buying seasonal spring, summer and fall fares and save an additional 5% when they book those fares on united.com. Consumers who book online also are automatically into a spring sweepstakes, in which they are eligible to win back the price of the ticket.
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