Interview with Alexander v. Bernstorff, Director Airline Solutions, InteRES
16th July, 2020
Airlines and travel tech companies have witnessed the need to serve millions of concerned and even peeved passengers during the pandemic.
This had to be done for changing previously issued tickets, refunds etc. The industry responded, for instance, with the introduction of automated emergency flexibility solution. Did automation work? Overall, how did the industry fare? Is this the right time for airlines to transform their business model at this juncture in order to become a retailer?
Ai’s Ritesh Gupta spoke to InteRES’ von Bernstorff about the same. Excerpts:
Ai: How do you think the industry on the whole has managed to respond to passengers?
Alexander: The industry has done a poor job in responding to passenger needs and the main drivers of complexity are still prevalent. As long as traditional carriers are not willing to abandon the concept of a fare, a ticket and an EMD, changes of any kind will never be handled without friction. Airlines are telling me that supporting ticketless air travel means a one-year project to them and that’s not much time in airline IT project terms. So why have we not been seeing a massive increase of ticketless travel over the past years, especially as NDC, an airline-driven project, has been suggesting ticketless from its very beginning in 2012?
Our industry cannot progress as long as we’re implementing NDC based on EDIFACT and Teletype. Unfortunately, that’s what we are seeing all around.
Fares and fare rules have gotten so complicated that even costly automated tools are subject to errors and also cases they cannot process at all. How can we expect the customer to understand and deal with such an amount of complexity? Modern OOMS solutions like the InteRES Airline Retail Engine are built to process business logic for changes and refunds as a service (aka NDC), thus enabling a superb user experience of simple shop and re-shop and complex re-issues are made obsolete. OOMS is an offer- and order-management system; by separating NDC and ONE Order, a situation was created where airlines are looking for offer-management and order-management as separate solutions. The problem with this is that airlines and vendors designed offer management based on the existing order management process, i.e. PNRs, fares, RBDs, tickets and EMDs. And what now? They are looking for vendors with modern order management systems (based on ONE Order) and find that their offer management and a modern order management are not compatible.
From a consumer’s perspective the problem is that airlines are not willing to approach the various elements of complexity because the customer is not at the heart of an airline’s thought process. As a result, passengers still have to manoeuvre through a jungle of ticket conditions (not always very logical rules…), often requiring help from the airline’s service centre.
Ai: As a travel tech professional, what according to you is the biggest lesson from this pandemic?
Alexander: At the moment we can see many airlines launching just another cost cutting programme and innovation may be blocked (again) for many years to come – with user experience still way behind “normal” modern digital e-commerce.
There is an opportunity for those who act now in order to build state-of-the-art, durable digital systems and processes - ideally jointly with partners along the travel value chain - that are not only addressing customer expectations (and thus help to differentiate from the competition) but will also be much more cost efficient.
Ai: As you say, the Corona crisis is like a magnifier for so many structural problems. How can airlines better prepare for any pandemic or any situation?
Alexander: Digitalisation is the key. The current sheer amount of manual interaction between airlines and their customers (and this flows through the whole value chain and many travel agents are more than frustrated) puts light on the shortcomings of missed digital renewal.
So instead of introducing frictionless (and far less costly) online servicing capabilities, consumers have to deal with a mess. It has never been more obvious that the underlying processes have to be simplified, and thus also the systems supporting these processes. These kinds of projects are not very popular with airline executives but after they managed to postpone digitalisation for a decade or two, it’s now the time for some heavy-duty plumbing. And although after the crisis this will not solve immediate problems, it will be the enabler for future adaptations of an airline’s business model, service offering and user experience.
Ai: Do you recommend airlines focusing on transforming their business model at this juncture in order to become a retailer? If yes, why?
Alexander: Yes, and here are the reasons.
First and foremost, renewing their business model will help airlines to look at their customers and the processes and technology serving their customers differently. Airline managers have been discussing the customer journey for many years – with no result. No wonder, as still desktop and kiosk and mobile are approached as completely different animals. For a retailer, post-mobile is imperative and it could be a refreshing experience for many airlines.
Beyond a different approach, the need for ancillary revenues beyond seats and bags is obvious. In average, airlines offering more than just a flight seemed to have more cash when the Corona crisis began compared to their traditional competitors. However, traditional commercial systems cannot properly handle services that are not directly fulfilled by the airline. Necessary enhancements take ages to implement and are costly. Next-generation offer- and order-management systems like our Airline Retail Engine, combined with real dynamic pricing capabilities based on enhanced pricing models, are the way forward.
In addition, and as sad as it may be, middlemen like some tour operators will not survive the crisis. Airlines now have the opportunity to step into offering hotel and tour content and consumers will appreciate their local or regional competency and cherish content curated by their preferred carrier.
Ai: How does this bring NDC and ONE Order into the equation? How to build new, modern e-commerce and online servicing capabilities?
Alexander: During the past year or two I am seeing the discussion around NDC and ONE Order go crazy. When we started out, the idea behind was a different one than performing a simple technical upgrade, i.e. put an XML layer on top of the existing EDIFACT process.
NDC and ONE Order are 2 x 50% of the whole game. Combined, they enable airlines to design, implement and run modern, digital systems and processes and – over time – to replace or to discontinue many or all of the existing complex legacy systems. In addition, they allow airlines to communicate with the entire industry using modern industry standard data formats, e.g. between airline and a third-party city tour provider. That being said, NDC and ONE Order deliberately do not come with “best practice” or dedicated systems.
Ai: What do you mean by redesigning the process?
Alexander: The change process in particular has to be modernized. Simply put, as a customer I want to exactly understand what the change conditions, i.e. exchange and refund, are. This is not the case today for airlines using the traditional process based on hard-coded fare rules, the dependency on tickets and EMDs, the distinction between change and cancel and the necessity in certain cases to perform a past-date-cross-check. Remember that when we started NDC we deliberately refused to having a “servicing task-force” because we wanted to get rid of the current craziness. Unfortunately, we have not seen any implementation where a change is a service.
Now what’s important with NDC and ONE Order is that these data formats are well designed to support a simplified, user friendly process. There are other ways of doing it, but we should not waste or time with discussions if NDC is the rich data format if we haven’t come to the point where we want to increase customer satisfaction.
Ken Segall, Steve Job’s creative advertising director for about twelve years, says that simplicity is what made Apple so successful, because “Complexity is what frustrates employees and confuses customers”. Anecdotally, airlines – at least some of them – believe that mastering an ever-increasing complexity is what makes them successful. “Too many people are brought into the process, more levels of approval are created, more research is demanded and, as a result, it becomes more difficult for common sense to prevail.”, says Segall. But it should be the other way around, and Steve Jobs knew that: “Simplicity was the lens through which Steve Jobs observed everything. In the pursuit of simplicity, compromise was never tolerated.”
9th July, 2020
Striking improvements – be it for improvising or overhauling existing processes – are being suggested in the travel domain.
It is interesting to evaluate how specialists in various disciplines, including ones featuring in core operations of airlines as well as digital commerce, are counting on this phase to prepare for the future.
- Counting on external data for scheduling decisions: Iztok Franko has highlighted how scheduling decisions are being advanced owing to the uncertainty, and the role of agile analytics with which one can blend available external data with internal, historical data.
For more: https://diggintravel.com/agile-travel-analytics-external-demand-data/
- Cart abandonment: Shreyansh Durgesh, too, referred to agile analytics and how the same along with domain-specific expertise can help in bringing down cart abandonment rate. How to work on an optimized checkout process and cut down on abandonment rate?
Follow Ai on LinkedIn: https://www.linkedin.com/company/airline-information/?viewAsMember=true
11th June, 2020
9th June, 2020
18th May, 2020
GDSs have been focusing on ensuring agencies are able to access NDC content in the same workflow as other content. In addition to this, they also have been working on live NDC bookings, new tools for agencies etc. In this context, the recent termination of the distribution pact between Lufthansa Group and Sabre is an interesting development.
Ai’s Ritesh Gupta spoke to two travel distribution and technology executives – Akshay Shah, Chief Commercial Officer, JR Technologies, and Ryan M. Harris, Director, JR Technologies about the same:
Ai: What do you make of the development from airline distribution perspective?
Ryan: I think that this action is the continuation of a strategic shift by the airline in terms of where they want to take their distribution mix to the future.
If we look back to September 2015, the introduction of the €16 booking fee that applied to all GDS booking had a very similar reaction by the industry, a lot of people through that it wouldn’t last and that the fee would be short-lived. Five years later, the fee is not only still there, it has expanded and is now relatively commonplace in most markets.
There is no question that the goal of the fee back in 2015 was to drive more passengers to the airline’s direct channels and to incentivize travel agents to adapt the airline’s direct portal. Lufthansa has been very active in supporting, developing, testing, and implementing projects that are NDC and ONE Order focused, which is the IATA initiative that helps to facilitate the transition away from the traditional indirect channels moving to the airline-controlled distribution model of the future. While I’m not privy to the strategic goals of Lufthansa, I have to believe that they would not have taken this action lightly and that based on what they have done in the past, they are committed to it.
Ai: How can Lufthansa Group make up for the role of Sabre?
Ryan: Lufthansa is large enough that the market demand for their product, in normal times at least, will naturally find a channel.
If a customer wants to purchase a Lufthansa ticket and a Sabre agent cannot sell it, the customer will find another way to purchase it without that agent. This is where the direct agency connection can be leveraged with the agency, as it offers the Sabre agent a pathway to keep the customer with them by offering what the customer wants to buy at a more competitive price, because now the GDS booking fee is not applied. The airline lowers its cost of sale, the customer gets the services they want at a better price, and the agency retains the customer’s business, pretty much everyone wins except the GDS. This only works because of the airline involved. A smaller carrier with less of a market presence cannot successfully drive this change.
Ai: How can the agent community connect with the airline offerings - different GDS (but still paying surcharge if not using NDC) or focusing on NDC (be it for directly via API, aggregators etc.)?
Ryan: Larger and multi-location agencies tend to have their own internal systems that can source content from multiple GDSs and other providers, including a potential API connection from an airline or an aggregator. For smaller agencies, the direct airline portal is likely the path to offer content outside of the GDS and offers the airline the quickest time to market.
Ai: Airlines have found a way to distribute exclusive offerings, for instance via the NDC API. Agents do gain access to it, but what additional cost they have to bear if they don't go via the GDS route?
Akshay: The additional costs that agencies have to deal with when working with an airline through its NDC APIs are development costs into the agency's booking platform. The development cost is considerable because each airline has its own version of NDC that they have implemented. Some airlines have one version of NDC and others have another version. Each one will have its own independent development costs. Additionally, you could have two airlines that implemented NDC from the same provider at XX.X version. One would think that you develop to one carrier and the other carrier will be identical and should take no time at all to integrate. The issue is that each airline independently developed on top of the API creating two different versions even though it is considered NDC version XX.X.
If the agency has many transactions, they will have to figure out a way to create accounting records that could interface into their back-office accounting systems. Otherwise, they will have to create and account for these transactions manually, which increases overhead.
Lastly, if the airline has an older version of NDC, a lot of servicing of the reservation will have to be done with the agent calling the airline.
Ai: Considering two options to access Lufthansa's NDC content - browser-based agency tool and NDC API - what kind of preparation needs to be done by agents?
Akshay: An agency using the browser-based agency tool will have to create several checks and processes. All transactions that happen through the booking portal are the responsibility of the agency. Therefore, the agency will require an administer for all the login credentials of every employee. When a reservation is created, they will require processes on how to handle disruption and schedule changes. Additionally, they will need workflows to account for the transaction through their accounting departments/ software. If an agency has an outsourced after hour service center, the agency will have to work with that entity to access bookings on the portal. These are the few I can think of right now. The main issue with the use of the browser-based agency tool is from the perspective of search. The agent will have to perform one search, either in a GDS or other booking platform, to get fares and itineraries for other carriers and then do a second search in the browser too.
The use of the API would mean that the agency has some sort of booking platform. Therefore, all of the processes that are currently done through the booking platform should be the same path that the NDC content follows.
(There are several ways to market with NDC. Options include a direct connect, via a GDS, a non-GDS aggregator, a meta-search engine and a message hub).
Follow Ai on LinkedIn: https://www.linkedin.com/company/airline-information/?viewAsMember=true
Interview with Len Llaguno, Founder, KYROS Insights
6th May, 2020
The role played by smart assumptions in managing FFPs' liability in these uncertain times can’t be undermined.
According to KYROS Insights, astute liability management entails a couple of aspects - an understanding of the past and confidence in the future. So what does it take to craft smart assumptions for travellers' behavior and manage liability?
Managing a loyalty program's liability is an arduous task these days, especially considering that airlines, as an industry, is facing liquidity crisis.
Acknowledging the same, Len Llaguno, Founder, KYROS Insights highlighted that airlines have to find a tantalizing balance between letting a loyalty program member redeem their loyalty currency so that they remain engaged and satisifed, vis-a-vis the burden same puts on an airline's financial condition and adversely impacts their plan to sustain cash flow to tide them over this period.
"For any airline struggling with cash flow, every redemption that comes (for example) on a gift card, is going to deplete the cash reserves. And possibly getting the airline one step closer to bankruptcy," said Llaguno.
So those who are responsible for FFPs are in a precarious state. It is exemplified by the fact they are possibly going to end up with two sub-optimal situations – one in which they decide to pose restrictions on redemptions, which isn't prudent, and second if they don’t put restrictions, then any increased pressure in terms of cash flow, too, is a hard-hitting issue to cope up with.
"No matter how one looks at it, both are awful decisions to choose from (at this juncture)," Llaguno said. At the same time, he also cautioned airlines. "If the current economic situation is being used as an excuse to devalue the loyalty program, then that’s an awful idea. This is only going to hurt the long-term prospects of the program and key aspects such as the retention of members, and eventually result in a bad economic outcome," said Llaguno, who mentioned that airlines can be given a benefit of doubt at this stage as the liquidity issue is for real.
He also pointed out that the critical aspect is going to be the communication plan. Any unfavourable or unattractive decision being taken with a pragmatic reasoning needs to be conveyed, and would only ease the burden to an extent. Being honest, as usually it pans out, is the best approach.
Significance of segmentation in smart assumptions
A main issue that has emerged with data, analytics and making assumptions is – there is no practical or observed data to evaluate how things are going to shape up.
"Any model that has been worked on has utilised historical data. That data didn’t feature an occurrence like a pandemic or similar to what is happening today. That’s where the professional judgement comes in and is going to fill in the gaps in those models. We, as actuaries (specialists armed with data and statistics and use the same for predictions), have handled liability management for over a decade, and accordingly using our expertise along with intuition in coming up with reasonable assumptions. Plus, the plan is also to leverage companies’ business understanding and gathering as much relevant information as possible," said Llaguno.
"For any smart assumption, the way to do is to segment members based on their expected future behaviour, and set different assumptions for different segments," he said. One category features those who are possibly or likely to expire their loyalty currency, and at the other end of the spectrum, the category segments those members who are most likely to redeem their currency or are among the highly engaged FFP members. And typically, as KYROS works on segmentation, there are eight segments of members in between.
Gearing up for expected future behavior
Llaguno referred to tiers is an example of the past behaviour. “It is a way of assessing what a member has done up to a particular period of the year and that results in a tier status. It is not explicitly saying or making any prediction about what members in that tier are going to do in the future. And that’s the difference when you create profiles based on the expected future behaviour. Members in that profile are expected to show uniformity in their behaviour, say a couple of years into the future. And once you get to that level it becomes really powerful, and now you’re able to identify a member and based on the understanding of their behaviour start feeding that into how you are going to engage with them. One can be more proactive, for instance how to target them.”
He further added, “And that is absolutely possible to do and we have leveraged actuarial theory and machine learning for success. It allows to make predictions for 1-2 years horizon or more into the future. The theory works on an aggregated level and when the actuarial theory is combined with machine learning, it allows one to get granular with predictions - allows to predict at an individual member’s level.” He continued, “It needs to be considered that models are not strictly going to do an apt job in this scenario. It is imperative to have an infrastructure in place to monitor, and evaluate assumptions and adjust these professional judgments over time. Assumptions are going to be wrong, irrespective of how smart or good they are. There is need to course-correct as you learn.”
Being relevant to members
Tiers are important motivators, but only if attainable. And that is going to be different for every single member. And increasingly the current tier qualification standards are just not attainable for most members. And even for those who normally qualify are going to find it tough in the coming year because of the pandemic.
“The way we think it needs to be handled is - make one global change making tier status easy to achieve for people but then also use predictive analytics and the rich data that loyalty programs create to build models to help understand how to send offers to individual members. For instance, “we have reduced the tier qualification but here is the extra bonus for you to make it easier to reach the status”. That way you are making the tier qualification status for each individual member unique or may be at a segment level. So tier is going to be leveraged as a motivator in the most effective way. Because there is customisation for each individual, customising their qualification standard based on the unique circumstances of each member. And obviously one doesn’t want everyone to qualify otherwise it would be overloaded with volume and then devalue the value of the tier status. So lot of nuances there for execution. It can be a powerful tool in driving the desired behaviour and accelerate the recovery when it eventually happens the recovery when it happens,” said Llaguno.
Putting a value on a member
Llaguno highlighted that program managers need to put a value on each member.
“Value your customers, put a number on them that represents their expected future profit for the organisation (a bottomline number) - model the expected revenue, cost of goods sold, marketing cost, acquisition cost and the redemption cost to be incurred for members for every point they earn. Then one can get to bottomline profit number. Select some horizon. Getting to this point, which most airlines don’t, is incredibly insightful,” he said.
He added, “Because you soon realise that 20% of your members are going to generate 80% of your profits over the next 2 to 5 years. The problem today is that loyalty programs and airlines don’t know who that 20% is. And it’s not that who you think it is. Your highest tier members are absolutely some of your most valuable members and that’s not really surprising but the interesting part is lot of high value members in lowest tiers. And the problem is airlines and loyalty programs Have no way to identify them today and if you’re able to build models predict expected future profit that gives you the ability to identify them today and be more proactive engaging with them, sending personalised offers etc. And that activity allows you to focus your time and resources on Members that really going to move the economic needle and maximise the likelihood of capturing that profit from those members and potentially grow profit from members.”
13th April, 2020
The coronavirus pandemic is forcing travel brands to reassess what to offer and how to take care of travelers, especially considering the major health risks posed by COVID-19.
Travel companies are collecting all the relevant information from government and medical authorities, and have been acting accordingly. Airlines are not only finding ways to ensure safety of passengers when they decide to travel, for instance, by practice social distancing on the ground and in the air, but they are also protecting their employees, how to handle suspected or confirmed cases of coronavirus etc.
Some of the recent initiatives that have stood out:
By Ritesh Gupta
6th March, 2020
Ai Editorial: There are several areas that need to be catered to in order to attain NDC@Scale certification. And one of them pertains to responding to huge volume of NDC queries in a fast and precise manner, writes Ai’s Ritesh Gupta
IATA NDC@Scale Certification is being counted upon as a vital development in progressing from working out a real standard to scalability of the same.
This certification is a key component of the airline Leaderboard roadmap towards critical mass. It verifies the ability of an airline to process volumes of NDC sales against certain criteria.
The assessment is around technical setup (ability to run an NDC API on Service Level Agreements with performance requirements for areas such as response time, availability, available transactions per second, error management, etc.), organization setup (work on support needed to connect new partners and to run the operations), use cases (implementation of standardized messages workflows e. g. shopping, servicing etc.) and capabilities. More than 10 airlines have achieved the IATA NDC@Scale Certification.
From an airline’s perspective, the technical set up is a critical aspect for supporting NDC content. Considering the fact the onus is on airline to cater to request coming from the indirect channel, areas that need to be dwelled upon are – dealing with the huge magnitude of queries coming in, ensuring real-time accuracy etc. So if on one hand, airlines have to consider the limitation of a solution like a cache offering, on the other they can’t ignore the return on investment aspect. Response to a search, as also highlighted by Farelogix’s CEO, Jim Davidson, has to be done not only precisely but also in a fast manner. He recently highlighted: “With NDC, an airline’s control of the offer comes with a responsibility to return offers – fast. Enabling airlines to deliver relevant offers based on who’s asking (consumer, corporate, check-in, travel agency, OTA) in a second or less, to me, is the essence of NDC@Scale. For many airlines, that’s plain scary. But it needn’t be, with the right offer engines in place. In fact, with the necessary horsepower, accomplishing NDC@Scale can be fun”.
As Farelogix recommends, offer engines must respond to high-volume, NDC-shopping requests in milliseconds. The team has been highlighting that integration of “airline-controlled shopping and pricing engines with schedule and availability data from sources outside the traditional ecosystem can simultaneously deliver performant response times, as well as lower the costs (e.g. look-to-book)”. The team also asserts that it imperative for airlines to respond to the nature of the offer in an apt manner.
An area that is in its nascent stages is moving away from static offers. Pricing is being evaluated closely as airlines gear up for offer optimization. Being in control of the offer to the extent that it matches one’s willingness to pay and offers them trip essentials including non-air ancillaries is what is being targeted. And for this, overcoming the limitation of static rule-based methods and real-time calculation of offers is must.
There are a number of questions that need to be answered in order to ably meet the technical requirements while handling a massive volume of NDC searches. All these requirements, as Davidson also recommends, must “think about dynamically constructing and delivering unique and relevant offers based on point-of-inquiry elements”.
Keen on exploring topics related to digital commerce?
Ai has planned #AncillaryRevenue Conferences in Berlin, Bangkok and San Antonio in 2020:
4th March, 2020
Airlines are developing machine learning answers to a number of questions, and one of them relates to dynamic pricing of ancillary offers.
"It is something that's coming. There is a lot of work going on at a theoretical level. Lot of mathematicians are building algorithms and some of the revenue management specialists are involved in that effort. This is something we are in early days of. We aren't seeing anyone doing true dynamic pricing yet. At best what they are doing is using market inputs to adjust filed fares," shared Ian Tunnacliffe (He spoke to Ai during the previous edition of #MegaEvent held in St. Petersburg, Florida a couple of months ago).
For more, watch the video featuring Ian Tunnacliffe.
14th February, 2020
Ai Editorial: Airlines and even organizations from other sectors in their journey of agile transformation show common characteristics. Plus, there are common pitfalls and challenges to learn from too. Ai’s Ritesh Gupta evaluates the same.
For organizations focused on agile transformation, there are certain common guiding ethos. They revolve around continuous learning and adjustment, there is collaboration among cross-functional teams and development teams iterate towards optimal outcomes by developing new solutions incrementally.
Concepts like Agile Scrum methodology (a disciplined way to solve a problem) and Minimum Viable Product (MVP) are integral to what is underway to deliver business value faster. Be it for an airline opting to run two different tracks, including the new one for being a part of today’s digital economy, or paving way for the entrepreneurship mode via a venture capitalist arm, airlines are moving along.
Are airlines showing signs of taking the leap into the future, combating organizational/ cultural defiance, limitation of this industry’s legacy technology and operational silos? What there is to learn from the initiatives taken by the likes of Ryanair, AirAsia, JetBlue, KLM, Etihad etc.?
Organizations like Etihad and Lufthansa have worked on ways to counter internal barriers, especially ones that are associated with operating in silos. Encouraging employees to learn, adding staff with new skillsets, counting on the proficiency of self-organizing cross-functional groups, and speedy learning via shorter cycles is a common approach to agile transformation.
Ai has planned #AncillaryRevenue Conferences in Berlin, Bangkok and San Antonio in 2020: