Ai Editorial: Airlines bent on changing “indirect” equation as we go into 2017

First published on 20^th December, 2016

Ai Editorial: Airlines are now seeking more purposeful association with indirect distribution partners. Ai’s Ritesh Gupta assesses what’s evolving, and what’s expected to stay the same in the near future.

The reach of indirect channels, be it for OTAs, GDSs, Google, meta-search engines etc. can’ t be ignored, so in this context, it is interesting to assess how airlines’ quest of being in control is shaping up.

2016 hasn’t just been another year, even though the charge to lead the change in distribution has featured a limited number of airlines. For instance, IATA’s much-talked about NDC standard is making progress, but the pace of adoption has been slow. In fact, a section of the industry has raised serious questions around the utility of NDC. Does it break the “stranglehold” of entities that specialise in aggregating and count on their buying power, and pave way for channel-constricted free marketplace? Why messaging protocols are being “wrapped around” or bolted onto legacy airline systems? What is being done to sort out unstructured traveller data? Numerous questions have been raised in 2016.  

Old isn’t fading away    

Established B2B conglomerates such as Amadeus and Sabre play multi-faceted role in the whole value chain – from IT to distribution. Since NDC is an investment decision, and change doesn’t come easy to airlines, Sabre and Amadeus are expected to figure in the scheme of things. But emerging entities, too, are making steady progress, and forcing airlines to pick and choose, and improvise on their existing set up.

“We are talking about big, heavy systems that need adjustments (not easy to change say PSS). Yes, airlines are looking at fair distribution of their offering, but can they do without GDS as of now, not really,” stated an executive when asked to comment on airlines’ stance towards NDC and change. In fact, it needs to be noted that airlines’ ancillary revenue generation is on the rise and they are trying to push their products through as many channels as possible, as stated by American Airlines when a deal was signed with Sabre earlier this year (Sabre stated that it was first to deploy NDC-based technology solution to sell American Airlines premium Preferred and Main Cabin Extra Seats to travel agents). Few months prior to this, American confirmed their GDS integration to Sabre using the airlines’ NDC-style API.

“Airlines have the right to sell their product the way they want. OTAs and meta-search engines have the right to make the most of the traffic they garner. PSS/ GDS specialists can continue to count on their transaction processing model till provision of indirect distribution services and IT solutions can’t be done without,” added the executive, who indicated that airlines are definitely looking at their IT infrastructure, though PSS remains firmly perched in the value chain. “We are witnessing carriers increasingly opt to control their own merchandising, e-commerce and API technologies, using platforms that enable airline control, faster speed to market, and flexibility – and move away from solutions that are hard coded or community-model based, or tied to a particular PSS or channel.”    

The strength of APIs

Whether we talk of retailing, be it direct or indirect, one clear area that stands out is API-led distribution.

“Whether you believe in NDC or not, it describes a practice that is becoming more and more prevalent, airlines are switching to API distribution,” says Mark Lenahan, co-founder, CJ Ingition.

Airlines are after differentiation now, and they expect their content and merchandising to stand out in the indirect channel, too. So what would make it possible? Lenahan agreed and explained: OTAs, GDS and meta-search companies need to be able to price compare offers from multiple carriers, and that includes ancillaries. Yet airlines naturally want their products to be distinct, and will all come up with different pricing models (not just different prices) and bundle combinations. “(Probably) there isn’t a consumer search engine (web or mobile) yet that lets a user search for flights + a checked bag + extra legroom and compare multiple all-in prices from different carriers, or better yet let one pick a carrier based on fare only, but when one adds the other products points out one could now get the whole thing cheaper on a different carrier. That’s complex enough without even considering what we get for free because of our frequent flyer status. High performance, real-time APIs are probably the only way to solve this kind of complexity,” mentioned Lenahan.  

Doing away with old arrangement

The quest of being in control has seen new developments this year, for instance, in case of Lufthansa and Siemens, the arrangement uses Amadeus Altea and Amadeus- owned Cytric OBT, and Amadeus GDS is out. It’s worth following how airlines would go about connectivity as they try to streamline distribution, be it via direct connect agreements, API-led distribution etc. “Well yes what Lufthansa has been doing has been quite striking (developments), but this might not work for everybody,”  mentioned an executive.

And if we talk of airline-OTA dealing, the striking difference between direct and indirect sales for an airline used to be the cost of distribution, but it has increasingly become about the quality of the customer data, the opportunity to cross-sell and up-sell, and owning the ongoing relationship with the customer. “On one hand retailers (such as OTAs) want to control the offers, partly because merchandising is the retailer’s job and also because they don’t want ground and insurance products to come from the airline. On the other hand, many airlines want to control their products by channel, keeping the option open to have some products or bundles unique to their direct channels, or their loyalty programs. With sufficient motivation the technology can be made to work, but I’m not sure both sides are working towards similar goals,” said an executive.

Focus on Google and meta-search too

EveryMundo recently highlighted that airlines need to focus on “search-informed digital infrastructure”, and if this isn’t handled, then Google will continue to “defer to OTAs as long as their user experience is superior”. Of course, there are other areas, too, as far as Google is concerned, say native programmatic buying that can tap indirect traffic to drive direct response bookings.

Other than facilitated bookings in case of both Google and meta-search engines, airlines also need to look at the cost component while considering meta-search engines. Airlines can count on technology to manage all requests from meta-search engines and ensure queries only touch a system once the customer is on the booking path. The logic of whether to pull results from a pre-computed shopping system or to perform a query on the live systems is determined by the airline through a business rules engine.

Being an ally

How can airlines better work with distribution partners – for instance, an OTA sending traffic to airline.com? How about a meta-search engine seeking the FFP number as the request for an offer comes and then passes on to the airline?

Lenahan says some degree of personalisation is inevitable. “Consumers want convenience and value, meta-search and OTAs need to compete. So if one OTA or meta adds “status aware” pricing and offers (e.g. accounts for baggage and upgrade allowances) then customers will use it, and the others will be forced to do the same. Just look at what Pointshound, Rocketmiles and Kaligo are doing in the hotel search space,”  he says. “It is absolutely in the airline’s interest to allow 3rd parties to identify the individual passenger as soon as possible, but this does create a conflict of interest between the OTA and the airline - who exactly is selling the upgrades, hotels, car rental, insurance, etc.? More importantly – whose app or website gets used the next time this customer travels. OTAs pay a lot for customer acquisition and they need commission products to survive. The OTAs sometimes do not even get a GDS segment contribution when selling airlines who are not full content (on GDS), instead they have to pay for access to best fares using tools.”  

Can we expect any major change in status quo in 2017? How will NDC shape up? Gain an insight into intriguing issues at Ai’s 11^th edition of Ancillary Merchandising Conference in Spain next year. 

Date: 25 Apr 2017 - 27 Apr 2017; Location: Mallorca, Spain 

For more info, click here

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