Big Fish Little Fish
Once a year, when I’m not busy helping airlines figure out their latest integration challenges around NDC or their IBE, I like to go scuba diving and snorkelling. If you’ve never been, I really recommend you give this a try – the underwater world will blow your mind. While scuba diving is allegedly an “adventure” sport, what I like to do most is just lay still in the water and watch the fish go by. It’s fascinating to watch the interactions between the fish, and soon you come to realise that a reef is a real community. The place is usually teeming with little fish going about their business – which usually involves avoiding being eaten by the big fish! However, the little fish also help to keep the reef clean, and some of them even clean the big fish of parasites contributing to a healthy ecosystem. All the fish have to get along, so it’s not simply a case of the big fish eating the little fish (luckily for them!).
One day I got to thinking about the plethora of airlines we have in the world, and all the various systems they choose to use for their various services. In total, there are more than 5000 airlines in the world and about 25 providers of what we would typically call “PSS” services. Here, just like in the underwater world, we also often have big fish and little fish happily living alongside each other. Smaller airlines have very different needs to a larger airline, but often use some of the same reservation system providers – small and big fish in the same big pond. Usually these are the bigger system providers, although there are also some pretty big airlines that use smaller, more niche providers. So, what motivates an airline to be a small fish in a big pond, or a big fish in a little pond? Let’s start with the small airlines, who essentially have two choices: one of the smaller, more niche providers or one of the big two providers of “classic” PSS services. While in earlier times the choice of vendor may be influenced by the airline’s chosen business model (LCC vs. FSC), there is less of a clear demarcation here these days. Most airlines operate a hybrid model with aspects of both an LCC and FSC, and as such need flexibility. The smaller providers tend to be more focussed on the retail aspects of distribution with extensive ancillary product and bundling capabilities in their base product offering. This matches well with the needs of the airlines, who also have to be nimble enough to react to changing market situations with great flexibility. New products can be defined on the fly, while cloud-native applications allow safe, rapid deployment of new features.
The obvious choice for a larger airline would of course be one of the larger PSS vendors. These may not be as flexible in terms of speed to market or modern airline retailing capabilities, as they tend to still rely on legacy artefacts such as PNRs, e-tickets and EMDs for booking, fulfilment, and settlement. However, they do make it work through add-on components and, if your airline has been in business for a few decades, this probably makes perfect sense. While this is not “wrong” per se, it does imply some upstream and downstream complexity within distribution and the afore mentioned processes. Complexity in IT systems typically equates to cost, and as such smaller providers may be able to offer more attractive pricing. On the other hand, the larger providers have the benefit of economies of scale and are often perceived as “a safe pair of hands” (the old adage “nobody ever got fired for buying IBM” springs to mind).
However, the industry is moving in a different, more modern direction with NDC, ONE Order and the transition to offers and orders, pushing the vendors to evolve. Some have embraced this change and are moving forward where they can, while others have been rather hesitant; big fish are not always the most nimble. There are also some airlines that are realising that modern airline retailing is the way forward and are also pushing where they can. But this is change that is of more an evolutionary nature, and as such will take time to show tangible benefits. Together though, airlines and vendors large and small must drive this change forwards and continue to innovate and evolve. Smaller providers have this in their own hands and need to invest in their products and show innovation in driving this transformation forward. The larger vendors have traditionally built-up capabilities based on the needs of their community of users. Here, the onus is on the airlines to communicate their expectations towards their providers in terms of industry change and ensure that the industry as a whole keeps moving in the right direction.
Considering all of the above, it really seems that, just like the coral reef, there is a real community within airlines and vendors, and the fish all need each other to get along, survive and indeed thrive. Without the smaller airlines and providers, the innovation needed to drive lean operations and enable airlines to grow would be missing. Without the bigger airlines, the economies of scale would not work and (at least in the case of some larger airlines) the thought leadership to drive the industry towards modernisation would be lacking.
Working for more than two decades in the industry, jointly my colleagues from Travel in Motion and Oystin Advisory have worked with airlines of all sizes and business models and discovered that the biggest challenge is not necessarily choosing the right PSS vendor – at least not initially. It is about understanding and formalizing the airline’s business needs and challenges based on the overall strategy. Part of executing this strategy is then to choose the right set of products for an airline to suit their own unique needs and enable to them to survive, thrive and drive their business to the next level. Based on this, and unlike the fish in the sea, you have the choice of ponds you want to swim on. Either, as a small fish in a big pond or as a big fish in a small pond. Or, you can even make your own pond.
This post has been published in collaboration with Terrapinn.
(Nick Stott, 5. January 2023)