Lufthansa Group redirects commercial strategy

• Airlines differentiate booking channels
• Modular fare packages and new customised offers
• A per ticket earnings increase to be reinforced by direct booking methods
• Development of a new booking channel to create direct link with sales partners 

The airlines of the Lufthansa Group – Lufthansa, Austrian Airlines, Brussels Airlines and SWISS –will increase their profitability by redirecting their commercial strategy. This new commercial strategy is to ensure that, in future, a greater portion of the revenue will be earned from flight operations; the actual area of service to the customer.

Lars Redeligx, Chief Commercial Officer (CCO) of Brussels Airlines, says: “The percentage of revenue generated from the sale of flight tickets is dwindling. Compared to other service and system partners reporting higher margins and returns, airlines as the actual providers of flights are earning ever less. With the realignment of our distribution strategy, we wish to counteract this trend."

In the future, the airlines will therefore offer their services on a more flexible and modular basis with individualised price options and extra services. The new price concepts, such as the newly introduced travel options of Brussels Airlines (Check&Go, Light&Relax, Flex&Fast, Bizz&Class), enable passengers to select the exact services that meet their requirements(*). Based on the principle “you only pay for the services you want”, different bundles will offer a variety of services. More customised services will better reflect customers’ preferences.

The new commercial strategy also includes a clear cost differentiation in the various booking channels. At present, the costs for using global distribution systems (GDS) are several times higher than for other booking methods, such as its own website www.brusselsairlines.com. In total, the GDS costs amount to a three-digit million euro amount each year for the Lufthansa Group. These services, however, are primarily used by travel agencies. A large number of services are paid by the Lufthansa Group carriers but are only partly used by them. Among others, the GDS services comprise functionalities which offer many extra services in addition to the basic features of booking, processing and supplying flight tickets. Examples include the option of combining and booking of world-wide, multi-airline flight offers, as well as an integrated booking and invoice processing.

From 1 September 2015 onward, the Lufthansa Group airlines will therefore include a surcharge, the “Distribution Cost Charge” (DCC), of EUR 16 for every ticket issued using a GDS. The new charge will not be applied to flight tickets purchased using own booking channels. This predominately includes the airlines’ websites (www.brusselsairlines.com, www.LH.com, www.swiss.com, www.austrian.com) as well as the call centre and ticket counter at the airports. Travel agencies will also be able to book tickets without the DCC using the online portal at www.LHGroup-agent.com. Customers of Lufthansa Group Airlines can of course count on continued fare transparency. The display of the ticket will always show the final fare.

Innovative extra services and enhanced price options require suitable sales technology. The technology of our existing  sales systems’  cannot adequately display the individual offers, with their variety of product components. The Lufthansa Group’s airlines are therefore in the process of developing a new booking method to enable sales partners to connect to their IT systems directly based on the new IATA data standard NDC (New Distribution Capability). The first NDC pilot project is currently being tested at Swiss.

CCO Lars Redeligx explains: “Airlines wish to market their innovative offerings across all channels as it is common in other industries, but the current structures and contracts do not allow us to do so. With our new sales strategy, we want to put an end to this and provide our customers with the necessary tailored benefits and services they are looking for and wherever they wish to find them”.

 

(*)As of summer 2015, Lufthansa, Austrian and SWISS introduce also a new fare concept on European routes.