Winners and Losers - US Intermediary Market 2010

As we get more and more data about 2010 - we can start to see some clear trends emerging.

Using ARC data which is a very good proxy for the US Intermediary market, we can see that totally there are some key trends.

I suspect - not yet borne out by hard data - that based on 9 months of activity that the airlines direct business also grew share-wise vs the intermediary market. You have to be VERY careful with this measurement. In my view I look at the issue of hard pax numbers rather than dollar value. We have had several times the situation in the past where the dollar value of sales is not commensurate with the transaction numbers. There is an underlying reason for this - People tend to find the lowest fares on the airlines websites in the USA market. Not so in Europe and other parts of the world while transparency is more pronounced in the North American market.

So looking at ARC's stats we see that the optimism of the overall market reflected in the hunt for bargains. This showed that Online agents did very well starting in January. However during the year that declined in represented value as the Airlines curtailed some of their inventory to online players making it harder to get deals on the online sites vs the airlines direct sites.



The corporate market too had a surge in bookings which resulted in a surge in the Corp market - as represented by the mega category. However it too saw that decline over the year as the increases reached capacity constraints.

There is a number of important factors here at work here. The US airlines are maintaining capacity constraints resulting in extra yielding possibilities and higher pricing to the consumer. The holiday period will demonstrate that the airlines were able to make a bundle. We are already seeing Q3 2010 numbers looking good and now Q4 is promising to be a banner quarter.

Maintaining this discipline is crucial to the airline profitability. Even Southwest is being very careful. The only carriers who are actually expanding above the threshold are carriers like Virgin America and JetBlue. The expansion for the other airlines are coming from International routes. I expect that to continue into 2011.

In my view the current battle over distribution will spill into customer numbers. The organizations lined up against AA and ancillary fees are hiding the true cost battle which is that the TCO of a reservation continues to rise higher than corresponding yields in the core ticket price. As this cost element is opaque to the market - only the impact on the guy paying the fright - IE the airlines - shows up.
The customers will therefore vote with their feet and more likely move more traffic to airline direct websites. Thus more share channel shift will impact ARC's numbers. The emerging channel of non legacy GDS distribution will further cut into the amounts. However this will be a share shift battle and not reflected in ARC's numbers