Total Distribution CostGroup 5

Amita Mistry 241Santosh More 242Manish Nangalia 243Aquil Nomani 244Vivek Oza 245Bipin Pal 246Mayank Parekh 247Sadanand Ramugade 249Nina Raste 250

Total Distribution Cost

What is total distribution cost?• Cost or expense incurred by the Company for delivering its

products from the point of production to the point of consumption.

Airline distribution cost includes Commissions Credit card fees Computer reservations system fees Cost of the airline's own reservations counters

Case Study

Scenario Pre US deregulation in 1978 State-owned airlines enjoying legal monopoly

Entry barriers for new airlines

No common platform for reservations

Unorganized hospitality industry

A computer reservation system developed by American airlines Primary channel for booking and reservation Access to travel agents with travel related content like fares, schedules etc. Availability to real time travel informationIn 2005, Sabre connected 400 airlines, 60,000 hotels, 37 car rentals, 9 cruise lines, 36 railroads and 220 tour operators to thousand of travel agents around the world.To increase revenues it launched 3 websites: Travelocity.com, Virtually There and Get There

Sabre Evolution

GDS fees formed a major portion in airlines total

distribution cost

In 2003, Northwest paid $180 m as GDS fees

In 2004, Northwest encouraged direct selling as a low cost

alternative to GDS through internet by using its own

website

To discourage the use of GDS, it started charging

additional $10 per ticket booked through GDS.

Northwest Airlines Strategy to reduce distribution costs

Indian Scenario

Full Service Airlines Low Cost Airlines

In-flight services

Ground handling services

Bigger aircrafts where business class and economic class are separate

Minimum In-flight services

No Frills

Only Standard class

Type of Airlines Services

Distribution Cost of FSA includes LOGO

Global Distribution SystemsGDS is a computer reservation system that airlines use to book and sell tickets Galileo, Sabre, and Amadeus

Billing & Settlement PlanBSP is a system designed to facilitate and simplify the selling, reporting and remitting procedures of IATA Accredited Passenger Sales Agents

Travel Agent CommissionAirlines spend around 10 % of ticketing charge on payment as commission to agent.

OverheadsOverheads includes maintenance cost, pay roll, etc.

Deccan Profile

Started air operations in 2003 by Capt. G R Gopinath with a

vision to provide affordable and point to point flight serviceIndia's first low cost, no frill airlineProviding the lowest airfares and connectivity to unconnected

towns and citiesDespite a disastrous maiden flight which caught fire, Deccan

continues to grow

Expenditure – Airline Industry LOGO

Uncontrollable Expenditure

Controllable Expenditure

Aviation fuel

Aircraft lease rental

In-flight Service cost

Ground handling cost

Distribution cost

Total Cost Structure LOGO

40%

4%

3%10%

3%

40%

Aviation Fuel

Global distributionService

On Billing andsettlement plan

On travel agent

on other over heads

Others

LOGOStrategies to reduce Distribution Cost

Pioneer in introducing internet based computer reservation systemE-ticketingIn-house development of Airline Distribution System (ADS)Elimination of GDS, BSP and Travel Agent Cost

Ticket Price Comparison LOGO

 Particulars X Airlines Air Deccan

Aviation fuel 40 40

Travel Agent 10 0

GDS 4 0

BSP 3 0

Other Over heads for distribution 3 1

Others (in-flight services, Ground handling, lease) 40 30

     

Cost of Ticket 100 71

Merits and Demerits LOGO

Online Booking offers many advantages for both travelers and airlines, including security, flexibility, cost and convenience

MeritsEasy ConnectivityReceive Bookings 24/7Cost BenefitLow Maintenance Cost

DemeritsPhishingDe-motivation to travel agents

http://www.cio.in/sites/default/files/Air%20Deccan.pdf

http://www.rediff.com/money/2006/may/15spec5.htm

http://www.fiaindia.in/member/airdeccan.htm

http://www.fiaindia.in/issues.htm

References

Thank You