Carriers make inflated claims of distribution costs, a study has found.
Airline claims that increased direct distribution will slash their cost of sales are pulled apart by an ‘Airline Distribution Costs’ report published this week.
The report by aviation consultancy Infrata, published on Tuesday, notes: “Airlines claim direct distribution can be up to four times cheaper than indirect . . . [and use this claim] that direct distribution is ‘cheaper’ to support their position to competition authorities and the public. However, no rigorous resting of this assertion is available.”
The study addresses this by offering a typical assessment of the costs of direct sales by a “network carrier” such as British Airways as €2.56 per booking segment.
Infrata’s estimate of the ‘true cost’ of direct distribution by the same carrier is €12.56 per segment, much closer to the cost of sale through a GDS (€14.21).
It argues: “The total cost to the airline involves numerous non-accounted for categories – [in particular] the airlines ignore how much it costs them to acquire customers.”
They also ignore payment and credit card costs, the costs of customer service, online and offline advertising and marketing, and the costs of technology.
The study concludes: “When costs are properly accounted for, overall channel costs are very similar.”
Despite direct sales enabling carriers to cut GDS costs and agents’ commission, incentive and override payments: “The cost differential is much smaller than airlines contend.”
Indeed, Infrata suggests the greater an airline’s direct distribution, the higher its costs owing to “a substantial increase in average ads’ costs to pull customers from current channels, increased costs of customer service that agents provide, credit costs, fraud costs and the cost of managing customer changes”.
It concludes: “Going direct does not reduce costs; in fact, in several cases it increases costs.”
No doubt some airlines will challenge the findings. But the Infrata estimates flatly contradict the claims of IAG-owned British Airways and Iberia and of the Lufthansa Group.
