Bobby Healy, Chief Technology Officer at Dublin based CarTrawler, which offers travel companies a technology platform for ancillary revenue, had a stark warning for airlines at the CAPA Airline Leader Summit on 11-May-2017. "Google is bad for the airline industry." An inventor and entrepreneur specialising in booking engine software, Mr Healy has developed booking solutions that are now in use by 80% of the world’s top 20 airlines.
There have always been intermediaries in the airline industry, but the internet has allowed them to have a closer relationship with the consumer. However, until now, intermediation of airline ticket sales has been fragmented and largely complementary to airlines' own direct channels.
Mr Healy's warning was based on Google's increasing exploitation of its monopoly positions in Search, on Android apps, and in digital marketing to intercept consumer searches for branded airline names and to direct them first to its Google Flights product. Regulatory remedies may be necessary, but Mr Healy also advised airlines only to provide Google with their inventories on their own terms, and to act like tech companies with better digital products.
Google is taking control of the "trip planning funnel"
Mr Healy is an inventor and entrepreneur specialising in booking engine software. He joined CarTrawler in 2005, having begun his career building computer games for Nintendo, aged 16.
Prior to joining CarTrawler, he founded Eland Technologies which he later sold to the airline technology giant SITA, and remained as CTO until 2005. His booking solutions are now in use by 80% of the world’s top 20 airlines.
At the CAPA Airline Leader Summit Mr Healy described what he calls the "trip planning funnel", with review sites at the top, passing down through metasearch and OTAs, before reaching the supplier (airline) at the bottom of the funnel. As the funnel narrows towards the bottom, the greater the value added.
He argued that Google's strategy in the travel industry is to achieve critical mass in the market, then to take the top of the funnel and concentrate it to squeeze airlines out, or to make them pay.
Mr Healy put forward his hypothesis that, it Google controls the top of the funnel, it will represent the biggest loss of control of distribution, and consequent rise in cost and margin erosion, ever seen by the airline industry.
"If you think GDS fees of USD5 or USD6 is bad, wait until you pay Google USD50", said Mr Healy.
See Mr Healy on CAPA TV: Google Flight Search And Why It’s Bad For Airlines
Google "is a monopoly"
There are plenty of aggregators/intermediaries in the travel market, but Google is different because it is a monopoly in many of its areas of business. According to Mr Healy, Google has a 95% share of online search, 75% of digital marketing and 97% of apps on its Android mobile operating system.
Moreover, the share of all internet usage on devices with Google's Android operating system is close to surpassing that of platforms using Microsoft Windows. In Feb-2017, Android's share was 37.4%, versus Windows' 38.6%. Just a year earlier, in Feb-2016, Android had less than 30% and Windows was not far short of 50% (source: CarTrawler presentation to CAPA Airline Leader Summit, quoting data from StatCounter).
With almost USD90 billion of revenue in 2016, Google has huge scale, and this gives it significant purchasing power and the ability (backed by the intent) to conduct research into all things digital. Google has a proven record of developing new products and services with great speed.
Google knows more about consumers than any other organisation
It already knows more about consumers than any other organisation and this goes far beyond travel, thanks to the number and variety of consumer interactions with Google and the company's ability to process and analyse the data willingly provided to it.
In addition to the obvious use of Google as a search engine, which already gives a huge amount of information about a consumer's interest, aspirations and shopping intents, consumers are complicit in opening up their lives to Google in a myriad of other ways. These include email, calendar, contacts, maps, photo sharing, document sharing and entertainment preferences (through its ownership of YouTube).
"To the end user, Google is the best company in the world, it has everything I need", said Mr Healy, "but, as an airline, they know everything about your customer."
"Google will wipe out the metasearch operators"
Google Flights, the company's airline flight comparison site, has enjoyed a massive surge in popularity over the past five years. According to data presented by Mr Healy, the "google flights" is around three times more common as a search term than "kayak", and more than five times more commonly searched than "skyscanner".
The Google product overtook kayak, previously the US leader, sometime in 2015, from almost nowhere in 2012 and 2013.
"Google will wipe out the metasearch operators", said Mr Healy, "It is a monopoly promoting its own products."
Searches for Google Flights, Kayak, Skyscanner and Momondo
Google Flights is increasingly intercepting consumer airline searches
Google is using its monopoly position as a search engine to promote its own Google Flights product to consumers that search for brand names of specific airlines. It does this by showing a Google Flights result higher up the page than the airline.com direct website link to the searched airline.
Google Flights will offer the consumer a choice of flight times and destinations before passing him or her on to the airline to make the booking. Although details of its pricing to airlines are not public, it seems likely that it charges more for passing on a specific flight booking than for leads coming from general search terms that go straight to the airline website.
Customers that click on Google Flights, rather than on the website of the airline originally searched, could also end up booking with a different airline.
At the moment, airlines are complicit in this, making their inventory available to Google. However, it is important here not to paint the airlines as dupes. They see a benefit in receiving a more targeted lead from Google Flights that is more likely to lead to a booking, compared with a less focused lead coming into their website straight from a search for their brand name.
However, slowly but surely, Google is placing itself between consumers and airlines and also charging airlines for intercepting their customers. There is an additional cost to airlines, but this is not as important as the loss of control, according to Mr Healy.
Google Flights is still growing its position to capture more traffic. Brian Clark of travel consultancy Hudson Crossing has characterised Google's effect on airlines as "keeping the frogs in the pot and raising the temperature step by step". (Skift, 23-Jan-2017).
"…advertising funded search engines will be inherently biased…"
In other industries, Google is already using consumer searches to place advertisements for products sold by Google or companies owned by the Google parent Alphabet Group. Analysis carried out by the data firm SEMrush and published in the Wall Street Journal in Jan-2017 showed that searches on each of 25 terms would, most of the time, display as the first item in an Alphabet Group ad.
Google uses an auction algorithm to place ads at the top of a search result, but the details are not public.
Google's founders, Larry Page and Sergey Brin, published a research paper when they were PhD students at Stanford University in 1998, called "The Anatomy of a Large-Scale Hypertextual Web Search Engine".
CarTrawler's Mr Healy pointed out that the Google founders' paper foresaw and recognised the potential of the organisation that they created to serve its own ends.
It included the authors' expectation that "advertising funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers". It also noted that bias was difficult to detect, but could still have a significant effect on the market.
"There's a clear path to damage to the consumer"
If Google continues to increase its size in the space between consumers and airlines, Mr Healy warned that it will be unstoppable once consumer behaviour has changed and a tipping point of user adoption and expectation is reached.
The first to suffer will be other intermediaries, none of whom has the power and market position of Google, but airlines and other travel suppliers will also be hit by the growth of this powerful new intermediary.
In the longer term, consumers will also suffer as choice reduces and prices rise. "There's a clear path to damage to the consumer", said Mr Healy.
Regulatory remedies might help
Mr Healy suggested regulatory remedies could alleviate the situation. For example, he said that possible remedies could include taking action on the forced sale of Google Flights by Google, and a ban on Google's giving preference to its own travel products in searches and Android.
Other possible regulatory remedies include a requirement for transparency in its auction algorithm and a ban on auction manipulation.
Airlines should "push back on flight search"…
He also suggested that "airlines and only airlines can stand in [Google's] way".
They should raise the profile of this issue through lobbying and "push back on flight search", which is a key strategic asset. Mr Healy advised airlines, "Don't let Google have your data unless it's on your terms".
One leading airline that has been more circumspect about complying with Google Flights is American Airlines. A search for American on Google comes up with direct links to the airline's own website, rather than to Google Flights, although the first link is a paid advertisement.
AA flight data are in Google Flights, but this is only apparent once a consumer has entered Google Flights. American is balancing the cost of the ad and a likely lower occurrence of Google Flights fees with the loss of control and higher transaction costs of more frequent leads coming from Google Flights.
…and provide the "right digital products"
In addition to airlines retaining more control over their flight inventory data, Mr Healy also recommended that they provide the "right digital products for consumers". They will also need to ensure that consumers know about their offer in its entirety.
The growing presence of an increasingly powerful intermediary seems likely to increase the market's focus on price as the most important point of comparison between airlines.
To counter this process of commoditisation, airlines will need to attempt to differentiate themselves by improving the customer experience. This clearly requires a focus on product and service features, but also requires that airlines can show their points of differentiation to the marketplace through all channels.
Ian Heywood, Global Head of Product & Marketing, Air Commerce, for Travelport told the CAPA Airline Leader Summit, "The consumer wants to see what the product is, not just the price."
Merchandising products such as Travelport's Rich Content & Branding is already helping airlines in this respect, and IATA's New Distribution Capability initiative is aimed at a similar end across the industry.
Airlines need greatly improved data skills
However, Mr Heywood argued that airlines needed to do more to enlist the help of the IT industry, and to work with it, since airlines don't have all the skills in house.
Paul Pessutti, SAP's GM & Global Head of Travel & Transportation, agreed that airlines needed data science skills.
He also argued that big data needs to be integrated with an airline's back end systems such as accounting and inventory systems. "How do you look at what's happening in the airline?" he said, "Google can't play in there".
After initially doubting that there was much that airlines could do to stop the tide of intermediation by the likes of Google, Mr Healy offered some hope: "If airlines acted like tech companies, they could put something together to take back control".