This report will evaluate the current marketing environment of the airline industry in Europe. This will involve looking into different area of the airline industry such as deregulation and open skies, current economic conditions, distribution channels, pricing and revenue management. It has been proved that the airline industry is probably one of the most competitive and complex industry in the world. According to Mintel report (2009) in the past decade, air travel has grown by 7% per year. Travel for both business and leisure purposes grew strongly worldwide. Scheduled airlines carried 1.5 billion passengers last year. In the leisure market, the availability of large aircraft such as the Boeing 747 made it convenient and affordable for people to travel further to new and exotic destinations.
In all areas of marketing links must be made between the customer and the product. These links are known as distribution channels. Airlines use a variety of these channels. All of them are giving rise to particularly intense debate at the present time, because the different channels result in different costs, and because they vary in the extent to which they allow airline to exercise proper and necessary control of the channel. S, Shaw (Airline Marketing & Management, Fifth Edition, Page 194).
Global Distribution Systems (GDSs)
It’s impossible to talk about distribution channel in the airline industry without mentioning GDSs. For nearly twenty years, the subject of Global Distribution Systems has been a controversial one in the airline industry, and it remains so today. S, Shaw (Airline Marketing & Management, Fifth Edition, Page 204).
Until the early 1970s, contact between airlines and their distribution outlets was mainly by telephone, this was both time consuming and costly and became unsustainable as the industry grew. As the 1970s preceded, the first, pioneering carries set out to automate airline/travel agency contact. In order to do so, direct links were provided from each agency location into the airline’s reservations computer. Instead of phoning, agents could use the keyboard of Visual Display Unit to make bookings direct with the airline concerned. Besides saving a great deal of time, this also gave agent visual confirmation that required reservation had been made.
In the old, regulated environment, European airlines relied on external channels (travel agents, consolidators, tour operators) to distribute up to 90 percent of tickets. Distribution via these channels typically cost an airline 17 to 20 percent of the ticket price, accounted for by travel agency commissions (including bonus "overrides"), computer reservation company booking fees, credit card fees, and the airline’s own costs (such as its salesforce). Since then, CRS technology and economics have changed a lot: thanks to the development of alternative distribution channels, such as the airlines' Internet websites or their call centres, consumers have nowadays access to a multiplicity of information and booking channels for air transport services. About 40% of all airline tickets in the EU are booked via alternative channels and about 60% via travel agents and CRSs.
Bookings made via the major global distribution systems (GDS) accounted for 64% of all airline passenger revenue in the U.S. in 2008 for U.S. point-of-sale transactions, but the figure has dropped below 50% in Europe, according to (Mintel report realised 2008) in the size, role and value of GDSs in travel distribution. The decline in Europe has been sharper, falling from 56% in 2006 and 51% in 2007 to 47% in 2008.The decline is attributable, in large part, to the rapid growth of low-cost carriers, such as Ryanair, that rely exclusively or primarily on direct bookings. 69% of the nearly €18 billion in air travel sold by European LCCs in 2008 was booked via their own Web sites....