Author: Elizaveta Kuznetsova.
Exactly two years ago was eliminated a serious threat to the Russian air ticket sales market - an exception was made for the law on personal data storage in international GDS. As a result, the project of the new domestic GDS, born in Rostec (formerly Rostekhnologii), was forgotten, so that Amadeus, Sabre and others continued to work quietly in Russia. Meanwhile, the distribution system Sirena-Travel has existed for a long time and keeps a serious part of the market.
How works the competition among GDS, can a domestic player enter foreign markets and why GDS are not responsible for rising ticket prices? Mikhail Baskakov, General Director of Sirena-Travel JSC, president of the Transport Clearing House (TCH) answers in interview to Kommersant newspaper.
-Back in 2012-2014, the state thought about creating a national reservation system for air tickets, although there was already a Sirena-Travel. Were you invited to do the Russian system with the participation of “Rostec”? At what stage is this project now?
We were not invited to this project and we have no interaction with it. I hardly understand what is happening now with the national booking system, because in three years we see no concrete results and in the absence of them it is difficult to assess. It is necessary to give the carrier the opportunity to choose the technology most convenient for the business, but do not impose anything. It is necessary to give the carrier the opportunity to choose the technology most convenient for the business, but do not impose anything. In our opinion, it will be difficult to explain Aeroflot that it must lose a lot of money, break half of the technology, forget how to earn money and instead of a premium company to become a county carrier, using a non-functional system. In our opinion, it is more correct do not make a press on the carriers, but to create the right conditions for the development of passenger service systems (PSS), while obliging system operators to place them in Russia. The airlines will have a choice, the market will remain competitive and everything will be in accordance with the law. In the end, we wrote PSS Leonardo for the same period that we are talking about the national reservation system and we understand how much it was costed for us. At the same time, Leonardo is a payback project.
- Why, in your opinion, is the development of the national system stalled?
- I think that there are two possible factors of failure here. First, it is not necessary to replace the competence with an administrative resource, in hi-tech it does not work. And the second: people who are engaged in this project, cooperate with Western distribution systems (GDS), earn a very large amount of money on them, so their participation in the draft of national reservation system looks strange.
- "Sirena-Travel“ system is more than 17 yearson the market. What major competitive changes in ticket sales market would you note?
- Sirena-Travel team was separated from the Computing Center of Civil Aviation in 1997 and the company was established in 2001. At the same time, we launched Sirena-Travel distribution system. Everyone has forgotten the times when there were no such systems and after all 30 years ago tickets could only be bought at the ticket office of Aeroflot, in just a few places in the city and at airports, people stood in line several hours and the most important person was a cashier. Leaning in the window, we were sorting out the dates and the cashier was threateningly answers whether there were places or not.
- And what exactly did your company bring to the market of automated systems for aviation?
- We gave at that moment a unique tool to the market - the distribution system "Sirena-Travel", i.e. the opportunity to sell air tickets of any Russian carrier using only one instrument. We provided access to our system to more than 500 agents selling air transportation. But these are not only technologies, they are also communication lines, training, mutual settlements, security of data transmission, etc. And the number of cash offices began to grow. "Sirena-Travel" was the first distribution system on the Russian market, and we, in fact, created it. Distribution systems made it possible to buy a ticket in one place, compare the offers of many airlines and now purchase additional services.
- What is the share of “Sirena-Travel” in the sale of air tickets in Russia?
In the 1990s, we did not actually have competitors, but since the zero years the situation has changed: foreign companies started to enter the Russian market. Today in Russia there is a very harmonious, competitive market. The company's business consists of two parts: PSS for airlines- management system of carriers resources, an airline's data stores about the airline's flights, including various subsystems and a distribution system operating on the open agent market, that is, a network of ticket offices, including Internet portals.
The last 15 years we are leading in the last segment with a large margin. In the distribution market Sirena-Travel takes the first place with sales volumes of about 35 million tickets, of which 8-9 million are charter flights, 25-26 million are the regular. Such indicator is planned for 2017.
Amadeus is trying to catch up with us, whose sales volumes in Russia are half that. The third and fourth place is shared by Sabre with Travelport. In Russia, competition is very tough - the last ten years Western systems are increasingly trying to buy back the Russian market and somewhere they succeed. But we hope to keep our positions in the future.
- Who leads in the PSS segment?
- In Russia, the first place is occupied by Sabre Sonic, which uses Aeroflot with the volume of 43-45 million passengers per year, the second place has our PSS Leonardo with 20-25 million people a year, the third for SITA Gabriel with 15 million people ( S7 and "Yakutia"), Amadeus Altea has 7-8 million passengers ("Ural Airlines").
- Do you see a demand for Leonardo system in the far abroad?
- Initially, we created a project with an eye on the international, not the Russian market. Russia was the first phase of our development, we took everything we could from the market. Speaking metaphorically, we built a strong, reliable car for the people like Skoda or Volkswagen and not the elite like Bentley or Mercedes, which can afford not everyone.
Airlines like Lufthansa with 80-90 million passengers per year, which roughly equals the entire Russian market, will in any case work with the largest GDS suppliers due to global relations in the transportation market, with the support anywhere in the world. We are still only going to this. We also do not have any reason to connect large Western companies because of sanctions, which seriously hinder the promotion of the Russian product abroad. Therefore, abroad we aim at the segment of small and medium-sized companies. On the market of carriers with the volume of transportation of 1-5 million people per year a very large market is open for us. The most promising regions are South America, Asia, Africa. There is a significant demand for booking systems, but there is no American-European domination. As in aircraft construction, for the airlines the world is divided into two systems: Amadeus and Sabre. For small and medium-sized companies such "whales" are very expensive. They have virtually no alternatives, so we clearly understood the market niche. But we do not compete with Amadeus or Sabre, but with systems like Radixx or World Ticket, about which is little known in Russia. Nevertheless, Leonardo as a multifunctional system meets all the requirements and expectations of the industry.
- Leonardo services are cheaper than foreign GDS?
- Russian programmers are not the cheapest in the world, but the structure of our developments is more compact than that of competitors. When thousands of people work on the project abroad, we manage a team of 50-100 people. We are working harder with a higher efficiency. In large a Western projects a much effort is spent on management, marketing and other non-earmarked costs, so any project costs hundreds of millions of euros. For example, Amadeus is spending about € 0.5 billion per year on refining. In the Russian industry there are no such colossal means, here the expenditure is more modest, but at the output we are more efficient.
- The Federal Antimonopoly Service of Russia regularly says that the automated system of pricing for air tickets inflates them dramatically and that it is a matter of some kind of collusion. Who is still responsible for prices formation?
- No GDS can independently determine or determine a tariff, it only provides the airline with a mathematical device for tariff regulation. Forming prices is a purely personal matter of the carrier, GDS does not interfere with the process. But the carrier has a tool - the revenue management system – it is one of the elements of supply and demand regulation that helps to maximize profits: it analyzes hundreds of factors in real time and, depending on the received data, periodically recalculates the cost of transportation. The airline needs a very serious mathematical apparatus that allows everything to count, balance, build tariffs and increase revenue.
- By the principle of connection, do you work only with the one Russian lowcoster "Pobeda"?
"Sirena-Travel" was connected to the Navitaire system and this is the only booking system that could do this, since Navitaire is quite specific. But for "Pobeda" this decision is economically reasonable: Russian system takes money for the transaction from the agent and not from the carrier. This has advantages and disadvantages, but for lowcosters we are attractive, because we are ready to provide them with sales markets, once connected to them, so they bear only one-time costs. But the agent always shares with us part of the fees. In this model we work with other carriers. Foreign GDS takes money from carriers and transfers some part to the agent. Of course, these are different approaches, but we managed somehow with this model these 15 years: for carriers we are more attractive than other GDS, and for agents - less. While airlines support us, we have a high market share.
- Is this price policy affecting the economy of foreign competitors?
- The previous ten years carriers have said that GDS raise prices and they need to be fought with. But now GDS are forced to keep low price in Russian Federation largely thanks to Sirena-Travel, which does not take anything from the carrier. In Europe, a € 8-10 per segment is taken from a Russian airline, and in the Russian Federation - about € 3. The long-standing dream of all GDS is to put "Sirena-Travel" on a par with all never came true. At first was said that the price should be no less than € 5, were offered other interesting economic options. Our task is to prevent a repeat of the situation in Europe, where Amadeus holds 80% of the market. That's what the Federal Antimonopoly Service of Russia would be thinking about, but it does not regulate there. Amadeus came to Ukraine with the same condition: agents were force to sell at least 70-80% through Amadeus. This manifests our system-forming function: as long as there is "Sirena-Travel", the prices of foreign GDS for Russian carriers will be low.
- And how is formed the price for your services?
- The basis of any distribution system: we charge money for our work from the number of transactions, that is, for how many segments are booked through our system. We earn the more, the more tickets are sold, for us there is no sense in prices increasing, even on the contrary: the cheaper air tickets, the more passengers fly, the more we earn.
- Does Sirena-Travel feel competition with meta-search engines?
- Of course not. Meta-search engines, as well as online travel agencies, need GDS, including Sirena-Travel, because the current timetable and tariffs for flights of 45 airlines using the Leonardo in terms of cost and quality data is optimally received through "Sirena-Travel". The real competition from meta-search engines is experienced by online travel agencies, which for many reasons cannot give the end user the same high-quality service in terms of completeness of information.
- Since the beginning of the year, you are also the president of the Transport Clearing House (TCH), which controls the mutual settlements between airlines and agents. How does TCH control ticket sales?
- By law, all tariffs, fees, mark-ups, rules are subject to registration at the center of the TCH tariff schedule. The TCH has a scoring system and an electronic ticketing center. The system assesses whether it is possible to trust the agent for the sale of air tickets, whether his credit limit has been exhausted, whether he can make a deal. TCH is responsible for the revenue received by the agency selling tickets in all sales channels and guarantees that with 100% probability the carrier will receive revenue for every ticket or supplementary service sold on the TCH ticket. The contract between TCH and the airline is prescribed so that if the funds do not reach the carrier, then all responsibility will lie on the TCH: we are obliged to pay 100% of the proceeds to the company.
- What are the financial indicators of the Sirena-Travel in 2016 and in the first half of 2017? How has the financial performance of the company changed in recent years?
- We do not disclose financial results. But the company is profitable: in rubles nine-ten-digit figures. The indicators are growing, the ratio of profit to revenue is 30-40%. Of course, growth depends on years, the crisis slightly reduced the yield. But on average the profit increases by 15-20% annually, the curve for the last 15 years has gone from zero upwards. But "Sirena-Travel" does not seek super profits, because our business is already very stable, understandable and profitable. We do not use optimization schemes, we pay significant taxes.
- Have you thought about going on the stock exchange?
- The company is capitalized, and we think about the IPO periodically. But so far this is not a key question.
- Were attempts to absorb the Sirena-Travel?
- Yes, large, including foreign, players wanted to buy us. But now we do not conduct such negotiations. We plan to develop business in our country. A significant part of Russian clients negatively perceives the possibility of such a sale.
- What will you focus on in the near future?
- Our task is to develop a new interactive sales system, because the technologies have changed dramatically in recent years. GDS is a basic mechanism with an abundance of information that no one can replace. This is your opportunity not only to buy an air ticket, but to form a complete route, including transfers, buses, a train, with the connection of all modes of transport.
Can you imagine how much work with the suppliers of the resource we all have, both technological and organizational, for the sale of intermodal transportations ?! Now the right sale involves the sale of content with different combinations, intermodal transportation.
Our project is called "Meta GDS": it knows how to sell any service packed in a convenient graphical interface, etc. We have already passed the pre-project phase and want to build a very highly intelligent system that would perform many functions for a person, anticipate his desires and be is adapted to the Internet and mobile environment. Aviation IT is a very dynamic industry. If we manage to find sufficient investment, then in two or three years we will be able to issue a new system and strengthen our positions in the Russian market even more.
