United has been very clear that running an airline post-pandemic is going to be very different than running one before. You can read through earnings transcripts and see CEO Scott Kirby talk about the shifts that the airline has made as it tries to adapt. Though much has been said about the operation, this is something that involves every part of the airline, including the wild world of sales and distribution where so much has been changing around the industry as of late.
Over the years, legacy airlines have increasingly sold more of their tickets directly to consumers. The invention of the internet sparked that change, and airlines were some of the first companies to jump into e-commerce. This was a natural shift, but it was not a complete one. Third-party sales have remained important. Online travel agents are good at filling up the cheap seats when needed, but it’s the corporate and agency relationships that have historically brought in loads of high-yield tickets.
Like American, United believes that there are fundamental changes happening in this world. That being said, United appears to be handling the change in a more cautious way… as of now.
Corporate discount agreements have a volume component to them, and since the pandemic, companies have struggled to reach those volume goals. I believe American said on its most recent earnings call that more than 60 percent of its large contracted corporates are not flying as much as the contracts require. Though I think it’s too early to claim that this is a new normal, it’s certainly the reality today that things are different. Every airline sees this problem, but deciding how to handle it is a different story.
We’ve seen American get very aggressive by slashing corporate deals, dismantling its sales team, pulling back on travel agency offerings, and forcing adoption of NDC for selling tickets. United has taken a more cautious approach.
So far United has done none of those things, but that doesn’t mean the airline never will. I spoke with Chief Commercial Officer Andrew Nocella and SVP Worldwide Sales Doreen Burse, and they both emphasized how active they are being at trying to understand the right way forward. On the one hand, Doreen and her team are talking to their corporate and agency partners regularly, trying to get a real feel for what is happening with their input. On the other hand, they’re also analyzing all the data they can find to see where this is going. There will be no knee-jerk reaction.
Though I couldn’t get specifics on exactly what their private, internal data was saying (I tried), there is plenty of data to be analyzed. American has admittedly given several gifts to other airlines by being so aggressive. Most importantly, by going first, American has made it easier for other airlines like United to see if these cost-saving changes will move market share. If American is able to slash its costs by cutting overhead (employees) and diverting away from traditional GDS bookings to cheaper NDC bookings without losing share, then I can only assume United will be hard-pressed NOT to follow. (And to be clear, neither Andrew nor Doreen said this. This is just an obvious conclusion.)
That being said, these are early days. The great American NDC experiment still hasn’t been fully realized, with shifts to Transpacific and Transatlantic sales channels not yet live. We’re also approaching a summer with very strong demand, and that means that American will have little trouble replacing any lost corporate/agency share with direct sales. But what happens in the fall and winter? Or what happens during the next downturn?
These are all questions that remain to be answered, and that’s why United is paying such close attention both to the data and to its partners. But just because United doesn’t know the right answer yet, that doesn’t mean it’s sitting still.
Like American and Air Canada, United is leaning hard into the future of travel sales using NDC. United, in fact, has just pushed its NDC integration live in Sabre. Unlike American, United hasn’t pulled out any fare content from traditional channels, but that doesn’t mean the pricing is always the same. This is one reason why airlines really want NDC… they can do a lot more with it.
United has talked about how it is using continuous pricing on 40 percent of the tickets it sells. The traditional way of selling tickets has a set number of fare buckets and then a slew of filed fares. For agencies, the GDS does the computing work to determine which fares apply depending upon which buckets are open. Continuous pricing effectively fills in the gaps with potentially endless, granular changes based on demand.
United can use continuous pricing to offer additional fares above and beyond traditional methods through its direct channels, because it has its own pricing engine doing the work. Now with NDC, agencies can sell those fares as well, because it shifts the pricing work from the older GDS tech to United.
This is an additive strategy, it’s about providing more and better options that United can’t offer through traditional channels today while also keeping costs down. And yes, it can mean that fares will be cheaper through third parties. It also means third party fares can match what United offers directly today. That’s the kind of move that United can make without looking at reams of data. This creates a real competitive opportunity that’s harder for other airlines to match.
The idea for United, as is the case for all airlines adopting NDC, is that it wants more control over what gets sold through any channel. United is the one flying the airplanes and seeling those seats, so there’s nothing wrong with that. But United also realizes that the tools aren’t fully ready to handle a wholesale transition.
One thing United certainly isn’t doing right now is slashing its staff or cutting loose partners. With the jury still out on whether American is going to make this work or not, United seems content gathering data, sitting on the sidelines, and waiting for a more complete picture to appear before it makes any controversial moves. In the meantime, it’ll continue plugging along with high impact moves that aren’t embroiled in controversy.