Sexy and They Know It: Once dull, now dynamic, distribution is becoming central to airline strategic thinking

feb 22“Distribution is not only strategic,” Delta’s marketing chief said in December at a Travelport investor day event. “It’s sexy.”

Once upon a time in the airline business, managing distribution was largely an exercise in cost reduction, acting no different than a farmer with a fatalistic attitude about the price of corn—the market will pay what the market will pay. Nothing sexy about that. In this world, a low-cost carrier could gain a lasting competitive advantage by foregoing distribution via travel agencies and global distribution systems. Those that didn’t go that far nonetheless still focused their efforts on negotiating lower commissions and fees.

Today, however, distribution is about much more. Airlines no longer see themselves like farmers trying to sell a commodity over whose price they have little control. Rather, they fancy themselves like the world’s most glorified retailers—Starbucks, Amazon, Apple and so on—whose products and brand power can command hefty price premiums. Sexy, no?

Distribution platforms, as it turns out, are becoming the foundations for airlines to achieve a wide array of marketing goals, like product differentiation versus rivals, recognizing and rewarding high-value customers, promoting new products and services, fine-tuning market segmentation and recognizing that different customers value different things. Distribution is even becoming a key tool in fighting battles against competitors, as American discussed in its latest earnings presentation—enacting a new anti-ultra LCC strategy, it said, is “more about distribution, probably, than anything else.” No longer are airlines just shipping off their raw schedule and fare data to be aggregated in global distribution systems, so that travel agents can view the data as if they were looking at corn prices at the mercantile exchange—how boring! As Delta likes to say: “A seat is not just a seat.”

But it’s through their own distribution channels, rather than outside channels, that airlines have made their biggest strides so far. On their websites, most importantly—but also via their call centers, airport kiosks and emerging mobile platforms—carriers are removing bottlenecks in their ability to communicate and foster relationships with customers of all types, who are traveling for many different reasons and with greatly varying sensitivity to price. Airline efforts to do so, in essence, boil down to three key innovations: fare branding, personalization and what you might call showcasing.

Airlines are no longer just selling tickets, priced at this or that fare, with these and those fare rules. Instead, they’ve evolved into selling branded products, each offering different amenities—or lack thereof. The Air Canada “Flex” product on domestic routes, for example, provides an…

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