How online travel agencies improve the bottom line of low-cost carriers

We know that the increase in demand generated by OTAs helps drive additional volumes. But LCCs often already have high load factors, so it’s the growth in incremental revenue that’s key. If OTAs sell the same low fares as the airline’s website, then how does that help increase their average fares?

To answer this, Amadeus recently simulated the impact of distributing through OTAs on an LCC’s revenue management system.

The results were an eye-opener for LCCs. Results showed that as expected, additional demand from OTAs increased the load factor. No surprise there perhaps. What’s interesting is the additional demand had a more significant impact on fares. In fact, additional demand from OTAs actually increases fares twice as much as it increases load factor.

For every 1% increase in demand, average fares grew by 0.8% and the load factor increased by 0.4%.

What was happening?

With the increase in demand, low-fare seats are sold more quickly. The airline’s revenue management system responds by increasing fares for the remaining seats. This means that the same seats are sold at higher rates, resulting in overall fare and revenue increases across all distribution channels.

The benefits of higher average fares and increased volumes come from connecting to all travel agency segments, not only OTAs. Yet, the value is seen so strongly with OTAs that it reinforces the importance for LCCs to make all of their offers available in all of the channels that travellers use to book.

How much an LCC wants to benefit from distributing via OTAs is up to each individual carrier. Growth depends on their strategy, approach, markets, routes, etc. We work closely with our LCC partners so that they can evaluate the opportunity and maximise the potential of all channels.

With over 100 LCC partners today, Amadeus offers the proven results, expertise and technology to help carriers of all business models get the most from the world’s largest agency network, including winning OTAs in their target markets.