Issue 6: Special Conference Edition

Gulf Air eyes selling a major chunk of its offerings directly

Interview with Lars Denlew, head – distribution and e-commerce, Gulf Air

Gulf Air is planning a major upgrade of its online booking capabilities, both in terms of usability and content. The airline is currently involved in the final stages of selecting its next generation booking engine.

Lars Denlew, head – distribution and e-commerce, Gulf Air says, “Like all airlines by now we have “a dream” to be able to sell a much larger share of our products directly to customers, that is both leisure and business travellers. To do that you need to have both a usability of your website that is outstanding as well as a content that at all times are at least as good as a customer can find via another provider selling Gulf Air’s products.”

On the new project, he says, “The only advantage as I see it is that we can learn from so many other airlines mistakes and by so making a quicker jump when we do. We also have advantages in generic technology developments such as e-ticket progress.”

Gulf Air, according to Denlew, has had enormous challenges, like most traditional airlines, both in terms of technology, product structure and sales structures.

“The challenges on the technology side are much harder than anybody would think, but to transform traditional sales via an agent to the web takes a lot,” he says. “The IT providers in this space are also somewhat a disappointment as very few think about the “whole” picture. Just to put a booking engine out on the web and believe that a customer will buy in the old fashioned way, will not work. I think many airlines from own experience, have realized this. It takes so much in a total concept re-think as well as re-engineering of the back-end processes that it is no wonder it has taken both time and money for many others.”

Denlew, one of the speakers during the Airline Information’s eConference 2006, held in Muscat recently, spoke about distribution, simplification of fare structure and much more. Excerpts from an interview with Airline Information’s Ritesh Gupta.

Ritesh Gupta: How do you think your stint as head of distribution and e-commerce, Gulf Air has evolved over the last year or so?

Lars Denlew: I do believe the focus has changed somewhat from handling of the traditional forms of distribution, mainly the GDSs, towards the online sales, specially the direct channels. I do also believe this is nothing special to Gulf Air but more a generic industry trend since years. What I think might be new is that the distribution mix is more important and how you can and must distribute via all channels and how to maximize your cost/benefit from the various channels. Basically a traditional channel management to use a terminology from other businesses.

Ritesh Gupta: How do you assess the current distribution and e-commerce operations of your airline vis-a-vis others in the region? Kindly share info on recent initiatives?

Lars Denlew: I do believe Gulf Air is somewhat at the forefront if you look at the traditional network carriers in the region. We have a clear strategy to significantly improve our own direct online sales through a number of initiatives. It takes more than just a booking engine online - where we probably have the weakest link right now - but more of a total mentality shift.

Change of pricing policies, change of fulfilment processes, and change of internal processes on how we can support customers who book directly online with us. We have done a lot of the back-end or basic work that I think many airlines have realised after they embarked to increase direct e-business. On the 3rd party e-commerce initiatives we also here have clearly targeted online travel agencies as the future for leisure travel distribution. We are willing do give them a better deal if they also offer us a lower distribution cost on the bottom line.

In addition, I think we are active in markets where we have very mixed customer groups, all need to be provided for through different channels. As an example we have the most savvy Gulf, European or American customers used to buying online in contrast to the labor or ethnic customers that hardly still have seen a computer or an airplane. There are for sure challenges.

Ritesh Gupta: In relatively mature markets, there have been references to flight being a commodity now. How do you see the situation from Gulf Air's perspective considering the Middle East aviation market?

Lars Denlew: Air travel is a commodity by the end of the day. Depending on your travel needs they need to contain larger amounts of service and add-on parts. For the straight forward business travel in the region, yes, this will become more and more a straight forward commodity.

Focus will be on the easiness of travel (easy to buy and easy to handle) and the competition in this space will increase as more and more entrants will compete for this customer. Some of the new comers will become more successful, some won’t. The easy, un-complex travel is the easiest target for the “LCCs”.

We as traditional network carriers will have to learn to differentiate and become better for those passengers and we need to do it fast. We still though have a large amount of more complex travel that is more difficult to shift to e-commerce and I believe that is the challenge, to be able to accommodate all needs in one airline. This is what experiences from other “more mature” markets have shown, we need to be good at all things, all at the same time. Bottom line is that competition and commoditization of air travel means the customer will get what he pays for.

Ritesh Gupta: Airlines are trying to simplify their fare structure and make pricing more transparent. How is Gulf Air currently placed on this issue?

Lars Denlew: This is one of the key factors in only sales, the fares will be much more transparent and much more dynamic. There will also most probably mean more fares rather than fewer. But the fares will be more driven by actual demand and will be more complex for us to handle. A true need for O&D revenue management to avoid sub-optimisations that lead to a revenue drain is for example a must. There is a clear risk of yield drop when the fares get more and more transparent and competition gets tougher. We have already started to revamp our pricing structures and this is a very complex and careful work.

Ritesh Gupta: Traditionally large and full service carriers have been using mainframe systems supplied by airline solutions providers which at times are restrictive in terms of customization or integration. Systems offered for LCC operations are more flexible and are often built from an online distribution point of view. What do you think about this?

Lars Denlew: Absolutely. But the systems of the LCCs also have clear limitations. It all depends on your business needs and the simple solutions will fit if you have a simple business process (LCC model). I think also here history shows that a LCC system very seldom fits a traditional airline as we want to do so much more than a LCC want.

There are also a great deal of LCCs that today use a hybrid of a traditional system environment to be able to do more - Southwest and America West to mention a few. The traditional systems are also getting easier and easier to develop and even if the “Next Gen” still is a “power point” product if you ask me, they will slowly change pieces of the traditional systems and in the end we will have the advantages of both worlds.

Pricing systems and shopping platforms are one of the most important parts that needs to evolve and that we already have today. The traditional systems offer many advantages when it comes to customer handling and interline capabilities, vital for our business. I want basically best of both breeds.

Ritesh Gupta: What factors do you take into consideration before opting for an online intermediary? How is your relationship with traditional and online agents evolving?

Lars Denlew: I do believe the online travel agencies will grow, especially in our region, and I foresee some major developments in this space.

They will soon take a large part of leisure travel along side with direct sales from the airlines. They offer a simpler and cheaper sales option that the traditional travel agencies as they do business “book and pay now”. They also have strengths in the dynamic packaging of travel and they will become even better at that with the purchasing power they have. But they have to be good as they compete with the traveller himself, a customer that is getting more and more savvy of bundling his own travel by shopping around. That is the core strength of the internet. It puts the customer in the driver seat.

Traditional agents will become more and more business focused as this is where they can charge for their services and this will for sure also be needed in the future. Complex travel is still difficult to handle online and direct as it takes skills and knowledge that is hard to transform that to a computer. They also offer value add services to business clients in terms of total travel management. It is as I mentioned before a matter for us as airlines to deal with all, all with their specific needs and customer target. Everybody needs however to bring value in the end, that is very important to remember. And that value creation will be judged by the customer in the end. Not all agencies will be able to do all, specialisation is needed.

Ritesh Gupta: On the web it is much easier to make price comparisons and therefore you lose the direct contact with the customer. How do you ensure loyalty?

Lars Denlew: True, loyalty comes from recognition of me as a customer and by giving the customer value for being loyal. This takes more than miles in a frequent flyer system and this is one of the most difficult challenges for our industry. However brand recognition is a challenge already today. That is why we have such focus on that in the airline industry. Service delivery and consistency is also very important. A customer when having a choice will choose value for money.

Ritesh Gupta: How important is to align PPC and SEO strategies, plus, integrating online and offline marketing campaigns to ensure offline generated traffic is funnelled through your own site?

Lars Denlew: Internet is a different media and you need to handle that in the marketing mix. I am not to convinced yet that it is value for money and the SEOs do not work as good as you would expect. They have to measured very carefully just like any marketing. Traditional marketing is still needed but you can drive spontaneous business also via Internet marketing. The best way to drive business to the own website is still to have unique offerings and eventually the price guarantees type of offerings. Initially the first later the second. Confidence is important among the customer.

Ritesh Gupta: Lastly, how do you related the European market with Middle East? How has been the transition for your professionally?

Lars Denlew: Very exciting and very dynamic! I personally like it very much. It is great part of the world with an enormous potential. I believe we will very soon catch up with Europe in some senses in others not. This has all to do with mega trends (educational level, technology access, politics, globalization, general infrastructure, etc). We still come from a rather low base and the only way is up as I see it!

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Senior Publication Staff:

Frank Socha - Chief Technical Advisor/Editor

Roger Williams - Creative Director/Associate Editor

Ritesh Gupta - Senior Correspondent

Christopher Staab - Business Development & Advertising

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