So the Australian Competition and Consumer Commission – which has no problem with seemingly synchronised petrol price rises among all major brands – has accused Flight Centre of airfare price fixing because it asked Singapore Airlines, Malaysia Airlines and Emirates to give it access to their cheapest fares: a standard travel business practice that provides price parity across the different sales channels.
If proved, these charges, to be heard in the Federal Court of Australia, have the capacity to tear the whole travel distribution chain apart. Not just in Australia but globally.
There’s not a section of the travel industry that doesn’t engage in uniform pricing. Just look at travel wholesaling. The whole unsustainable premise of that particular business model is that wholesalers and tour operators do not undercut or directly compete with the retailers who sell their product. In other words, they sell product for the same price. Price fixing?
Now let’s have a look at hotels and Online Travel Agents, who are engaging in this kind of behaviour every single day. They agree not to beat each other on price. It is in their distribution contracts and is a significant reason major hotel brands like Accor, IHG, Westin etc are not pushing product through the Daily Deals sites.
These contractual arrangements with the likes of Expedia, Wotif, Orbitz and Priceline gives each side marketing certainty, allowing the hotels to offer a “Best Rate Guarantee” while ensuring the agents can embark on marketing campaigns knowing they are nor being undercut by suppliers.
If either side breaks this agreement, then inventory is pulled and there’s some corporate push and shove. We’ve seen it happen a number of times. A good example is Expedia refusing to sell Accor product during a sale of heavily discounted product at rates not available to retailers.
Is that the act of a price fixer? The distributor wanted full access to the sale rates which would in fact have broadened their distribution, making cheaper rooms more widely available.
It could be argued the same thing is happening with Flight Centre and the airlines. I mean who gives a stuff about their commission – an issue raised by the ACCC – provided the fare you buy at Flight Centre is competitively priced, which it inevitably is.
That’s why the Flight Centre – “Cheap Flights, Holidays and Travel Deals” – has done so well. Exhibit A: Record profit in the six months to Dec 31, 2011.
Customers shop there at Flight Centre for bargains and feel they are getting them. Same with the OTAs. As for suppliers, they understandably want to reduce distribution costs but at the same time need multi-channel to sell their rooms or beds.
Distribution comes at a cost. If suppliers want extended distribution, they have pay it or go direct to the consumer like the Low Cost Carriers.
This system has been in place forever – and across all industries. Think retail. Many suppliers don’t even sell direct to consumers, just through retailers which pay a wholesale price and mark it up.
Anyway, this is an article which could go on forever – such an interesting, complex subject – but I’ll end it now with this anecdote: On Friday I bought a fare to Singapore with Qantas for travel tomorrow (just four days in advance) that cost about $950.
That’s hundreds less than I would have paid a few years ago. I saw the same rate on Jetabroad.com.au, including fees taxes etc. Travel (ex-Australia) has never been cheaper, whether you buy direct from the supplier or through a travel agents. And that’s why outbound is booming.
Market forces, baby, market forces.