Now Airlines want to be in travel business

It has been reported in Economic Times that Kingfisher, SpiceJet and Indigo want to launch a travel portal in order to save on commission. Somehow, it is difficult for me to understand the obsession of airlines to save on travel agent’s commission as if that is the primary reason for the troubles of airlines. It seems that all the airlines think that they will be all become profitable just by eliminating the travel agent’s and travel portal’s commission.

I do not think that travel agents or travel portal’s commission is the problem. The problem is two-fold. First, the problem lies with the airlines business itself. It is a highly risky business with more ups and downs than any other industry. I am actually surprised that most industry participants have not understood the risky structure of the airline industry. When I was living in the US, airlines used to go into bankruptcy every now and then. Also, if you look at the US airline industry, one gets a feeing that they are almost perpetually either consolidating or filing for bankruptcy or opening new airlines. Second, the airlines should position themselves like Paramount has done and not try to be everything to everybody. Kingfisher ran into problems because it diluted its positioning with acquisition of Air Deccan. Airlines have to be strong financially to weather the bad times. The funding structure of the airlines should be solid.

Opening a travel portal is not a good option for Airlines. Next they would want to start flight catering and so on and so forth. If they feel that travel portals can help, they can certainly buy a stake in a travel portal. For example, US auto companies had stake in rental car companies.

Avinash Narula

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