Executive Interview – Farelogix’s CEO Jim Davidson on controlling the offer
What sort of systems, engines, data etc.are needed to make the most of the product that is owned by airlines? How their ongoing technology contracts limit their own capabilities, and what can be done to improve upon the same? Ai’s Ritesh Gupta spoke to Davidson about the same.
First Published on 26th June, 2017
What can step up the average order value every time a passenger shows the intent of buying an air ticket? How to deliver a sublime passenger experience – one that depicts readiness on the behalf of the airline to answer any question that arises at any stage of the journey via any touchpoint?
In order to optimize monetization as well as deliver a personalized experience, airlines need to move on. Their operational capabilities, the efficacy of their technology and distribution partners etc., everything is under scrutiny. The entire fraternity – be it for airlines, travel technology specialists, the industry body IATA, distribution partners etc. – is in the process of sorting out complex business processes that continue to impede progress.
So how are airlines responding to the need of being in control of their own offering? How are issues related to technology and extraction of data from the current airline-run IT infrastructure being addressed?
Ai’s Ritesh Gupta spoke to Jim Davidson, CEO of Farelogix. Excerpts:
Ai: Airlines are often being singled out for being slow to embrace change for different reasons. They tend to miss out on creating the offer themselves, what they should offer in real-time and not showing the product despite investing in the same, be it for aircraft, meals etc. How are airlines going about countering limitations such as their own IT systems or the archaic process of making an offer?
Jim Davidson: In my opinion, airlines in general are conservative when it comes to change. This is typically rooted in the extreme focus on safety and operations. So when it comes to changing a distribution process where the airline takes over control of creating, controlling, and delivering their offers through an NDC-aligned methodology, it is not that surprising that quite extensive study is required at various levels within an airline. What’s interesting is that many airlines have already completed this initial study. Farelogix observes a certain level of caution regularly during initial discussions with airlines, and this is understandable.
Ai: So when do airlines realize what they are missing out on?
Jim Davidson: The evolution of airline offer control generally begins with a few exploratory meetings about what creating and delivering the offer really means from an airline perspective. Usually this early exploratory stage is driven by maybe two individuals assigned to an “NDC initiative”.
It then progresses from there with more individuals and departments getting involved. This is when you know an airline is serious about taking control of their offer. This is also the time that airlines usually realize that they are either behind when it comes to having the right technology in place, or that they are locked in to someone else’s technology (e.g., PSS and/or GDS) that will not enable them to create, control, and deliver their offers. At this stage, the more motivated airlines look to supplement either their own technology with one of more offer engines, or they confront their PSS with an option to “add-on” a few pieces of new technology to their PSS. This, by the way, is also the point when many airline NDC initiatives get shut down by the PSS, as the airline has neither the clout or commercial ability to do what it desires.
Ai: What is the next step for full service carriers to getting closer to creating their own offer?
Jim Davidson: That is the question. What will they do?
In my opinion, they have two options:
1) Give in to the PSS and hope that the PSS will eventually deliver some capability they need; or
2) Push for a PSS renegotiation that gives the airline more freedom to add their own managed engines that will interoperate with the PSS. Here again the airline faces the obstacles of clout and locked down long term commercial agreements that prevent them from expanding their own technology presence.
The problem for airlines is that they are leaving tens if not hundreds of millions of dollars in new revenue on the table while they wait for their PSS or GDS to catch up. And the reality here is, the PSS and GDSs will never catch up. They simply can’t for two reasons:
1) They are too big and entrenched in existing systems they have in place, and those systems were never designed to do what we want them to do; and,
2) Other companies that specialize in offer engines and distribution-related technologies, like Farelogix, are continuing to rapidly innovate and enhance their offer engines, making it extremely difficult, if not impossible to ever catch up. Some would argue that with enough resources ($$$), the PSS/GDSs will be able to “leapfrog” into a better position. However, in today’s world of development cycles and new technology advancement, “leapfrogging” is a dying art.
Ai: Can you talk about significance of supporting ATPCO-based fares as well as non-ATPCO fares to be managed directly by the airline the way WestJet is going about it? How this needs to be interoperable with other offer engines for off-PSS merchandising, availability calculation, and schedule building? How NDC is playing its part in letting airlines create the offer?
Jim Davidson: NDC is essentially defining the model and workflow of the airline creating and delivering the offer.
The very nature of the NDC initiative is to create a robust schema that enables any airline to create and deliver its offers to any distribution channel or third party entity.
Having a standardized schema for this purpose makes this a very scalable, repeatable, and over time economically beneficial process. Like any new process change, especially in an industry heavy on legacy technology and institutions, the initial change of process, workflow, and utilized technology requires significant investment from existing players and new entrants. Here, new entrants have a clear advantage over the legacy players, which is why you still see NDC push-back from the legacy players.
Ai: The approach of airlines for selling their core product and even air ancillaries needs to evolve. Can you cite a couple of examples where revenue is being optimized or average order value is going up because of differentiated content that can be pushed via API-led distribution?
Jim Davidson: There are numerous examples: United Airlines and Air Canada utilize optimization algorithms for premium seat pricing. Westjet uses dynamic pricing capabilities on its Westjet Direct channel. Other airlines use optimized pricing scenarios for upgrades, lounge passes, priority boarding, and more. Farelogix merchandising (FLX Merchandise) and pricing (FLX Shop & Price) engines are used by these airlines.
Ai: What are major challenges as far as interlining is concerned – selling to servicing to financial settlement? Does this hamper direct creation of offer? How are IATA’s initiatives taking care of such complexities going forward?
There is certainly a new level of complexity when it comes to offering additional content from interline partners. I do not believe that these complexities hamper airlines wanting to directly create their offers. It seems that the logical adoption flow is starting with online selling and servicing of additional content, moving into the alliance with these capabilities, followed by unaffiliated interlining. It will obviously take a bit of time, but IATA is doing a lot of work in defining standardized workflow processes and schema elements to enable NDC interlining capabilities.
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