Ai Editorial: Digitization and selling a differentiated product, what’s there for airlines to assess?

First Published on 6th July, 2017

In the context of airlines, one area that is being evaluated is how digitization can impact the way what is being sold and does it depict differentiation, writes Ai’s Ritesh Gupta

 

Digitization is a core focus of enterprises today, one that results in relevant response to every customer interaction, data-driven decision-making across the entity, ability to differentiate the product, quick introduction of products etc.

Of course, IT and systems need to support digitization. Internally airlines have to gear up for apt IT infrastructure and refine their merchandising, e-commerce capabilities. So, if an airline intends to work with a tour operator, how quickly rules can be defined in the merchandising engine to offer tailored bundles via standarized connectivity that results in control? Another area that needs to be assessed is streamlining of the overall functioning of the industry, for instance, the reliance on business processes that are still based on the paper-based workflows. If the combined impact of complexity in both technology and distribution leads to inconsistency for the passenger, then there would always be a gap in the passenger experience.

If an airline is gearing for the digital world along with the interfaces, passenger-facing systems, data collection, and data processing on top of the legacy systems, then is it the right approach? As a section of the industry asserts, don’t overlook the limitations of legacy systems as they can’t deliver in certain areas because they were never designed to. 

Ai’s Ritesh Gupta spoke to Travel in Motion’s Daniel Friedli about a couple of issues, right from introducing new products, to being in control of the offer:

If we talk of agility, why do airlines tend to miss out on creating the offer themselves? What should they offer in real-time? Why aren’t they showing the product despite investing in the same, be it for aircraft, meals etc.? Do complexities like interlining hamper the direct creation of offer?

Friedli says there are several reasons why airlines may not be as agile as the consumers expect, and as consumer retailers or other industries may be.

One of the major drawbacks for those airlines that chose to use ticketless systems has always been interline and codeshare distribution with most carriers that do have the traditional ticket-based systems.   

“One (challenge) certainly is interlining, although that is not the main driver,” he said. (This is understandable as it is an industry transition phase and interline partners will likely still require the legacy connectivity to be maintained and you will still need the legacy systems to distribute through traditional GDS channels until a critical mass is built in the NDC Aggregator channel to replace it).” Others are the complexity to distribute any product through any channel very quickly and easily,” Friedli says. According to Friedli, it often takes 9-12 months to get a product live in all channels, and that makes for a very expensive launch. Another reason is the lack of ability to ‘test and learn’ – meaning the ability to try a new product quickly and easily, with little investment, and to test this across various markets – ceasing sales if the product is not successful. “That means, each implementation is a large risk because considerable effort is required for an implementation. Should the product fail, it could end up being an expensive investment,” explained Friedli. So airlines need to automate every aspect of test and deployment, and release fast. Architecture is one critical aspect of digitization, and it is all about agility and speed-to-market.

Also, airlines need to reach outside their own sales infrastructure with the same capabilities that they can do internally, such as through their e-commerce site. Standardization of the IATA NDC XML schemas is playing its part here - a communications structure to support dynamically-created messages that contain varying and targeted offers, potentially specific to each customer. As for offers, airlines need to work out a mechanism that can take all the data points, checks business rules and availability, bundles the offer items, calculates the pricing, and deliver it along with branding and rich media to the passenger.

Airlines have been separating core functioning of a PSS that are needed to run operations, and opting to control their own merchandising, e-commerce and API technologies for differentiation.

“It is foreseeable that more and more of the offer creation process will be done by individual systems. Some may be within the PSS, others may not. That isn’t relevant. It is about combining the revenue management with the product variety and price determination. Mixing that with segmentation or personalisation, and understanding the context of a request – that is where airlines are moving to. Currently, systems are being developed to enable this, and NDC and “API-zation” in general is enabling the airlines to then push these intelligent, contextual offers out to the customers,” mentioned Friedli.

As for supporting ATPCO-based fares as well as non-ATPCO fares, Friedli indicated that ATPCO and non-ATPCO pricing will exist hand-in-hand in the short-term. “The majority of mainline, traditional airlines will continue to use ATPCO pricing for the foreseeable future for pricing to many channels. But I think we’ll see ATPCO pricing increase in the level of flexibility. Not so much in terms of the interpretation of the fares, but rather the outcome of the price where the discounting of the prices will be discounted by any given percentage,” he said. “At the same time, we’ll see non-ATPCO pricing increase for many of the newer channels, such as NDC connections or other direct connects. This is basically the premise of the LCC pricing and traditional airlines are moving, into that direction.”

 

Hear from senior travel industry executives about digitization, differentiation and NDC at the upcoming The Mega Event Asia-Pacific 2017 - 4th Annual Profitabilty Summit, to be held at the Grand Mercure Roxy Hotel in Singapore (23-25 August, 2017).

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