The Fight Over Seats Distribution: Airlines Pitted Against Travel Agencies

Airlines are the perfect examples of the owner not having much of control over the distribution of its product, i.e. the seats. For any airlines to operate profitably it is important that its seat distribution is done highly effectively and to maximize the revenues. The elaborate mechanism of yield management basically attempts to ensure that every flight has full occupancy and at rates which ensure maximum levels of profitability. And, achieving these two practically contradictory tasks is not easy. The network carriers, unlike the low-cost carriers, do not offer cheap air tickets on all seats but have a mix of prices depending on the level of services offered in different classes of their seating. Phase 1: Advantage Travel Agencies It is an utterly basic fact that every unsold seat means loss of revenue. And, the travel agencies have always played a big part in giving the airlines the customers from different geographical locations for their flights occupancy. There have been two significant developments which have led to the distribution of seats being more in control of the travel agencies than the airlines due to which the latter have a weak negotiating power as compared to the former. The first is the advent of the internet based travel agency operations and their variety of travel product offerings. And, the second is the emergence of the low cost carriers which have given the network carriers a run for their money on short-haul routes. Travel agencies have always been significant players for the seat allocation of the airlines. However, with the emergence of online travel agencies, seat distribution has become more skewed in favour of these agencies which take due advantage of the need of airlines of selling their seats optimally. Being highly customer-centric and wide customer-base intermediaries, these agencies are in a better negotiating position to offer the customer cheap air tickets. The second factor which has altered the seat distribution has been the emergence of low cost carriers which go with the minimalist price tag on their short-haul domestic or international flights. By keeping a very simple price structure, these have reduced economy class market for the network carriers. Phase 2: Fight-back By The Airlines Of late, airlines have started to pull back the handle from the travel agencies by working on multiple fronts in order to blunt their edge. The airlines have begun their internet based ticketing operations and also begun to offer other travel products such as hotels and vacation packages to the customers. Further, they have either eliminated their commission to travel agencies or reduced these considerably. With the yield management getting mature and the low cost-carriers running away with their customers, the focus of the major airlines has shifted to cutting down of the costs to provide the cheap air tickets. This is in response to the low-cost carrier challenge. Thus, the tussle over the distribution of seats continues.