Airline Fares and Services Reach the Eve of Revolution

The clock is ticking down on the launch and testing of 21^st century airline fare and inventory retailing as carriers and the global distribution systems (GDS) prepare to launch and test new distribution channels this year, ushering in a new era that could radically alter agents’ marketing and sales offerings and skills.

With more airlines and GDS recently attaining the highest levels of certification in the International Air Transport Association’s (IATA) New Distribution Capability (NDC), testing is set to begin this spring with select corporate travel management companies (TMCs). As those tests roll out, NDC is expected to filter out to retail leisure agencies as well.

Several industry leaders, speaking on an NDC panel at IATA’s 2018 Aviation Day, in New York City, said that the new communication tools NDC provides could throw open the doors for new airline products, as well as retailing alternatives for carriers and agents.

Tye Radcliffe, director of distribution at United Airlines, noted how other retailers like Uber and Starbucks have been able to introduce a variety of products and services that the airlines cannot because the distributor’s computer systems, desktop tools, and links to the Internet do not allow it. Radcliffe described that it was not an airline-specific limitation rather it is the industry that limits the ability to do interesting offers.

During the panel discussion, Radcliffe lamented how retailing options in traditional GDS formats are “numbers and letters on a green screen,” and how NDC will elevate the airline booking experience to something more akin to what agents and consumers have with companies like Amazon.

“There are opportunities for everybody with NDC,” said Yanik Hoyles, IATA NDC director. He noted how travel agents, consortia and host agencies for the first time will have the ability to negotiate and offer special airline perks to their clients if the deals make economic sense for all parties, and then market these “waivers and favors and other offers” on digital screens in a consumer-friendly fashion.

Most of the panelists agreed that the changes coming will be dramatic, and require tremendous planning and attention to the switchover. “We have to carefully change the industry together,” Radcliffe said.

The dawn of personalized airline retailing is arriving
One thing is certain – airline and travel industry economics are requiring these changes.

Mike Premo, CEO at the Airlines Reporting Corporation (ARC), and panel moderator, noted how a previous Aviation Day panel told the audience that “the pressure is on. Wall Street is expecting a lot of revenue coming out of retailing,” and developments like NDC carry high investor expectations for airline revenues and profits.

The carriers are “not interested in just butts in seats,” said Jim Davidson, CEO of Farelogix, an airline commerce software company. “Once they have filled the plane, they want to find ways to extract more voluntary revenue from those customers, monetizing that tube.”

The airlines are also facing pressure from online booking companies like CTrip in China, as well as U.S.-based online travel agencies (OTAs) like Expedia and Priceline. These global companies are investing billions in creating a whole new customer experience. If the airlines don’t upgrade their systems, they could find their business model disrupted, said Aidan Brogan, CEO of Datalex, another software firm that serves the airline industry.

“There are new players coming into the market, and they will have deeper pockets and capabilities,” he said.

At the same time, there is an equal consumer force pushing for the changes. “The way the [airline] industry was designed, the product was created as a commodity and it assumes that all customers are exactly the same,” said Brogan.

“The reality is, they aren’t, and they want to be treated differently. The last 5-10 years, with every digital device, the power has shifted to the consumer. They want relevant choices personalized to them, and will vote with their feet, to whomever gives it to them.”

NDC could supercharge AI-enabled customized travel marketing
Once airline marketing and booking is more fully integrated with the Internet, many new services ad offerings will appear, panelists said.

“We believe one of the big influencers is artificial intelligence. The more information I can gather around the prospective consumer, the better the offer I can make to the consumer, whether I am an airline, a travel agent, or an OTA,” said Brogan.

“I see a world one day where I can tell Siri, or Alexa, ‘I want to go to Minneapolis.’ And my assistant will say, ‘I have access to your calendar. I see this is a business trip,’” said Radcliffe, “and Siri automatically applies my corporate travel policy and puts it on my expense report.”

Brogan sees similar applications for leisure travelers, like integrating Weather Channel forecasts into a customer’s profile. “The technology will realize that New Zealand’s weather next week will be conducive to kite surfing, and present you with an offer,” he said. “Or the software will know I love music, and tell me that U2 is playing at Madison Square Garden, and price out an offer for me. That is retailing,” Brogan said.

While the challenges NDC presents might be distressing to some retail agents, panelists also believe that the revolution afoot presents new sales and profit potential.

“The demise of the travel agency continues to be exaggerated,” said Premo at ARC. “We just ended one of the strongest years we have ever seen. Agents are an important part of the ecosystem, but airlines are innovating on their websites and the question is, ‘How do you get those innovations out to the broader industry?’ NDC is teeing us up for success in the future.”

Davidson pointed out how “ancillary revenue” represents about $57 billion a year in airline sales, and airlines will work with travel agents to merchandise these offerings if both parties can make a profit.

Premo noted how low the penetration is for Electronic Merchandising Documents through the agency channel, about 1 in every 140 transactions. “Agents are clearly underperforming, enabling, selling and promoting the merchandising of inventory. There is lots of upside opportunity here, and the ecosystem is starting to gel to support that.”