Ai Editorial: Off-PSS for retailing, how many airlines are ready for it?

First Published on 6th December, 2017

Ai Editorial: 2017 witnessed a key tussle around whether airlines are going to do away with the packaged PSS deal or not. Options related to deconstructing some of the key components within the PSS are being assessed to refine retailing capabilities, writes Ai’s Ritesh Gupta  

 

Dynamic pricing, personalised offers, targeting the “second wallet”… all of this and more encompasses retailing in the travel sector today and airlines, too, are open to embracing the same.

So what needs to be done for the same, say adjusting pricing as per the shift in supply and demand, a practice that is an integral part of retailing today?

Of course, with certain travel technology specialists urging airlines to evolve in order to be in control of what and how they sell, the option of going “off-PSS” is being explored. No denying that as long as the majority of all the inventory is controlled the way it is being done now, there will only be change to a certain degree.

So is it time to move main components - merchandising, pricing, scheduling and availability – out of the PSS in order to create an offer that is under the control of the airline? Are more and more airlines looking at adjusting their IT set up, thereby separating operational and commercial aspects of their business? Or have the likes of Amadeus and Sabre managed to catch up and set to retain their contracts signed over the years?

The legacy IT assembly has had applications, using TPF. An experienced airline IT executive emphasised that the mainframe can still be persisted for its message processing capability. “Use the data which is there on the mainframe, but do that analysis offline,” he said. “The “legacy” systems are the core backend. Ancillary functionality e.g. to charge for seating, supplying nice user-friendly photos of seats and 3D views inside the aircraft must be done off the PSS. But the query to see if seat 40C or 54F is still available and the actual booking must be done via the core PSS. Technically, moving from EDIFACT onto XML is the way forward. IATA have started that with the AIDM – Airline Information Data Model, but it’s a long way to go.” As for the demand for an omnichannel retailing forcing airlines to re-think their entire PSS strategy, he said “offering car and hotel products can be done on the website as bolt-ons.”   

A senior industry executive, currently associated with a traditional travel B2B conglomerate, acknowledged that  the new offerings are interoperable, scalable and flexible, unlike proprietary applications used in the past. “So there is provision (with open-ended systems) to grow as when the need arises. But older players are moving, too, increasingly using open source applications (it is being highlighted that Amadeus turned off their last TPF-based application this year). Certainly the legacy systems need to be updated, so that airlines gets the maximum value. If the IT provider isn’t doing it, then it certainly calls for action on part of the airlines.”

We assess two scenarios of continuing with one vendor for the entire IT suite and using specialists for certain engines/ systems and going off-PSS in this case:

-       Level of risk and integration work post off-PSS

A couple of issues are being highlighted that can’t be overlooked while drifting away from the existing IT set up in-lieu of working out an offer dynamically via addition of offerings from a 3rd party vendor.

“Anything that has been done for a long period of time can be termed as legacy. So new players can find certain niche elements, and break it-off for improvement. That is how they will grow. But the original airline needs to remember – every system that is in place has a certain role to play, it is there for a reason. It is designed to work in totality with the entire product IT suite,” mentioned the executive. “Several systems talk to each other, and it works like a well-oiled machine. If you start breaking a part of it, on the narrow it looks great. At the same time, do assess what perspective you are losing.” So let’s say, there are options as far as merchandising is concerned, and a seat assignment can be handled, EMD can be issued, record a sale through the right channel etc. and a sale happened. In case, an irregular incident takes place – the plane gets delayed or flights are cancelled. Now the passenger needs to be protected on to the next flight, but is that information going to get translated into the DCS record of the passenger. So if it’s a 3rd party product, is it integrated to handle such cases or only integrated in the res system? Is the backward integration streamlined? If the airline needs to take care of the passenger manually (go into the record, what services paid for etc.) and make the adjustment, then it is an issue. “It (integration) is additional cost, and the work has to be done in case of different vendors becoming part of a suite. Do the new vendors have that level of expertise?” Considering all these factors, certain airlines are understandably averse to embracing change. For an industry that tends to prioritize safety and operations over anything else, change doesn’t come easy.

Amadeus, in an interview with Ai in August this year, acknowledged that even if an airline’s IT strategy features relevant/best of breed components from a range of suppliers they are ready to support it.

Overall, be it for organizational hurdles or reliance on business processes that are still based on the paper-based workflows or setting up the retail layer on top of the legacy systems, such issues can hamper the progress. So even as one talks of adjusting pricing as per the shift in supply and demand, such desired move might not be an instant possibility.  

-       Targeting cost reduction and incremental revenue by going off-PSS

There is no one process for shopping today. A request could come from any of the avenues – airline.com, meta-search, OTA, an offline travel agent…so an airline’s offer needs to be ready. The offer has to be correct, consistent - otherwise the passenger might not choose you.

Processing these shopping requests has to be cost-effective, too. The look-to-book ratio has sky-rocketed over the years, and it is one component that can’t be ignored by airlines. This issue has been addressed by certain players, transforming the economics of pricing and search (supported by live-transaction and pre-computed shopping model paving for shopping accuracy, sub-second speed etc.).  

Also, even as airlines are being “shopped” from an increasingly number of channels and the key is to increase the percentage of that look-to-book by marginal amounts. How to achieve the same? Airlines have to be dynamic – being able to generate offers on the spot every time there is a request.

“There are bunch of attributes that can go into an offer – loyalty data, O&D, predictive purchase analysis etc. The goal is to increase the conversion rate, post a shopping request. This won’t be possible, if airlines aren’t going to craft their own offers. By closely evaluating and studying dynamic pricing, airlines are increasing their take rates, be it for working with OTAs or any other 3rd party channel”, explained a source. So how does it offer flexibility? “So one may take any ATPCO filed fare or market price, and apply discounts or premium to that and create a price. And how about adding premium bundling on top of pricing? That’s the kind of control that is being targeted today, by working on tools that can result in incremental revenue.”

The attempt is to respond in the best possible manner to every inquiry coming into an airline’s system. So the plan should be to blend booking data and offer data.

Engines - merchandising, pricing, scheduling and availability –position airlines to maximize the opportunity as they are rules driven plus they also leverage predictive analytics. So it would be rules-based schedule building and off-PSS availability calculation, for example. In this context, the industry is witnessing certain players recommending PSS-agnostic connectivity with full offer and order management, and the NDC API fuelling all channels.  Are airlines going to do away with their respective packaged PSS deals, deconstructing some of the key components? “Technically, anything can be de-coupled, commercial considerations or even the desire to do it can be a question mark (in case of airlines)!,” said a source.

Every airline’s journey toward retailing is unique, but one question that continues to crop up is the agility of PSS. If the progress of an integrated IT suite isn’t up to the mark, then separation of operational and commercial aspects is imminent.

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