Rate parity for hotels has been a favourite topic that generates a lot of questions, excitement and gets plenty of play in the media. However, the same conversation for airlines rarely gets any interest.
According to Phocuswright research, while third-party penetration is not as high as it is hotels, the issue of parity is still gaining momentum in airlines, impacting both brand reputation and revenue.
Do we really understand where parity fails?
Before we delve further into the problem of rate and availability parity, we first need to understand what gives rise to disparity.
To put it simply, If an airline has distributed fares to a channel to sell on its behalf, there is an expectation from the channel to maintain parity of fares.
However, in quite a few cases, these expectation fails, introducing disparity into the system when a search is made from a particular IP, resulting in geo-targeted fares; a demand partner includes a discount for a particular itinerary to increase odds of conversion, or an aggregator/consolidator is selling seats purchased in bulk at a discount.
While certain partners might have the latitude to sell discounted seats as part of a bundled itinerary, it’s rare that these contracts to allow for standalone bookings.
This is why certain demand partners and consolidators can wreak havoc on an airline’s effort to keep fares consistent across channels and provide brand assurance
However, in an industry with constrained capacity and fixed schedules, does rate parity really matter.
Surely there’s less of an issue than with hotels, which face fierce demand across a local market? As we’ll see, rate parity has both subtle and obvious impacts on the traveller’s decision process.
Why rate disparity matters for airlines
So you are not in parity with your partners, but are you really losing substantial revenue? The answer to that question is a four-fold ‘Yes’. For every fare that is not in parity on any OND pair, there are four losses to an airline
- Loss 1: Direct Bookings
- Loss 2: Traveller data
- Loss 3: Trust of the Traveller
- Loss 4: Margin Loss
The first loss is most obvious: The new age traveller who is travelling more, always looks for lower fares and better deals. There are certain exceptions to this, such as business travellers motivated by loyalty perks.
However, in the era of metasearch and declining corporate profits, this maxim largely holds: if a lower fare lands higher in the search results, it’s the one that usually converts.
Recent deployments of parity solutions suggest that addressing these discrepancies can directly increase direct bookings by 1.5%.
The problem is further compounded by our second loss, the loss of traveller data. This loss makes it difficult for airlines to connect with the traveller and understand their preferences as the data gets captured by the third party partner.
Without direct access, the airline has limited capabilities to understand the traveller needs and upsell as effectively in advance of the trip.
It cannot use the data to segment customers and offer tailored offers in the long-term. It cannot sell hotels or attach other ancillaries that incrementally make a more profitable passenger.
Instead, these strategic revenue management opportunities are ceded to the third-party that won the booking.
Thirdly, the airline loses trust. Moreover, trust is intimately tied to reputation -- it's a very hard thing to regain in today’s world of fluid loyalty.
“With millennials, losing trust is even riskier. If they see 10%, or even 5%, cheaper through certain demand partners or metasearch engine, the chances of returning to the airline’s brand site reduce drastically.
As Millennials start to have less loyalty towards a brand, they will always go towards someone who will have a better offer.”
With the advent of AI and voice-enabled assistants, travellers are now not looking at screens any more.
More travellers are asking their devices for recommendations making it more important for brands to take parity seriously, because the devices will only push the top results and if you ‘the brand’ are not on top, your brand site will start losing more direct bookings, and therefore more data and invariably become redundant.
Without this visibility, airlines have fewer opportunities to convert lookers to bookers. This can have some major trickle-down effects, as airlines struggle to meet revenue targets while being undercut by contract-bound resellers who buy in bulk.
Forward-looking airlines are aware of these challenges and are preparing for the way the traveller is changing its inspiration, which is why leaders like Lufthansa, who focus heavily on customer centricity and quality focus as one of the strategic action areas are circumspect about rate disparity and are already working with RateGain to address it.
Finally, airlines see increased distribution costs when fares are out of parity. When considering the cost as far as investing in technology, the cost of direct distribution via an airline’s website costs around $1 to $3 per booking.
That jumps up to around $5 to $7 for GDS bookings, which has a higher cost because the GDS takes its cut while also paying the negotiated commission back to the agency that sold the ticket.
If a fare is bookable on a third-party at a lower rate than it should be, the airline increases the relative cost of its distribution via the third-party channels.
Tricks of the trade
The challenge with demand partners is that a few maverick ones are adept at translating lower fares into bookings. These travel sites come and go at a breakneck pace; some even go live and then disappear after only a week.
These demand sites create problems for airlines as well as harm the relationship between airlines and other demand partners by deploying a variety of tricks to unload discount inventory profitably on unaware travellers
One of the most annoying examples of this is when searching for a particular itinerary; a maverick demand partner uses fake flight numbers to offer lower-than-normal fares.
To illustrate, let’s say Flight A123 leaves at 9AM. However, the actual flight flying at 9AM is A234. Flight A123 is listed at a cheaper rate but doesn’t match an actual flight -- so automated systems checking for parity wouldn’t flag the violation.
Once a traveller selects this itinerary and books it, the actual flight number A234 replaces the fake flight number 123.
This leads to confusion at the traveller’s and damages the affected airline’s reputation. When a customer sees a lower fare on a third-party channel, rather than brand.com, the traveller starts thinking that an airline’s website does not have the lowest fares.
These false fares encourage non-direct bookings, reducing loyalty and increasing customer acquisition costs for airlines.
How do you achieve success with parity
In a recent search completed, RateGain found a record of 275 parity violations for a single airline consisting of five departure date-return date combinations across six sites, and 100 routes.
The unprecedented scope of these violations demonstrates just how essential parity monitoring is in today’s revenue landscape.
For airlines that want to monitor and control parity, there is a lot that they can learn from industry leaders like Lufthansa that work with RateGain to manage their Parity initiative.
The team is able to identify disparity, get the cost of disparity and then identify which channels are violating parity as well as utilise the additional facility of validating the source of disparity.
This final step is what uncovers the source of the disparity. Airlines can set rules so that actual bookings can be made for specific markets, dates, or other circumstances.
For example, if a rogue demand partner changes only the flight number for the click-through, an actual booking is made. Once a PNR is created, the source of the disparity can be determined from the information associated with the PNR.
The validation allows airlines to examine and create an escalation or terminate relationships with parties that compromise the brand reputation of an airline.
Both passengers and airlines have a layer of protection from unscrupulous actors, which reduces frustrations and increases profitability.
Rate parity helps to close the loop in revenue management. Including this data alongside rate-shopping affords airlines the agility to manage marketing mix and push the right fare to the right customer in real-time while maximising revenue without artificial impediments.