This document summarizes research on how airlines can generate incremental revenue from non-core and distant markets (NCDM) through their global distribution system (GDS) presence. The research found that 60% of analyzed airline fare structures restricted sales in NCDM. Adjusting fares to be compatible with sales on partner airlines' tickets in these markets could open new revenue streams without significant costs. The conclusions recommend airlines identify NCDM countries, partner airlines suitable for e-ticketing there, and adjust fare structures to optimize sales in NCDM.

1. Simon Riha, M.Sc., MBA
Head of Business Development, Hahn Air Lines, Germany
Graduate, Emirates Aviation University, UAE
Airfares Global Distribution
Strategy for Higher
Incremental Revenues
from Non-Core and Distant Markets
©2013 Emirates Group. All Rights Reserved.

2. Agenda
1. Introduction: Airline Profitability
2. Incremental Revenues: Non-Core and Distant Markets
3. Explanation: Airline Distribution and NCDM
4. Research: Airfare Distribution in NCDM
5. Literature Review (Airfares)
6. Research: Methodology and Analysis
7. Results of the Research
8. Conclusions and Recommendations

3. 1. A Problem: Airlines’ Profitability

4. Key Issue: Airlines’ Profitability
Tony Tyler (IATA) in his state of the industry for the AGM 2014:
“… But the brutal economic reality is that on revenues of USD
746 billion we will earn an average net margin
of just 2.4% … Every day is still a struggle
to keep revenues ahead of costs. …”

5. Key Issue: Airline Profitability
Airline revenues totaled $4.6
trillion in last decade
Among the world’s fastest
growing industries
However, industry’s best annual profit
margin of the century was 2.9%
Overall result: $16 billion net loss
(Source: IATA, 2012)

6. 2. Incremental Revenues from
Non-Core and Distant Markets

7. Idea: Incremental Revenues from Non-
Core and Distant Markets
Definition of the Non-Core and Distant Markets (NCDM)
NCDM is a country, where a particular airline:
1) Does not operate any flight
2) Does not offer any marketing code share flights
3) Does not have any sales offices nor other representatives
4) Did not make its tickets available to local travel agencies
through the local IATA BSP ticketing system

8. Idea: Incremental Revenues from Non-
Core and Distant Markets
What if there were a simple and efficient method how to
generate new incremental revenues at negligible cost?
What if, for example, Air Malta could be selling additional one
or two million Euros p.a. outside of Europe, in the countries,
where Air Malta does not fly, does not have any
sales offices nor conduct any particular
sales activities?
… This would have reduced its 2012
annual loss by 4-8% from € 25 M down to
€ 23-24 M.

9. 3. Explanation: Airline Distribution for
Non-Core and Distant Markets

10. Explanation:
How to Best Reach the NCDM?

11. Explanation:
Global Distribution Systems (GDS)
Global Distribution Systems (GDS) – the heart of
indirect airline distribution since 1960s
Amadeus, Sabre and Travelport
83% of travel agents in the world, 75% of all
airlines’ bookings
(Source: PhoCusWright, 2009)

12. Explanation:
GDS Booking Work Flow

13. Explanation:
Air Tariff Publishing Company

14. Explanation:
Ticket Issuance to Finish Sale
As per the NCDM definition:
Airlines do not make their own tickets available to local
travel agencies in NCDM
(costs, distance, maintenance, money collection,
repatriation, exchange rates…)
Travel agencies in NCDM can possibly sell the airline on
other airlines’ tickets to conclude the GDS sales transaction
Interline e-ticketing agreements
Alliance partner airlines

15. 4. Research: Airfares and NCDM

16. Research: Airfare Distribution
There may be a problem…
Though airlines may think that they distribute worldwide
and can reach basically all agents thanks to GDS, they
may actually not, for
Airlines tend to neglect the NCDM countries (they are non-
core, distant)
In particular, airlines tend to omit setting their airfares
properly for issuance on other airlines’ tickets in NCDM

17. 5. Literature Review (Airfares)

18. Literature Review:
Brief Exempt
Conclusions from Holloway (2008) – Straight and Level: Practical Airline
Economics, related to the airfare distribution:
Fares must be set for all markets (= including NCDM)
Fares must be competitive and minimally restricted to successfully
compete in today’s market place
In contrast with the past, when the airline environment used to be:
More regulated and restrictive (Governments)
Much less global

19. 6. Research:
Methodology and Analysis

20. Research: Methodology and Analysis
What was subject to research?
Whether airlines really restrict their airfares and thus cut their sales in
NCDM.
Data for 270 airlines collected to analyze underperformance in NCDM
Finding: Airlines normally sell 0.65% tickets in NCDM measured by
arithmetic mean and 0.26% measured by median
Selling less than 0.1% tickets is sure underperformance (25th
percentile)
10 NCDM underperforming ‘finalists’ selected (judgmental sample,
airline distribution experts)
The routes best representing their networks were analyzed for
compatibility of fare structures for sales in NCDM

21. Research: Methodology and Analysis
Example – Air Austral

22. Research: Methodology and Analysis
Example – Air Austral
If this condition is coded in the
fare rule, fare can’t be sold in
NCDM

23. Research: Methodology and Analysis
Example – Air Austral

24. Research: Methodology and Analysis
Example – Air Austral

25. 7. Research Results

26. Research Results
Riha (2014): Commercial Impacts of Accessibility of Competitive Fares on
Airlines’ Global GDS Distribution in Non-Core and Distant Markets
60% of analyzed fare structures were adverse for sales in NCDM
It can be deemed as a pattern, not as a coincidence
Thus, restrictive fare structures certainly have a negative impact on
sales in NCDM
The rest 40% may be caused by other various “soft” factors, such as
brand awareness, safety reputation, etc. (It’s not always just the price
what matters.)

27. Research Results:
A Fresh Example
A traditional well established full service carrier
Approx. 25 narrow body, 5 wide body aircrafts, 30 destinations
Fares
opened for
NCDM as a
result of
consulting

28. 8. Conclusions and Recommendations

29. Conclusions and Recommendations
Bearing in mind the airline’s overall strategy and competitive
environment
Airlines can create new incremental revenue streams from
NCDM by simply adjusting fare structures
Costs are negligible, because the airlines already have all
the tools (GDS, ATPCO, interline e-ticketing agreements)

30. Conclusions and Recommendations
Airlines should
Identify their NCDM countries and analyze them
Find out which partner airlines’ e-tickets are suitable there
Adjust the fare structures to optimize their fares (in
general, or per market) for NCDM
in order to generate more new revenues.

31. Questions?
Thank you for your attention.