Channels of Distribution

Historically, about 90% of the tickets sold by airlines have been processed through third-party retailers who are awarded a commission of about 10% of the ticket price. These transactions have been conducted through computer reservation systems developed by the airlines themselves. More recently, ticket sales have migrated to the internet using both independently owned and airline-owned online travel services. In order for this to work, however, the airlines have had to upload their constantly changing fare structures as well as pay a commission on each ticket sold.

Today, most airlines also sell their tickets online directly from their own websites at slightly reduced prices. If they issue an electronic ticket to the customerwhere no actual paper ticket is issuedthere is an even lower cost of ticketing, since the transaction is completed through computer links at the airport without additional paper trails. As the simulation opens, your company is still selling most of its tickets through third parties, such as online travel agencies, traditional travel agents, and corporate travel accounts. You recognize that new customers are less likely to buy tickets through these channels, but direct sales through your website have not been as strong as expected. That may be because the site is difficult to use and has not been updated for mobile access. You must decide whether to change the way you are handling distribution of tickets. In considering your strategy, you must take into account that focusing on direct sales may be perceived by your third-party partners as an attempt to undercut them, which could hurt sales in the short run. You may change your mechanism for ticket sales as follows:

1. Maintain your existing website and third-party relationships. Offer a 4% discount on electronic tickets, which will decrease your cost of operations slightly.

2. Join several consortiums for online ticket sales while maintaining your website. Commissions to the consortiums are 3% of sales along with the possibility that you will generate some new demand. The consortium, which has the advantage of operating FOR INSTRUCTOR USE ONLY 59 several independent sites, would charge 3% to you in commission and give the customer a 2 to 5% discount.

3. Update your website to provide better access for all devices and invest in search engine marketing to improve traffic. You will have a one-time $20,000 start-up cost but no commissions will need to be paid on tickets sold through the website. Discount the tickets 2 to 5% to the customers that purchase directly from you.

4. To avoid the expense of updating your website, contract with owners of a large, nationally known site to sell tickets. Their ability to get you an updated internet presence within 2 weeks has great appeal. Sales should increase with such a well-known site. There is no up-front cost, but they would charge you 5% for each ticket sold and would also sell the tickets at a 2 to 5% discount.

5. Make no changes to your distribution system