The Future of Mobile for Travel Providers

I spoke to an airline industry group last month about the future of social media as a revenue stream. Most industry folks know that they have to have a presence on Twitter, on Facebook, some of them are starting Pinterest pages (I’m still not on Pinterest). They have mobile apps. But one of the best quotes of the weekend from another event I spoke at back in March was, “An app is not an online strategy.”

One of the folks on the panel was a top executive from LivingSocial, and he didn’t like one of the first points I made. So far travel providers have seen online distribution channels as a means to segment their customers, offering deep discounts to Twitter followers or Facebook fans, dumping excess inventory to a minority of engaged customers while not diluting your regular distribution channels. That is not the way of the future.

A bit over a decade ago, Priceline was worth more than all of the major US airlines combined. The single most valuable asset that Delta held was Priceline warrants. The company which was unloading airline distressed inventory was worth more than the airlines themselves.

More recently we’ve seen flash sales, I grabbed a Facebook deal last summer at the Intercontinental Montelucia for $75 a night and had one of my favorite upgrades, a house with a backyard facing a mountain.

One of the most famous recent social media offerings was from United, ‘Twares’ were Twitter fares with deep discounts for short durations. Nicholas Kralev, moderating the panel, suggested that these went away because of United’s contracts with global distribution systems, they weren’t actually allowed to offer fares below what were offered through the GDSes.

But online flash sales go back much farther, Continental’s were CO.O.L. specials for COntinental OnLine. I remember booking US Airways e-savers with Saturday departures and Tuesday returns back in late 1997.

The thing is, that eventually most customers are going to be online and online and social won’t be distinguishing characteristics to use to segment distressed inventory.

The future isn’t about distressed inventory in any case. There will always be opportunities to sell of excess inventory at the margin, and attempts to segregate the market in order to do so without charging less money to customers who would willingly pay ‘regular price’.

But the promise of mobile isn’t about making more sales than the airlines currently offer — it’s actually about:

• Reducing distribution costs
  
• Avoiding erosion of existing sales

It’s odd to talk about major technology investments as reducing costs, though IT folks do so all the time. I’m nearly always skeptical. IT projects can be very expensive. They almost always cost more than you think they will. And savings often turn out to be ethereal.

But it’s the same push that led airlines to develop their online booking services. And it’s the same push that led most hotel chains to restrict elite status benefits, or at least earning credit towards status, to bookings made through their own (or at least a limited set of outside) channels.

Bookings made through online travel agencies can be costly. Hotel chains pay 20% – 30% to Expedia and to Orbitz. So it’s natural to want to see those bookings made directly, at the same price.

A mobile app doesn’t necessarily make someone buy a hotel night or an airplane ticket they wouldn’t have otherwise. But there’s certainly a branding effect similar to carrying a credit card in a consumer’s wallet. Getting wallet share, presence of mind, and real estate on a customer’s phone increases the likelihood that you’ll get their business.

And if the customer is used to doing business seamlessly on that app, it’s how they’ll ultimately make their bookings as well, at a lower cost to the travel provider.

Which is why even more than a functional app is necessary, an app needs to be indispensable, it’s the ability to not just check in online and use mobile boarding passes, not just to see schedules but also to see real time availability… to update seat assignments, process upgrade requests, see one’s spot on the upgrade list. Imagine rebooking oneself online, submitting a complaint or compliment about service, imagine even incentivizing use of an app through bonus points or upgrade priority. Most airlines used to offer bonus points for online booking when they were trying to train consumers to book through that channel.

At the same time travel providers chase lower distribution costs, they have defensive reasons for investing in solid mobile products.

US Airways didn’t decide to launch its inflight wireless product because they thought they would make money on it. On the contrary, they expect to lose money. It’s expensive to install, and few airlines (other than Virgin America) have uptake of more than a few percentage points of their flyers. But they started to see customers booking away from the airline because they didn’t offer wireless internet. It’s an investment they realized they had to make or else they would lose significant ticket sales.

So too with mobile strategy, an airline has to be engaged where their customers are. Or else their customers won’t relate to them, won’t even realize they’re an option, or won’t think much of their product.

A social strategy is about protecting market share and driving down distribution costs much more than dumping excess inventory. And it’s also about building brand loyalty. It’s an extension of the fundamental idea of a frequent flyer program, differentiating what is most often otherwise seen as a commodity product.

Given that, expect to see more and more investment from travel providers in the social space, in part because they know they are supposed to do it and because their competitors do it, but without really understanding why they’re doing it.

And as far as apps go, the advice is simple: make them so good that they are indispensable, make sure your customers know about them, and incentivize them to use the app. You’ll gain a presence on their most personal (?) device and lower distribution costs, at least once you make it easy to act as a cash register as well. And you’ll discourage your customers from booking away from you.