United and Priceline go in direct ticketing relationship, cutting out middlemen

Discussion in 'United Airlines | MileagePlus' started by sobore, Mar 22, 2013.  |  Print Topic

  1. sobore
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    sobore Gold Member

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    http://skift.com/2013/03/22/united-...ticketing-relationship-cutting-out-middlemen/

    For years, American Airlines labored in solitude as it sought to reduce its reliance on ticketing global distribution systems (like Amadeus, Sabre and others), and now United Airlines is doing something similar.

    Priceline and United announced that they have a new long-term agreement, and that the airline’s heretofore unknown United Technology Application, powered by Farelogix, would serve as the “primary connectivity between the two parties.”
    This so-called direct-connect technology means that the global distributions systems would lose a lot of their existing Priceline-United volume.
    .

    Read More: http://skift.com/2013/03/22/united-...ticketing-relationship-cutting-out-middlemen/
     
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  2. Wandering Aramean
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    Wandering Aramean Gold Member

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    AA wasn't laboring in solitude. Other airlines have been negotiating direct distribution deals for years.

    It is also worth nothing that that Farelogix is on of the companies who has been working to build the connections between airlines and distribution platforms which allow the airlines to customize the offering based on who you are. In theory they can know to not try to sell an elite Priority Access, for example, while offering that to a non-elite. We'll see how well that goes.
     
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  3. radonc1951

    radonc1951 Gold Member

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    OK, so what exactly does this mean for me? Higher or lower ticket prices. More or less competition? Does it make a difference if I use or don't use Priceline?
    I read the link but what middleman existed for ancillary services? According to the article, ancillary services were not sold outside of UAL.com so how is this important?
    I can understand Farelgix's business plan as described above, but I don't get the connection or lack thereof between Priceline and UA.com
     
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  4. Mackieman
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    Mackieman Gold Member

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    The third party site no longer has to rely upon UA's inventory offered to travel agents, but rather can sell just like united.com does, including all of the ancillary (and revenue generating) products that you cannot currently buy through a third party (E+, bags, etc). UA controls it all just like they do for united.com. It's another channel in which to expand ancillary revenue generation.
     
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  5. Misplaced Texan
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    Misplaced Texan Gold Member

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    I don't know that it will mean much to you. I'm not sure there's really much cost savings moving off the GDS. Maybe yes/maybe no. And what we know about the elasticities of supply and demand in the industry suggest that the savings won't reach consumers.

    But what it does mean is that people buying from Priceline will now be offered E+ buy-ups, Premier access and all that other stuff at the time they buy their ticket. So the benefits to the airline from additional ancillary revenue are pretty clear and that's why they all want to go down this road.
     
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  6. Wandering Aramean
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    Wandering Aramean Gold Member

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    For the airlines there are theoretically quite significant savings in moving off the GDS platforms. On average the cost to complete a GDS transaction with a connection is somewhere in the $25 ballpark while the average cost for a direct booking is 10-20% of that number. These deals are all about the airlines cutting their distribution costs. As an added bonus they also can sell their ancillaries through the OTAs, something the GDS platforms cannot manage right now.

    Priceline has a similar arrangement with AA and, according to initial reports, the first few weeks where the partnership was live saw ~100 ancillary sales transactions per day. That's a relatively small number, but that was just the beginning of the partnership and it means thousands of dollars daily. That adds up to real money after a while.
     
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  7. radonc1951

    radonc1951 Gold Member

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    Thanks for the info. So now PL can be another UA.com. I guess they will get a cut of the action as compensation.Why didn't UA just let them link to UA.com (for a click fee) and do the up-sells that way? (I guess it is somewhat obvious that the more clicks you have to do, the fewer customers you will retain), but it would be to PLs advantage to induce ticket buyers to click on the link.
    Does this mean that for poor silvers, less E+ (more people opting to buy up for E+?)
     
  8. Wandering Aramean
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    Wandering Aramean Gold Member

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    One of the problems with the click-through booking is, as you noted, customer attrition. Another is that the fare information and such still has to be queried from somewhere. The OTAs pay the GDS companies to process the queries and return results. So Priceline would still need to get the fare info from somewhere so they could display it to their customers. Pulling the GDS out of the loop completely changes that cost structure to the OTA and the airline.
     
  9. Switch2

    Switch2 Silver Member

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    Wow this is quite a price! with the turnover of transactions they do, it's ridiculous that per transaction cost remains this high in this day and age.
     
  10. Scottrick
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    Scottrick Gold Member

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    So then why did the airlines take away the old offers, like 500-1,500 miles for each flight booked on their website? It seems like there are some significant savings to be had that would more than pay for the promotional cost.
     
  11. Wandering Aramean
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    Wandering Aramean Gold Member

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    My guess is that the were no longer seeing new customers shift given that incentive so there was no point in continuing to give away free points to the customers already conditioned to use the website.

    Some airlines have taken a "stick" approach rather than continuing to dangle a "carrot" in front of customers. Frontier recently cut FF earning by half and blocked advance seat selection for OTA-bookings:
    Six months after that Frontier pulled its fare data from Expedia. Apparently the "stick" wasn't enough.
     
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  12. unavaca
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    unavaca Gold Member

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    Wasn't that what PMCO did before when in Skyteam? Booking channel mattered for earning; only tickets booked directly through Continental earned full mileage whereas third party sources were 50% or less?
     
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  13. Wandering Aramean
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    Wandering Aramean Gold Member

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    For the cheapest fares, yes. Anything in the equivalent to today's W or higher was 100% or more regardless of channel.
     
  14. unavaca
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    unavaca Gold Member

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    Ugh, that would suck today. It's rare that I'll buy something higher than N/G/K/L. Sometimes I'll splurge and buy a T fare :D
     

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