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Airline Retail Portals
7 May 2001

Supplier owned online retailers are making front page headlines, particularly the airline owned portals of OTP in Europe and Orbitz in the US. Agents fear that airlines could operate a cartel, supplying ultra-low rates to their own retail ventures. Are they right to be frightened or should they really be laughing as the airlines spend millions attempting to play agents at their own game?

These online portals are separate business entities, positioned as independent retailers, ostensibly competing on an even playing field with other online travel agents. So on Orbitz' site one can read this statement on the About Us page, "United Airlines, Delta Air Lines, Continental Airlines, Northwest Airlines and American Airlines came together with a mission." No, it was not to put as many travel agents out of business as possible. Reading on, "The airlines shared a vision of the perfect travel site, one focused on the consumer. A site that would provide comprehensive and unbiased travel information." So there is nothing new there, then.

But surely the suppliers who own these new online retailers will provide them with some means of competitive advantage? They could provide lower fares, better availability or perhaps softer benefits such as slicker systems integration or subsidised personnel.

However, I am not convinced that these new online retailers will gain anything worthwhile from their owners. Firstly, these new businesses will be judged by their own profitability, as must their airline owners. Surely no airline is going to offer lower rates to its jointly owned retail business at the expense of its own profitability. Not that they would be allowed to. US and European anti-competitive legislation would put a stop to that straight away. The same legislation would also cover the situation of airlines providing preferential seat availability that is denied to other retailers.

The airlines could enter into joint ventures with their retailers to provide slicker systems integration. This would allow them to by-pass the GDSs and so save the airlines money here. However, GDSs reward high volume retailers with incentive payments, so this would be reducing the profitability of these airline-owned retail portals whilst requiring them to tackle immensely complex and costly systems integration projects.

Would the airlines second their personnel to a jointly owned retail venture, or provide office space and other resources? Perhaps during the start-up phase, but not in the longer term. It would simply be too expensive.

So where does this leave OTP, Orbitz and other supplier owned retailers? They are new, start-up businesses, with all the recruitment and infrastructure set-up headaches that this entails. They have no brand recognition. Who has heard of Orbitz, OTP? Their brands do not compare to ebookers or Expedia. They have no experience of operating a retail travel business. Thanks to anti-competition policy they have no cost advantages and, from what we have seen of Orbitz and OTP, they have no market, product or service differentiation. 

So what have they got? Well, they do have more than adequate start-up funding from their airline owners. Is this enough? Whoops! There goes another few hundred million dollars down the failed dotcom drain.

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