E-Marketing Air Tickets In China After The Demise Of "3+X"

Since October 1, 2008, when China's aviation industry changed the basis of the agent fee from the CAAC regulated system known as "3+X" to directly negotiated deals between airline and agent, there have been more and more voices for a reform on commission charges.

"3+X" refers to a CAAC fixed 3% commission on sales revenue and "X" determined by the airline as an incentive based on number of tickets sold.

The competition between traditional air ticket agents and the new web-based agents such as Ctrip.com and eLong.com have risen like a raging fire, but this will undoubtedly put the profits of the domestic air ticket industry more clearly in front of the consumers. The popularity of price comparison and travel search websites such Kuxun.com has further stimulated the transparency of air ticket agents' profits. How will these agents seek to survive once the commission fee is canceled? How does each of the major air ticket agents cope with this development trend? China Hospitality News recently interviewed Liu Cheng, the procurement manager of China International Travel Service to get his views on these questions.

Speaking of traditional air ticket agent service, there seem to be more reasons to think of it as a sunset business. When talking about how large air ticket agents will handle the pressure from Ctrip.com and elong, it seems that most of them will respond with "We will develop e-commerce!" When mentioning the cancellation of the commission fee, more air ticket agents say they feel a headache. This is how Liu describes about the situation faced by the traditional air ticket agents in China.

Why Is Traditional Air Ticket Agents E-commerce Business Not So Satisfactory?
Liu believes although large air ticket agents are all busy with e-commerce service, their effort is not well rewarded. The main reasons for this include:

Insufficient Investment and Technology Input. Quite a number of large air ticket agents have an inadequate understanding of e-commerce, so they invested very little in the initial stage in the hope of growing it bit by bit. This has no doubt helped them reduce risks, but at the same time has postponed their effective use of the e-commerce system. What's more, the frequent change of staff makes the development of the e-commerce service incoherent and this has blocked the development of their websites.

Lack of Creativity and Innovation. When e-commerce was in the early stage, traditional air ticket agents regarded it as a virtual platform, so they'd rather open more marketing departments. Because of this, they missed the best opportunity, and when they realized the importance and great potential of e-commerce, it was already too late. As a result, their websites tend to resemble to each other and there is a lack of uniqueness.

Inadequate Promotion. Few websites of traditional air ticket agents have been recognized by consumers. Consumers hope to see more unique e-commerce websites coming out, after all, the products provided by Ctrip.com and elong are limited and can not meet all customers' diverse demands.

Unity of Products. A decade ago each international air ticket could yield at least CNY500 in profit, but it is rare today if an air ticket agent can receive CNY50 profit. Because of this, air ticket agents need to develop diversified business instead of only providing air ticket information on their e-commerce websites.

Service Level Needs to Be Improved. Service level is one of the biggest advantages of Ctrip.com compared with traditional air ticket agents. Ctrip.com owns a whole set of service platforms and it can provide a fast and efficient service for any type of product purchased, while most of the air ticket agents can't do this.

On how much profit an air ticket agent will get following the reform of "3+X"is, Liu says, "They won't earn as much as the commission fee they earn before the reform, however, the reform is, after all, new start for the aviation agent industry, which is really a mess today, when the good and bad are intermingled, and some agents even are doing business with the thought of it's good so long as one consumer is snared." It is likely that in the future the number of aviation agents will decrease year on year.

What are the disadvantages of the websites of traditional air ticket agents?
At the moment, domestic air ticket agents focus their websites on e-commerce. But the e-commerce websites we are referring to here are mainly websites that sell exclusive products or dominant products with some others as accessories. This type of website has become mature. Usually they will have a call center as the background service of their website. Liu Cheng believes even then they still have some limits:

First, there are only a few product providers and their prices are not necessarily the lowest This means a small number of products available on the websites and the providers usually only do well on one or a few service items. For example, if a product provider who signs with Lufthansa bids a price cheaper than others who signed with Lufthana, it will offer extraordinary service in European tours or studying overseas in Germany programs, but it does not mean that the product provider will get good prices from other airlines or can provide cheaper prices for most of the other products.

Second, it's unsuitable for developing sub-agents Products need to be sold in diversified ways: not just through B2C. There are big opportunities on the second-tier agent market. Selling one's own product exclusively or making one's own products dominate the website will hinder sub-agents' enthusiasm for offering and selling products.

Third, the shortcoming of a centralized service concept Call centers are an improvement compared with the previously distributed service, but it is not the highest grade of service concept and it has its own limitations.

Towards a better e-commerce website
Since the self-produced and self-marketed e-commerce websites have these shortcomings, then what kind of e-commerce websites can make up for this inadequacy? Liu says that this form of e-commerce website will pave way for creating an e-commerce selling platform, which can solve the shortcomings above.

The platform is open. This gives equal opportunity for each agent and travel agency to compete and provides them with the opportunity to sell the best goods on the platform. Of course, consumers will buy whichever high-end travel product or service that has the lowest price.

The platform is neutral. Each agent or travel agency enjoys the same treatment on the platform where there is no dominant vendor so that the competition becomes more equitable.

Distributed centralized service Call centers still need to exist, but their roles lies more on transferring the telephone calls to relevant sales agents to solving problems.

Nowadays, aviation agents have long lost their ability to compete solely with Ctrip.com. They suffer from the lack of an integrated platform. Lui believes that the integrated websites will come in two guises. Firstly GDS and second an e-commerce company like Alibaba. It can be said that if this platform evolves from GDS, this is the most natural. GDS has such advantages as capital, technology and a rallying point, but few agents are taking an interest in it right now. If such a platform is created, it will certainly help GDS to quickly dominate the domestic market and make it as powerful as it needs to be to contend with websites like Ctrip.com and elong. This is conducive for GDS to expand its market share and its profit range.

Finally Lui said that as e-commerce is out of their reach; and they are the group who are most eager to get profit online; agents or so called small agents mostly hope to see the emergence of such a platform. If GDS can do it, it means a start for the GDS to incorporate these small agents.