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Low-cost carriers manage ticket distribution costs through direct sales

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Low-cost carriers manage ticket distribution costs through direct sales
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Airbus A380 | Airbus

The sale of airline tickets involves a complex network of third parties and distribution channels. These include Global Distribution Systems (GDS) that connect business travelers to airlines and Online Travel Agents (OTAs) like Expedia and Kayak. The complexity means the price consumers pay may not align with what airlines receive.

For low-cost carriers, the ticket sales structure differs as they aim to optimize business performance by reducing operational costs. This involves being cautious about fees paid to brokers and third parties due to their already low prices. A slight increase in fees can significantly impact their financial results.

Low-cost carriers employ strategies to minimize distribution costs, often selling directly through their websites. Direct sales allow carriers to bypass third-party fees and collect valuable customer data, which informs route strategy decisions.

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According to Amadeus, direct sales enable airlines to frequently change base offerings and better analyze customer preferences for pricing adjustments. They can also enforce refund policies more rigidly without a third party involved.

Volodymyr Bilotkach's book "The Economics of Airlines" states that distribution costs account for about 6% of airline expenses. He concludes: "Bypassing the global distribution systems when retailing their tickets is one way the so-called low-cost airlines save money."

Despite this, budget airlines sometimes sell tickets via third-party platforms like Kayak or Expedia. They face choices between offering higher fares or accepting revenue loss due to platform fees. Low-cost carriers may negotiate bulk arrangements with travel agents or collaborate with tour operators or cruise lines to reduce per-ticket fees.

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