As an observer of the Travel Industry I have watched the different sections of the value chain behave in different ways. Of late I have been thinking about the whole value chain and in what ways different parts of it are affected by fragmentation of content and differentiation of customer needs and providers capabilities. In looking at the corporate market it has somewhat worried me that the typical TMC has shunned the LCC market. It seems that even when the LCC footprint is pretty significant (the top two branded airlines on the planet are both LCCs – WN and FR) TMCs have shunned them and vice versa. I am not going to debate who shunned who first but it is still a pretty interesting view.
It seems to me that TMCs have done a remarkable job in deflecting the basic need to provide the corporate customer with the full product as a neutral provider in exchange for operational efficiency and service excellence.
This is an interesting concept but this blinding flash of inspiration came from one of my fellow Professor’s who wishes to remain anonymous. But that is a pretty fundamental view that on reflection I now whole heartedly agree with.
So how do they do this? Firstly their almost unhealthy relationship with the GDSs and tying themselves to the legacy model has resulted in a shunning of LCC products. The focus on “saving money” sends them into deep activity on intra product as opposed to inter product (to wit – getting the best price on the itinerary booked vs checking first whether the trip is necessary and secondly what is the most efficient way to address the needs that drove the trip request in the first place).
Then the lack of attempt at providing a service proposition to LCCs by the TMCs seems to be a significant failing on their part. Being passive while airlines such as Jetstar says let the customer book direct only seems to indicate an unwillingness to embrace the LCCs and help the customer to make a decision about the most efficient way to get from A to B. I am sure there will be TMCs who will say that this is not true and that the real problem is the unwillingness of the LCC to play ball with the TMCs. Well I think that argument is academic. The issue is the fact that little is done by the TMCs.
The promotion of operational excellence is almost tied to the concept that the legacy airlines have in differentiating their products when in reality it really is a commodity. TMCs don’t want to stray outside of the box because it means that they would have to do more work and pay for something. So the legacy TMC model doesn’t endear itself to the servicing of LCCs. Even though the customer would ultimately save money by using the LCC more frequently. One could also say that TMCs are too operationally focused - just like legacy airlines are.
So chaps – the continued shunning of each other (TMCs and LCCs) is set to stay. But given the amount of possible market share that LCCs command – this cannot continue. The mature US based TMCs now have only a few pockets of pure LCC activity. However Europe has a very large LCC footprint where in quite a few cases the ONLY option is an LCC. The TMCs (and their attendant service partners) therefore must change their position or risk seeing themselves disintermediated as a result.
Recent efforts by Travelport and others to bring LCCs to the GDS environment have only shown that the GDS model is increasingly flawed. With AA now moving to a 100% pure direct model - can the TMCs ignore the LCCs any longer. That does not require an answer.
Food for thought?
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