The Impact of AA Out Of Expedia and Orbitz

The impact of American Airlines non-participation in Expedia and Orbitz during the period from the end of 2010 until restored by agreement (Expedia) and by a judge's order (Orbitz) was interesting in theory. But what about it in practice?



For the absence of ambiguity. The chart shows share sales and percentage increase/decrease in sales of airline tickets. This is transactions NOT sales dollars so they are a true like for like comparison. The source is ARC Corp. The full chart can be seen here. That bulging green line (downwards) represents a significant loss of airline ticket sales from Expedia and Orbitz. Far greater than I believe most people expected. With air revenue comprising such a small amount of Expedia's gross revenues - this did not adversely affect the Bellevue based company. For Orbitz however that does depend more on US Airline sales the impact as we have seen from the recent financial performance of OWW was significant to their bottom line.

This illustration is pretty dramatic and clear. In my view it shows two things.

1. That a single airline's withdrawal from key players in a specific market sector from one or more players who command 50% of that sector can be dramatic.
2. Even after restoration - the intermediary channels as a whole lose share.

There are other interesting things that can be read from this chart. Share does come back. Albeit slowly, but it does come back. it also shows that the OTA's expectation that the AA share would easily be absorbed by consumers switching to other airlines was false. The dramatic drop in tickets as illustrated by this chart is obviously not reflected in AA's total ticket sales loss.

There are many lessons in this chart. I leave you to draw your own conclusions. If you would like to discuss this directly with the Professor. Please see me after class.

Cheers

Tell It Like It Is - Skroo!

I admire Flight Centre. Arguably one of the most successful businesses in Travel Retail. I spend a fair amount of time working and analyzing the Australian market. The recent upheaval at Qantas and its refocused direction on both Jetstar and a diminished uber brand as well as expansion outside of its home market has drawn a lot of local criticsm. But FCL has been largely supportive.

It's outspoken CEO has a really great nickname. Graham Turner is known as Skroo. Pronounced the way it sounds.

While applauding QF's acknowledgement of its issues and being supportive - he could not help but give a little barb onto the way the information was delivered. Judging by the personalized communication message I received (which was really naff in my book) it seems that the airline's marketeers were scrambling to put a bit of spin on the subject matter.

Great quote from Travel Weekly Australia.
QANTAS MARKETEERS, no doubt, agonised,
sweated and debated long into the night - many
nights probably - over the ad campaign which
accompanied the carrier's announcements this
week.
Under the slogan "a new spirit" images of
children were used to portray the message that
Qantas may be taking a new path but you know
what: we'll always be Australian (said with chest
puffed out and that goo). We like straight talkers
here at Final Call and couldn't help but admire the
considered view of Flight Centre's Skroo Turner.
“I don't know who dreamed that up and I don't
know who it's aimed at. But it's meaningless
nonsense.”
Tell us what you really think Skroo.

Gotta love those Bruce's and Sheilas.

Cheers

Groupon - The New Gordon Gekko

I personally don't like Groupon as a business. I am only lukewarm to its personal value to myself and to my family and friends.

The model though really bugs me. It just feels - well plain wrong. Carving up someone else's business model and profiting from it.

I dont buy the whole - new business pitch. That is all BS.

Groupon has burned through and incredible amount of cash in a very short period of time. It has raised $1.1 billion and burned through $942 million.

Henry Bodget has a post on them pointing out that Groupon is running low on cash. This is VERY scary. The business is built on the standard model of growth at all costs. Therefore it should be a Wall Street Darling.

BUT note what it did with the cash. Here is what Henry had to say:
"it is also worth noting that, in the history of the company, Groupon has raised a total of $1.1 billion of cash--and paid out $942 million of that cash to its early investors and executives (highly unusual for such a young company). If Groupon does get into cash trouble, therefore, it will not be because the company didn't discover an amazing new business opportunity or raise all the capital it needed. It will be because of, well, greed."

Read more: http://www.businessinsider.com/groupon-low-on-cash-2011-8?op=1#ixzz1Va99ymW1

Greed is good. Screwing your customers is better.

I really have a problem with this.

Cheers

One Head Now Hangs On Googlrola Belt - HP Dumps WebOS - The End of Palm

In the long term battle for dominance in the Mobile space - the number of players has been way too many.

Well scratch one from that list. WebOS or formerly PALM. HP who just last February announced a major push into mobile after it had acquired the assets of PALM - has now decided that it wont work. So its dumping the business. Ending a much sortied product line. Palm Pilot's became part of the vernacular of the 1990s. Now gone.

There is a possibility that someone might pick up WebOS and try to make a go of it - but in reality this is unlikely. The amount of investment required to revive the product and get any form of market footprint is just too daunting in both assets but more importantly time.

HP is following IBM in likely dumping also its PC business. It only goes to show that we are truly headed for a post PC world.

As I evaluate whether to acquire a MAC - I am struggling to justify my position. But after a year of a PC with solid state disks and a wimpy 250GB - I better have something a lot better this time around.

Cheers

Recession Biting Europe. Air Berlin Axes Routes Loses CEO

Air Berlin is arguably the third largest LCC in Europe after Ryanair and Easyjet. However the company has never achieved the same results as the leading two.

AB is more than just an LCC. It really is a hybrid carrier having acquired in quick succession a number of different companies with different models, equipment and financial structures.

As it is about to join OneWorld it is moving into more legacy territory rather than the other way.

But reality bites.

Citing a number of issues including Air taxes in Germany and the UK - Airberlin is azing a number of marginal routes between Germany and the UK. Further it is cutting 8 planes from its fleet.

Finally its flamboyant architect of expansion Joachim Hunold has offered his resignation and it has been accepted.

Note to Qantas - Obfuscation is a Big Word

This is a somewhat cheeky post. But sometimes you just gotta show up that some things are just silly.

Qantas who is having a little bit of a hard time of late. They are a fine airline but face a number of challenges.

I fly them frequently and like their service. Particularly the A380.

However to send me an email which by the time I reached the end meant exactly nothing is not a good position for the airline to adopt.

But take not my word for it.

Read the letter here that was sent out to QF Frequent Flyers.

It really contains nothing.

Please Qantas. Think before you open your PR mouthpiece.

Thank you for reading

Cheers

Follow Up Post - US Intermediay Sales Declines

I posted a story yesterday on the decline in July activity.

It bothered me. So I went back and tried to do a YTD creation comparing official US government statistics.

While these numbers are not completely aligned - the best comparison is to look at TICKETED transactions of ARC vs FLOWN passengers on DOT BTS site

Here are the 2 URL master sources:

DOT: http://www.bts.gov/xml/air_traffic/src/datadisp.xml
ARC: http://www.arccorp.com/news/stat/2011-05.jsp

The core data does not bode well for the GDSs and the US Agency business:

Through May - ARC transactions are DOWN 1.66%, DoT Traffic shows scheduled emplanements are UP 3.9%. This on only a 2.6% increase in capacity.

If I sound like a broken record - then so be it. Lesson here is that its a sellers market of airline products in the USA.

I had a peak at the Winter 2011 Schedule analysis. For the US airlines there has been a steady cut back of traffic. Delta is shaving frequencies across many markets. Dropping daily flights to 4-5 times a week is a common trick to reduce capacity.

This is going to put pressure on the intermediaries further.

The consumer has noticed.

Cheers

US Market continues to decline

ARC's latest numbers are not looking good. The US market is once again down.

Total tickets issued have fallen for the first 7 months of the year. Down 2.05%. With domestic down more than international.

This continues to say that the flight from the agency to the direct side is a consistent trend but the number of flights available are down across the board.

In the fall schedules taking place at the end of the summer - we see a further set of cutbacks.

Delta will cut domestic and international flights. It is also intending to drop all turboprop operations. It is further going to end all codeshare on Turboprop aircraft domestically.

Consumers in the USA are now going to have to get used to a world where changes are going to be negative as well as positive.

Welcome to a new reality.

OTAs Headed For Stormy Weather

Nomura analysts have released a Tome on the OTA marketplace that is probably one of the most in depth studies done on the market in a while.

While I have not read the report - I have followed the news reports.

Specifically Nomura is cautioning on the value particularly of Priceline and Expedia which it has a bearish outlook.

According to Forbes the situation is not looking promising. With the marketplace maturing particularly in the USA. They cite the following specific concerns

They have three specific concerns:

Disintermediation: The Nomura analysts note that Google and Microsoft Bing continue to build out their online travel products. “This is a threat to the OTA’s traffic and value propositions and a benefit to large hotel brands’ efforts to drive more traffic to their sites,” they write.
U.S. Suppliers Strike Back: Larger hotel brands and airlines are working to decrease their use of the online travel agencies.
Asia-Pacific Expansion Costs: “We are wary of the near-term margin pressure for U.S. OTAs as they invest to grow in APAC,” they write. “In essence, we expect the region to be highly competitive and expensive to grow in.”

For the the big 3 (remember that Sabre's Travelocity is not included as its private)

Priceline: They think earnings beats will be increasingly difficult from here, “impacting the company’s lofty 18x forward earnings multiple.”
Expedia: “Given the U.S. pressures, uncertainty in Europe and the company’s required APAC investment spending, we struggle to find material incremental upside in the core Expedia business.”
Orbitz: “We are bearish about the company’s asset mix and forward prospects and believe there are better risk-reward opportunities in the Internet space.”

This position demonstrates that there is a general concern about the OTA model which challenges the somewhat high valuations.

This analysis will obviously trickle down into the mini-bubble of Travel services - particularly online. It also puts the Kayak IPO into a less favourable light. The ripple out effect that the Professor and others have commented on with regard to the whole intermediary space from GDSs to Travel Agents shows we are in for some storms ahead.

However in this I see a silver lining. The challenge of the big players represent an opportunity for niche players. Further the rather large cash piles at some of these players is likely to be freed up to invest in new start ups as these mature players struggle to maintain growth which of course is what powers their stock values.

The forces are aligning for change. Here is just more evidence of that

Cheers

Qantas Shows Effects Of Increased Competition

For some time Qantas has been suffering on its premium branded services. The flagship brand is still viable - especially when compared to other airlines who are in a lot worse shape than QF. However Alan Joyce is not waiting for markets to improve. He is moving decisively to address the carrier's ills.

QF suffers from high costs. Across the board it has one of the highest cost structures. Its home market where most of the costs are situated is now at record highs of the Aussie Dollar. Its fuel is more expensive in its home market. Its labour costs are very high. Of course it has a high percentage of GDS distribution costs.

Add to this situation increased competition. Specifically from the GCC based carriers who have been steadily gaining market share on the Kangaroo route. Domestic competition from a resurgent but still struggling Virgin also doesn't help. While Jetstar goes from strength to strength - the uber brand still languishes. And yes Tiger (partially owned by Singapore interests) will be competition.

So today Qantas announced something that would have been unthinkable even just a few years ago. It is cutting routes to London. While the choice still remains - BA will pick up some of the traffic - Qantas is going to cut back even further and refocus the business.

Gone will be a lot of the freebies. Gone will be some of the gas guzzling 747s that will get parked. The last few A380s will be deferred at the back end of the order. In the mean time a whole new round of Airbus narrow body aircraft will be purchased. A320NEOs. But wait - they are not in the QF fleet which has Boeing 737NGs.

Along with 1000 redundancies - this does not auger well for the QF Brand.

The group is fine. Jetstar announcements today are also looking good with the JV in Japan and the increased presence in Singapore. Interestingly, speaking about Singapore, you can almost see SQ getting a little nervous and then perhaps they too will be interested in competing more heavily with QF Group. But wait doesn't Singapore Inc have an interest in some of Jetstar?

Yes competition does get interesting

Cheers

Beware Employees In Ad Campaigns

Cathay Pacific, probably one of the more conservative of airlines, has found itself rocked by a rather embarrassing scandal involving a male and female as seen in a flight cockpit in - well - a delicate pose.

Cathay has identified the people involved and both are "no longer" with Cathay.

This has somewhat upset the apple cart with the employee focused ad campaign. As CNN reports:

"The embarrassing episode has now affected Cathay's newest phase of its "People and Service" marketing campaign, which uses the catchphrase "the team who go the extra mile to make you feel special."

I bet there are now a number of airlines scanning the records of their employees who have appeared in ads or are about to - they really want to make sure that this sort of thing doesn't sully the good name of an airline.

Oh for the old days when Flight Attendants were dolled up to look like they were available and made to appear sexy for the then largely male audience. (Ed that was a joke).

Recently a Ryanair FA was exposed as moonlighting as a porn actress. Somewhat made MOL's promise of free oral sex on the proposed international version of the cut price airline more real!

It is actually an amusing and perhaps cautionary tale. I have written before however that there needs to be a strong sense of care when dealing with this sort of campaign. Delta for example talks about its people who make the difference. And they do. However for quite a few Delta purchased flights - you actually dont come near a Delta employee.

Be wise!

Cheers

Healthy Meals - No Thanks - I will Have The Other One

I fly on a lot of planes.

I travel in front and the back of the bus

I have this inane sense that actually the airline does owe me a meal no matter what I paid for the ticket. But of course we don't always think logically. The Wall Street Journal's middle seat blog did an analysis of airline food. Its a good piece to read.

One of the advices given was to pack your own food. Great - but where can I do that when I am on the road for 6 weeks?

So what do I do to make it a bit better.

I usually find that there is a sushi restaurant in most airports that I fly out of. this is a healthy option. I try and get them to give me the light soya. I try and buy Turkey sandwiches if I can. Also I try and choose fruit when I am able.

BUT

Many times - its the shortest line and the easiest comfort food that wins. Perhaps the airlines and the airports should get together and figure out how to improve the health of the travellers.

Nah... that ain't NEVER going to happen.

Cheers


As an aside here - if you want to try and think about healthy food and the whole process of food and nutrition you might want to check out this blog:

http://nutressante.com/ - Click on the blog.

Sure its one of squillions - but it will cause you to think about the process of nutrition.

I really Wanted the Playbook But Bought an iPad

Sadly Blackberry screwed up royally.

The Blackberry playbook now has to be regarded as one of the worst product ideas ever.

I tried to use it in a few retail outlets and found the device either not working or the staff unable to demonstrate it. When I did find someone knowledgeable - the product was really inadequate. I waited to try the Crackberry tablet first before I really spent any time with the iPad.

Sorry but the Crackberry doesn't come close.

I am sort of OK with the iPad. I am still debating whether i will continue to carry it with me when I travel. I like a lot of things about it. But hate a lot of things as well. Its an annoyance that makes the device difficult to use and value.

I hate the compromises that Apple makes as they take their role of Gatekeeper far too seriously.

Oh well... I guess I might be happy by the time iPad 5 comes along.

Cheers