Category: Aggregation

The orchestra that can help solve airlines’ payment challenges

In the past, buying travel seemed to be simpler, especially as payment principles have grown more intricate over the last decade. Sales structures for tickets were refreshingly clear. Tickets were sold in ticket offices or by travel agents. Fares were only organised by booking class. Back then, no one thought of charging separately for gourmet delicacies, cappuccinos or some extra legroom. Payment was pretty much exclusively by credit card or cash. Card numbers were noted down carelessly, stored in poorly protected revenue accounting systems and transmitted directly to the acquirers for billing. The acquirers were still really concerned about the airline customers. Although the fees were outrageously high, authorization and billing involved little technical or administrative effort. Last but not least, governments and card organizations were still reluctant to issue regulations and guidelines with regards to payment processes.

The big game changer in ticket sales came in the form of the internet. Initially, they viewed web sales simply as an additional sales channel. The great opportunities for making offers more flexible and optimizing revenue through additional sales were not exploited by most airlines. However, online fraudsters quickly became aware of the potential of the online ticket sale. At the beginning of the 2000s, fraud cases (and the associated chargebacks) skyrocketed. This in turn triggered a flood of creative fraud prevention solutions. The Card Schemes essentially came up with two major initiatives to curb card fraud: 3-D Secure and Payment Card Industry Data Security Standards (PCI DSS). The implementation of the resulting standards and technologies was (and still is) a huge challenge for airlines stuck in legacy processes.

From PCI and 3-D Secure to PSP

These new standards and requirements have led to greater complexity in payment processing. PCI DSS regulates the processing and storage of credit card data. The associated certification is so strict and extensive that only a few highly specialized service providers are still allowed to process and store card data at all. 3-D Secure refers to the additional authentication of the cardholder. This standard also adds a great deal of complexity to payment processes.

PCI DSS and 3-D Secure have led to the emergence of a new type of service provider: the Payment Service Provider (PSP). The PSP helps merchants (and therefore also airlines) to process payments easily, with all the complexity being outsourced to the PSP.

The airlines now had to integrate additional service providers such as PSPs and fraud screening platforms. Moreover, the cost of developing and maintaining online retail platforms was constantly increasing. Airlines therefore began to pass on the costs of payment processes to their customers – the Optional Payment Charge (OPC) was born.

Of course, reports of online scams motivated law makers to draw up regulations and legislation. The most important of these is the “Payment Service Directive” (PSD), a set of EU regulations which means above all that all payment processes must be protected by “Strong Customer Authentication” (SCA) and that surcharging is no longer permitted.

The reliance on PSP and apparition of POP

To make matters worse, consumers started to expect more from airlines in the 2010s. After having made do with cash and credit cards for decades, they now demanded mobile payment, PayPal and payment by instalments.

In response to the turmoil of regulation, risks, costs and customer requirements, airlines initially adapted their applications and platforms. Services such as PSP, fraud screening and tokenization were implemented by the airlines. This resulted in highly complex networks of interlocking processes and applications that, over time, no one could really keep track of.

In their distress, the airlines turned to the PSPs, who looked at the issue in depth and came to the conclusion that a single PSP would inevitably be overwhelmed by the wealth of issues and regional peculiarities. The solution could only be a new type of service that would act as a new application layer between the airlines’ booking processes and the payment service providers. This was the birth of the Payment Orchestration Platform (POP).

The orchestra for payments

But which issues should a POP address, tackle and optimize? If the challenges, annoyances, threats and wishes from the airlines’ perspective are distilled to the essentials, the core issues that all need to be kept under control are revealed: cost, risk and conversion.  

Costs are controlled via:

  • the choice of service providers
  • the prioritization of means of payment
  • the avoidance of complaints and queries
  • the generation of FX profits
  • OPC

Risk is managed through:

  • secure means of payment
  • Fraud screening and fraud management
  • PCI conformity

Conversion is promoted with:

  • simplicity
  • trustworthiness
  • local means of payment
  • low rejection rates

The core goal of a good POP must be to have a positive impact on cost, risk and conversion. This also generates separate costs, although ideally these are compensated for by optimizing the processes. But what exactly is the role of the POP?

A POP essentially performs three tasks: analysis, payment and reporting.

1. Analysis

Factors such as the customer’s origin, shopping cart (routing), booking class, the desired payment method and the customer’s risk profile are checked using various databases and fraud screening.

2. Payment

The customers are shown the means of payment available in their region, any FX profits are skimmed off via DCC or MCP, an OPC fee is collected and finally the payment is authorized and settled either by the customer themselves or via a third-party PSP.

3. Reporting

A POP should also standardize the remuneration displays of the various payment methods and acquirers and offer them to the airlines for integration with other airline reporting solutions.

This is, of course, a very simplified description of what a POP is and what advantages it can offer to airlines. Ultimately, it is about outsourcing the complexity of modern payment processes to a third-party provider and only having to maintain a single payment gateway API.

In summary, the holy trinity in the payment business, “cost”, “risk” and “conversion” can be balanced through the use of properly-scoped payment orchestration. However, this requires a “payment strategy” instead of an opportunistic approach to solving the increasing payment issues.

Urs Kipfer, Travel in Motion

 

 

Offers and Orders: an industry outlook at what will happen in 2024

Offers and Orders: where are we?

For many airlines, Offers and Orders has been a key topic in 2023, and will continue to be in 2024. As a matter of fact, we predict that even more airlines will seriously look at what Offers and Orders really brings, and if deemed valuable will start analysis on how they can transition.

A brief look to the end of 2022 saw IATA and several airlines initiate the Airline Retailing Consortium. The consortium worked through 2023 to define an industry business case which can be applied by airlines at a high level and gives considerable pointers on where cost and benefit will come from. A business reference architecture was developed as well as an airline transition plan (with TiM’s support). Finally, an Industry Transition Paper was published in conjunction with the Boston Consulting Group. For 2024, the consortium aims to deliver some procurement guidelines. For those who have not had the time to review these documents, we urge you to visit the link above and skim through these documents.

We have heard from several airlines quite publicly about their ambitions and aims for the Offers and Orders Transformation (OOT). Lufthansa announced their path to be off PSS by around 2028. Air France KLM announced in October 2023 that their executives approved the funding and the business case to initiate their transformation. Saudia announced their move to Amadeus’ Nevio product by 2025. And those are just a handful of the public announcements. At Travel in Motion, we are working with several other airlines on concepts and transformation design towards Offers and Orders.

What will 2024 bring?

At an industry level, we think it is safe to say that IATA and the Airline Retailing Consortium will continue its efforts to drive forward the transition and provide additional support and materials to airlines. We also believe that at an industry level, we are beyond the concept phase, and have now moved to the design phase. We recently outlined this in a whitepaper we published. To support the industry efforts, we ask IATA and the consortium to focus on some of the more challenging parts such as:

  • Interline and intermodal travel – less from a technical perspective, but rather from a business process and settlement perspective.
  • Legacy conversion and backwards compatibility – supporting the industry with conversion processes and tools to support the airlines with the ambition to move forward but who are held back by having to interact with airlines which (currently) have no ambition to change.
  • DCS and the related departure control processes and the ground handlers, by bringing them on board, getting their buy-in and perhaps most importantly, demonstrating to the ground handlers the benefits of change.

And while there are many more areas, these are perhaps the areas in which we have encountered the highest levels of uncertainty among airlines.

At an airline level, we expect that more large and mid-size airlines will be educating themselves on the value of offers and orders. At the same time, they will be talking to their incumbent vendors to understand their transition plans. Many will also be talking to those vendors which seem to have made the most progress in the past years towards the world of Offers and Orders. We project that dozens of airlines will start building their business cases and designing their possible transition path. We already see that this is front of mind with many airlines from the number of educational, analysis and design workshops we have been engaged to deliver in late 2023 and early 2024. Often, and this is the best-case scenario, this is tied tightly to an overarching distribution strategy review, as the alignment of the future of airline distribution and the world of Offers and Orders is extremely important to get the greatest benefits in the short and mid-term.

We urge airlines who have not yet started any activity in this area to review the IATA consortium documentation and to closely monitor what your competitors and more importantly, your close airline partners are doing.

We recommend to those airlines who have already done some research and analysis, but not yet initiated any true change to start the planning of the transition design, and identifying the areas of quick wins versus the complex areas which will take considerable time, and to not stand still.

We ask of those airlines well advanced with their journey to share their learnings with the industry to make the overall transformation less of a challenge for everyone. The greatest benefit to the industry and the consumer comes then when we have done a large-scale transformation and airlines can, at a larger scale, take advantage of the technologies and richer digital interactions with customers.

Finally, we ask the vendors involved to make clear their proposition, and to proactively work with airlines, IATA and other industry partners to drive forward on their paths, and to identify, address and eliminate technology challenges as quickly as possible. We urge new vendors to come into this space and provide modules and components, ideas and innovation – and we sincerely hope the airlines reward you for that by giving those new vendors their trust.

For Travel in Motion, we see a very busy year ahead. We have gained a lot of knowledge from our work over the past eight years working with IATA and airlines on NDC, ONE Order and Dynamic Offers. We have spent the past five years working with airlines on the order transformation by doing projects such as interline proof of concepts to engaging with airlines to define a transition concept and design a complete multi-year roadmap. We are convinced that this work over the past years has given us great insight into the challenges, the benefits and the methodology, but also into the vendor landscape and the airlines’ needs for the next years. Thus, our key focus for 2024 will be supporting airlines, vendors, and IATA on the continued transition to Offers and Orders.

This post has been published in collaboration with Terrapinn.

Daniel Friedli, Travel in Motion AG

 

 

Join one of our 2024 Airline Distribution and Retailing Masterclasses

Airline distribution continuous to be in full flux all over the globe, leading to a fundamental change in airline’s commercial processes and a shift of the dynamics of offer creation and customer ownership. This has triggered a fundamental change in the airline’s commercial business processes and a shift of the power play of offer creation and customer ownership to the airline.
Travel in Motion and Oystin Advisory have been actively supporting airlines to master and make full use of these opportunities. Through multiple airline engagements, as well as actively driving the change through our engagements with IATA’s distribution and innovation teams, we provide not only insights into best practices, but also thought leadership. 
We want to share our learnings, views, and actionable insights with you. Also, in 2024 we will continue our series of Airline Distribution and Retailing Masterclasses, with updated content and opportunities to further exchange.

Therefore, please already mark one of these three dates in your calendar:

Please remember, the Masterclasses are for airline employees, only. We are looking forward to meeting you either in Singapore or Amsterdam in 2024!

 

Dynamic groups: diving into an untapped market of upsell capabilities

SPENDERS AND PENNY-PINCHERS

While waiting at a bar counter the other day for the round of drinks I had just ordered, one thought occurred to me. There are two types of people in this world: the spenders and the cheapskates (or, a term I absolutely adore, “penny-pinchers”). While reading these lines, I assume you’ll figure out in which category you fit easily: either you are the guy that sits at the table, enjoying some free rounds, or you are the one going to the counter ordering one more round for all.

So, what does this all have to do with airlines?

Airlines love to upsell: ancillaries, upgrades… anything, really. Following the previous paragraph, you may already guess what category of people goes for these upsells. Nowadays, people often travel with others as a group, with each person or couple having their own booking. This means that airlines only target spenders, providing them with upsell options for their own reservations.

What if you could allow a spender to spend money on ancillaries and upgrades for the whole group?

Let us call this concept “dynamic group”. The airline would give the possibility for its customers to indicate that they are travelling together, giving each other the right to upsell their bookings. Everyone in a dynamic group gets to “buy a round”: this could be lounge access for all, priority boarding, meals, WiFi, or even a class upgrade. All these upsells that “penny-pinchers” would never have paid for are now sold to the “spender” in their group.

RE-THINKING ANCILLARIES

Another important aspect of this upselling is for the airline to be able to sell an experience, rather than only the ancillary. For instance, instead of selling seats, airlines would be able to offer a “sit together” ancillary, ensuring that the whole group gets seats in close proximity.

In that same theme, we can imagine “sharing a bottle”, and “play games together”. While these simply mean “buy X glasses of red wine” or “buy WiFi”, they ultimately are presented in a different, more meaningful package.

Note that these “ancillaries with meaning” do not require dynamic groups, and could also be presented to solo travellers. For instance, while I wouldn’t pay specifically to have a window seat, I could be enticed to get a “seat with a view of Mount Fuji”. Optimally, this may be tied to a motivation scheme that ties me to the airline’s frequent flyer programme, for example by offering me miles if the view is then obstructed by bad weather.

ORDERS: THE KEY TO DYNAMIC GROUPS

With Order Management Systems becoming a reality for airlines, the new capabilities associated with orders are interesting. These dynamic groups could easily be implemented, with a simple inclusion in the order structure of the list of other orders, that have the rights of either consultation (read), or even update (write) for that booking.

Filling in those read/write rights would come from various possible customer flows. Either the customer itself indicates it manually, or it could be automated during order creation. Lastly, the travel agency, upon creating several bookings for the group, could indicate those automatically.

Ancillary sales and ticket upgrades are just the tip of the iceberg when it comes to dynamic groups. These could also improve the customer experience by allowing travellers to get informed of any relevant update on their friend’s bookings. Or even upon involuntary changes, allowing the airline to ensure the group is reseated together or even rebooked together, further increasing customer satisfaction.

Overall, dynamic groups are an innovative feature which would benefit airlines and customers. I would appreciate being able to travel with my friends, with the airline acknowledging that we travel together. And I look forward to being able to buy a round of lounge access. 

Thibaud Rohmer, Travel in Motion AG

 

Sustainable Aviation – challenges for airline distribution?

It began, like many discussions in our family, during a joint family dinner. One of my sons, then still a teenager, politically very active and vocal (maybe not for the right side, in his father’s opinion!) announced to all of us that he will never fly again – because of global warming and the contribution aviation makes to it. As an experienced father of three I immediately decided not to enter into a discussion, simply because his siblings would take side with him against their parents, so instead I proposed to look at the facts.

The facts are of course that civil aviation does indeed contribute to global warming – what doesn’t? McKinsey, among numerous others, has recently published an article about decarbonizing aviation that provides an excellent introduction to the subject. It is summarized that pre-pandemic about 2.5% of the total global CO2 emissions were caused by aviation. Therefore, I think it is fair to state that our industry is not the main problem, although we all are fully aware that every ton of CO2 counts and that the predicted growth of air traffic will further increase the need to act. It is also necessary to mention that recent research work sees that non-CO2 effects should not be underestimated in this context, but this research work is still in a nascent stage.

As a result of the increasing need to take action, the aviation industry has committed to become net-zero by 2050. Numerous activities need to contribute to achieving this target, such as more efficient fleets on numerous levels, from better operations and individual flight planning to common airspace control, sustainable aviation fuels (SAF) and carbon offsetting. McKinsey estimates that a fuel efficiency improvement of 39% has been achieved between 2005 and 2019, and McKinsey’s work further quantifies each of the aforementioned activities in relation to a projected global 2030 view.

All that said, in my view two facts need to be highlighted:

  • net-zero aviation cannot be achieved immediately, especially as a lot of the described activities take time to be implemented, such as fleet renewals or moving to a Single European Sky (we don’t even have a single European power plug yet, by the way!)
  • it will lead to higher ticket prices for the passengers.

Still, we can already act now, mainly by offsetting CO2 emissions and further pushing for SAF. Many airlines have taken action and offer CO2 neutral flights. In some cases, CO2 neutral flights are offered by airlines as a special fare family or product bundle. For instance, the Lufthansa Group offers “green fares” for all intra-European flights, with the fare uplift covering 20% CO2 reduction through the usage of SAF and 80% of CO2 reduction by offsetting. This offer is currently not available for intercontinental flights, although this is most likely just a matter of time, either for LHG or others. Indeed, many other airlines also offer CO2 neutrality as an optional ancillary product available to purchase, very often based purely on CO2 offsetting.

Both ways of reducing CO2 (SAF and offsetting) can be integrated and embedded into distribution processes with relative ease. Third-party service providers such as Berlin-based start-up Sqake offer highly sophisticated and automated tools to exactly calculate the amount of CO2 emitted by travel on a specific route and cabin class, as well as executing the CO2 neutrality through SAF, climate projects on behalf of the airlines or a mixture of both. Assuming that airlines will not revenue manage the price of CO2 neutrality, a cost-based price can be provided to the traveller. And even if the airline is not able to provide such seamless methods as special fare brands or ancillary services, travellers can still compensate emissions by offsetting these through stand-alone methods such as those provided by companies or foundations like Switzerland-based myclimate.org.

In essence, reaching CO2 neutrality when flying is already possible today, either through a service, provided by the airline or by offsetting through independent providers (although not all CO2 offsetting projects are equal and attention should be paid to where contributions really go!). But reaching CO2 neutrality comes at a cost, and in the end travellers will have to cover them, either directly or indirectly. And this point is where I see the paradox. While 56% of travellers worry about climate change, less than 3% of them currently travel CO2-neutral. Or in other words, most travellers recognise the problem and the mechanisms to achieve individual travel that is CO2-neutral are available, but very few really “walk the walk.” Therefore, blaming (or even financially punishing) airlines for CO2 emissions is not very helpful as long as travellers are not willing to cover the additional efforts of the airlines in the form of higher ticket prices.

It was again during one of our family dinners where spoke about our travel plans for 2024. After taking trains and ferries for the last couple of vacations, all family members are back to flying – although this is not necessarily a contradiction to the dinner conversation mentioned at the beginning of this blog. It is about flying in a responsible way by also compensating for our leisure travel. Travellers can already help our industry to accelerate the journey to achieving CO2 neutrality and (if they travel on business) also help their companies reach their ESG targets. More and more companies have committed to reaching ESG targets and CO2 reduction down to CO2 neutrality is a key pillar. Thus, we see growing demand for CO2 neutral flight products and airlines need to find ways to offer and to deliver them. NDC could also act here as an enabler, if all parts of the distribution chain agree to support this.

Of course, CO2 offset does not equal CO2 prevention, but every little helps, and it is a big step forward. Travel in Motion has compensated all of our air travel for many years, and when we entered into our strategic partnership with Oystin Advisory our wish that they also start compensating was immediately accepted. We now strive to become a CO2-neutral company, and soon hope to be able to offset all emissions from heating the home office, hotel stays and public transport to the cups of coffee we drink and meals we take.

 

Boris Padovan, Travel in Motion AG

This blog was published jointly with Terrapinn.

 

Our latest whitepaper: Offer and Order – Moving from Concept to Design

 

Airlines are starting to transform towards Offer and Order Management based commercial distribution and retail processes. Thus, many airlines are beginning to look at their commercial technology stack for the future. Shackled by their PSS, these airlines are looking towards Offer and Order as a path to sell and service in an efficient and modern way. Today’s airline commercial organisation is highly process driven. To achieve a successful transition to Offer and Order, airlines must also consider how their organisation will adapt to make the best use of technology.

We at Travel in Motion are addressing this strategic move in our latest whitepaper “Offer and Order – Moving from Concept to Design.” The whitepaper reviews what has been achieved over the past year at industry level, and incorporates our experience from working with IATA and the Modern Airline Retailing consortium on the IT Transition. In a second step we look ahead into the design phase for the transition towards Offer and Order Management. The document explores the impact of the digital transformation on an airline’s organisation, provide key case studies of how leading airlines and technology providers pursue the transformation, and leaves you, the reader, with key steps on how and where you can start.

We want to thank Accelya for sponsoring this whitepaper. This sponsorship enables us to make this paper available to the whole industry.

 

DOWNLOAD OUR WHITEPAPER NOW!

Navigating the Skies: Onboarding New Talent in the Airline Domain

 

As someone who made the leap from customer-facing passenger servicing into the complex world of airline Passenger Service System (PSS) IT at the turn of the century, I vividly remember my initiation into this intricate realm. Back then, a six-month comprehensive training program welcomed me, covering every facet of the PSS – from the business dynamics to the IT intricacies. It was a structured journey that armed me with the necessary knowledge and skills to thrive in the airline domain.

Fast forward to today, and the aviation industry faces a new challenge post-COVID-19. While business is picking up, there’s a pressing need to re-employ for talents that moved on. The catch? The industry has evolved, demanding a deep understanding of cutting-edge technology, cloud solutions, and compliance with ever-evolving regulations. All this must seamlessly integrate with existing IT infrastructures and the talents within the organisation during a transitional phase.

The job market, not just in aviation but across industries, often demands the impossible: “10 years of domain knowledge and experience” for newcomers. In the airline sector, where technological advancements are the norm, finding talents who understand the intricacies of this industry can be a daunting task. After all, if they don’t know what’s already in place, how can they ask the right questions to drive innovation?

So, how can we bridge this knowledge gap effectively and fast track the process of introducing new technical talents to the airline domain? Drawing from my own experiences in onboarding newcomers and engaging in conversations with industry peers, I’ve put together a roadmap for success:

1. Comprehensive Orientation Program

Personal Touch: Begin their journey with a warm welcome and a comprehensive orientation program. This should offer an immersive overview of the airline industry, the company’s culture, and the intricate components and processes within the corporation.

2. Mentorship and Shadowing

Learning by Doing: Pair newcomers with seasoned employees who can act as mentors. Shadowing these experienced hands offers invaluable insights into day-to-day operations and allows newcomers to learn not just theoretically but by example.

3. Online Learning Modules

Self-Paced Learning: Leverage online courses or modules created by industry experts. Cover essential airline industry topics, including jargon and terminology and use these also to upskill talents in the organisation when changes are on the horizon. Allow them to think about what impact the evolution has on their area within the organisation.

4. Continuous Evaluation and Feedback

Personal Growth: Implement regular assessments to track progress. Provide constructive feedback and additional training as needed, fostering personal growth and development.

5. Cultural Immersion

Harmonious Interactions: Given the industry’s diversity, incorporate cultural sensitivity training to promote understanding and harmonious interactions among employees and passengers. Share personal experiences of working with diverse teams.

6. Emergency Response Drills

Safety First: Given the industry’s critical nature, emergency response drills are essential. Train newcomers on how to handle various emergency scenarios like outages or security threats, underscoring the importance of safety.

7. Cross-Training Opportunities

Versatility: Encourage cross-training among employees. This enables newcomers to gain a broader understanding of the airline industry, making them versatile and ready to adapt to different roles if necessary.

8. Customised Training Plans

Tailored Development: Recognise individual strengths and weaknesses. Tailor training plans to individual needs, nurturing personalised development journeys.

9. Regulatory Compliance

Safety and Quality: Ensure all training programs adhere to industry regulations and safety standards, emphasising the industry’s commitment to safety and quality.

In a rapidly evolving industry, training newcomers swiftly is a formidable challenge. However, by adopting a comprehensive training program encompassing orientation, mentorship, online learning, and continuous evaluation, airlines and IT vendors can equip new talents with the skills and knowledge needed to excel. This benefits not only the newcomers but the entire industry, ensuring growth and success.

By sharing my own experiences and insights, I hope to inspire a more efficient and personalised approach to onboarding in the airline domain, where personal growth and industry knowledge go hand in hand.

If you want to know more about how Travel in Motion supports the UN ESG goal number 4, quality education, reach out to us at 

 

Mona Kristensen, Travel in Motion AG

This blog was published jointly with Terrapinn.

 

Approaching the Business Case for the Order Transformation

Within the airline IT and commercial departments, everyone is talking about the Order Transformation, or the airline’s digital transformation in more general terms. Ignoring this completely will put an airline into a position of vulnerability in the next few years – vulnerable to the competition which has moved forward, and vulnerable to your PSS (Passenger Service System) provider which might dictate your pace of change.

There are several elements to consider in the case for change – future state architecture, functional benefits, how to transition and many other aspects. However, none of the elements are quite as daunting as trying to build the business case.

Luckily, airlines do not need to start from scratch. Some work has been done over the years which can be used as a reference or starting point. These are mainly the McKinsey study from 2019 and the more recent business case created by IATA (International Air Transport Association) with the Modern Airline Retailing Consortium specifically for the Order Transformation. Of course, many airlines will have their own experience with similar business cases due to investments in NDC (New Distribution Capability), enhanced eCommerce and similar digitally transformative projects.

There are several factors to consider when working through the business case for the Offer and Order Transformation.

  1. The starting point and approximate target state: without knowing this, or at least having an idea of what the target state may be, it will be difficult to identify costs and benefits. And, while we may not know with which solution providers we may be working, or which new ancillaries or better services we may be able to offer in three, five or ten years, having an idea of the direction is essential.
  2. What the revenue drivers are likely to be: this will often be linked more to the offer transition than the order component, however several airlines have already found that they cannot realise their offer vision without solving the “order” challenge as well. Moving to dynamic pricing may be possible with enhancing the offer and not the order, however will you be able to exploit all the benefits? Or do you calculate factors such as a potential increase of conversion of sales due to the better offers or improved customer servicing you can enable through order? There are many potential revenue drivers, however many of these are often based on various prerequisites – some of these not being technical but rather contractual.
  3. The cost savings: this element ranges from potential distribution cost savings to process enhancements which simplify the business to, potentially, having the ability to remove certain solution components altogether. Often, the challenge on the cost saving element in such a large transformation programme is that the business case is made for a three or five-year period. However, with the offer and order transformation, many of the benefits will only be achieved towards the latter part of the transformation, thus only having a positive contribution once the transformation is complete. Thus, we recommend creating a post transformation calculation as well, which should help show if the cost of the transformation will render financial benefits during or only after the project, and which savings (and revenue) can be expected after completion. The removal of software and solutions is an important one. There are considerable opportunities to modernise the system landscape and interfaces well beyond just the offer and order management solution, as the processes are undergoing considerable change. Thus, a solid sketch of the future potential solution and business processes will certainly help understand which solutions are needed in the future and where savings can be achieved.
  4. The less obvious and substantiable factors: can factors such as customer satisfaction be converted into revenue? There are studies which clearly state that customer satisfaction and conversion are linked. Or that personalisation and increased conversion go together. However, conversion, the effects of customer service and satisfaction and similar are much more difficult to put into numbers which are not based purely on statistics. Furthermore, there are many other factors which could influence this. For example, if we enhance customer service capability considerably and NPS (Net Promoter Score) shows that we have great customer satisfaction, however we then have considerable delays due to airport congestion, customer satisfaction may well sink.
  5. The investment: of course this could (and some may argue, should) be part of the cost aspect. I have separated this to differentiate between cost savings in operations, servicing, processes, and sales from the actual capex spend. The main investment factors will be in new solution components (or re-engineering existing ones) and into the workforce needed for the project. The investment into people and processes should not be underestimated at this stage. Moving to offer and order without considerably reviewing and rethinking business process and data flows will end up in the rebuilding of legacy. However, with the redesign towards a retail environment, we must also invest into a retail mindset, and an organisation which is structured and trained to understand, live and breathe airline retailing.

While the above categories (cost, revenue, etc.,) are obviously part of any business case, Travel in Motion has seen some of these ignored or forgotten. In some cases, we have seen airlines and vendors challenged to define and decide which elements should be considered for each, and for example, if the soft factors such as improved customer service should be considered or not. These choices will be individual to each airline, and may either be ignored (after careful consideration), included, or used to sway a decision.

Pulling the business case together will not be an easy task. It cannot be done in isolation. The business case must be part of a concept phase where the future target state is discussed, where the architectural concepts are outlined, where the business is involved in helping identify process improvements and current challenges to be overcome and numerous other aspects. Thus, to create a solid business case, there must already be investment into time and resources, and potentially external support from companies such as Travel in Motion or many of our other industry colleagues and competitors. There will be workshops to share knowledge and align concepts between departments, and some airlines have even held workshops with vendors to understand their views on the change. Not a single vendor in the airline commercial space is ignoring this change and each has their own ideas and plans for the transition, which makes them great sources of ideas.

Do not expect the business case to be completed in a week. It is complex and multi-faceted. Do not assign one person in your organisation to try to master this – it is an unfair expectation, as this is extraordinarily complex and requires many parts of the organisation. Do not ignore the true costs, and use a realistic view of the potential revenues. While we would never criticise what companies like Bain and McKinsey did in their studies, we would say that those are ideal and very generic cases.

After all those “do not’s”, here is what we think you should do: plan a process of several months for the concept design of your offer to order transformation, involving various departments in the airline with clear expectations of what offer and order should deliver. Do not shy away from external help, be that from IATA to get an industry perspective, vendors to understand their paths to the future or industry experts like us to give a broader perspective and potentially an “outside in” view.

Daniel Friedli, Travel in Motion AG

This blog was published jointly with Terrapinn.

The Payment Jungle

Current situation

Even in normal times, the airline business is anything but easy. Competition, fuel costs, regulations and growing environmental awareness challenge the industry and make airline operations a demanding task. After the pandemic subsided, a certain recovery was felt, but the current rather difficult economic environment, the war in Ukraine and high energy costs bring new risks and challenges.

Not only the operational business faces challenges in this difficult environment, but also the back office of an airline. This is reason enough to take a closer look at the problems and developments in the area of payment handling for airlines. Specifically, we will take a closer look at service providers, markets and regulation.

Service Providers

Payment processing, credit card acquiring and controlling were carried out by the airlines themselves until the early 2000s. Growing regulation, new security standards in payment processing such as PCI and an increasing number of international and regional means of payment have led to more and more processes being outsourced to specialised and appropriately-certified service providers. In good economic times, the airlines were very attractive customers for these providers. This changed with the groundings of many airlines in the past decade, including some large and well-known carriers. For credit card acquirers in particular, aviation became a risky business as they were often the ones left out of pocket. Airline ticket sales are paid immediately but usually not used until weeks (or even months) after purchase. The total value of all tickets sold but not yet flown constitute the “unflown revenue”, and this quantifies the risk for the acquirer. In the event of a grounding, the acquirer is left with the ticket holder’s claims for reimbursement. More and more, airlines had to fulfil challenging conditions in order to get access to acquiring contracts at all, and the conclusion of such contracts is often linked to painful conditions for the airlines. These can mean providing security deposits such as rolling reserves (payments withheld by the acquirers), payment only when flown or the division of the business among several acquirers (risk splitting). For most airlines, credit cards are still the most widely-used means of payment, so these security deposits can have quite a painful impact on liquidity.

The number of external service and payment providers is also constantly increasing, which leads to higher processing costs as well. Payment service providers (PSPs), payment orchestrators, reconciliation services, fraud screeners and alternative payment methods charge fees for their services and thus make ticket sales more expensive.

Markets

Carriers operating worldwide usually have a very international clientele to which one must also adapt in the payment area. This means that the most relevant means of payment must be offered for each market. In addition, the credit card business can also be very different between individual markets due to legal regulations or regional standards. This not only generates more provider fees, but also increases the complexity of the processes. Airlines used to be able to map this complexity to their own system platforms, but today, this is no longer possible for the reasons already described. That is why PSPs were first forced to incorporate airline-specific features as “bespoke services”. Later, so-called “payment orchestrators” came onto the market, who inserted themselves as an additional application layer between the airlines and the PSPs, and from then on took over the control and routing of the payment processes.

Another topic is the change of customer needs. Payment should be secure, fast and simple all at the same time. It is possible to meet all requirements in this area of conflict, however the design of corresponding solutions is associated with great effort. Internationality and growing customer requirements create even more complexity, and this makes the development and operation of booking systems more expensive and slower.

Regulation

Dealing with customer requirements and external service providers is complex in itself, but national regulators, the EU and the card schemes add to this with their regulations. Especially in the areas of security and costs, merchants (including airlines themselves) and service providers are confronted with a growing number of regulations and restrictions.

With the Payment Services Directive (PSD) 2 regulation, the EU issues regulations on fees and security. Credit card fees, for example, may not exceed a certain amount (which for once is in favour of the airlines), but so-called “surcharging” (charging the payment fees to the end customer) is severely restricted. This is a painful cut, especially for the airlines. Furthermore, a two-factor authentication process is mandated for online payments.

The credit card schemes (Visa, Mastercard, American Express etc.) have reacted to this regulation with the security standard “3-D Secure 2”. Since the policy limits revenues by capping acquiring fees, the schemes are reacting with an almost unmanageable number of new fees.

With PCI DSS (Payment Card Industry Data Security Standards), the card schemes want to prevent the theft of credit card data. Since the complexity of the corresponding requirements makes it almost impossible for merchants and service providers to implement them on their own, a market for specialised service providers for tokenising credit card data has also established itself here. Of course, these providers do not work for free either, which leads to a further increase in the cost of payment processes.

Change as an opportunity

Many of the topics described above are given – especially when it comes to service providers and sales markets – and simply have to be implemented. Here, it is advisable to work with a specialised payment orchestration service.

When it comes to regulations, on the other hand, there are a number of exceptions and intelligent solutions with which negative effects can be neutralised. For example, there are simplified checkout procedures for registered customers, payment surcharges are still allowed under certain conditions, and the regulations concerning PCI DSS can be adhered to with little expense through the integration of tokenisation services. 

The facts described above could give the impression that service providers, customers and regulators have conspired together to make life difficult for the airlines. However, if you take a closer look at the new regulations and restrictions, you will discover advantages for all market participants. All the policies and regulations were not invented to make life difficult for the industry. By consistently adhering to the guidelines, companies can significantly reduce the risks of data theft, fraud and the resulting chargebacks. 

At its core, payment process design is about getting to grips with three factors: cost, risk and conversion. Despite all the issues described above, a well-balanced payment landscape can be customer-friendly, secure and comparatively cost effective. The basis for this is a good concept and, as so often in our industry, the choice of the right partners.

At Travel in Motion, we can help you finding your way in the jungle of customer needs, regulations, regional characteristics, cost pressures, scarce resources and security requirements. Both airlines and vendors can benefit from our expertise and experience.

This post has been published in collaboration with Terrapinn.

(Urs Kipfer, 8. June 2023)

 

 

Untapped potentials of AI in the Airline Industry?

Inspired by a follow-up on my customer insights blog last December and an AI assignment for my Executive MBA studies, I wanted to share some learnings from that work. The aim was to look for an AI use case that can be implemented for an airline venturing onto the new distribution transformation path – something that many airlines are just starting to consider. There is a wealth of data to be tapped into, but what exactly might some of the possibilities be for using this data in a meaningful way? What does the new world allow an airline to do that it didn’t before? Will it deliver as promised, and how can this be measured?

  • While there is much talk about how AI can revolutionise pricing and revenue management, are there other potential uses of the data that can now give insights that an airline didn’t have before?
  • Much has been said about the ability to make more targeted offers and thereby increasing revenue per customer and flight, might there be other untapped golden nuggets to be derived from the offer data?

The airline industry is highly competitive, where customer satisfaction and operational efficiency are crucial to success. As airlines have access to vast amounts of data, it is no surprise that many are turning to artificial intelligence to help them gain a competitive advantage.

One of the most significant benefits of AI for the airline industry is its potential to improve customer experiences. Especially when looking at finding patterns and opportunities that might be undetected today, AI has the potential to process a huge amount of data with an efficiency that only a few solutions already do. Including more and different data sources than what is traditionally done can provide customer insights from a different angle. By analysing customer data, airlines can tailor their offers and services to meet their customers’ needs and preferences better.

A look at some use cases

Traditionally, airlines have pushed out the availability (or made it available in a “pull” fashion) and the prices, and only got to know about the customers when they purchased a flight. However, there is considerable knowledge about how customers behave before they buy – knowledge which airlines to date have never had access to. But my interest was piqued when thinking about what offers customers didn’t buy, since this says as much about their needs as what they finally purchased. Having a complete picture of who did not buy what can lead to new insight into what appeals to whom – in a different way than previously possible.

For example, AI can provide personalised recommendations for flights, hotels, and other travel-related services. AI can analyse a customer’s past purchases, preferences, and other data to deliver tailored recommendations more likely to meet their needs.

AI can also provide real-time information and support to customers during their journey. Chatbots, for example, can provide instant customer support, answering their questions and providing guidance throughout their journey. This can help to reduce customer frustration and improve their overall experience.

Airlines can increase operational efficiency by optimising their processes and reducing costs by using AI. For example, to optimise flight schedules, crew assignments, and other operational tasks.

AI can also improve maintenance operations, reducing downtime and increasing aircraft availability. By analysing data from sensors and other sources, AI can predict maintenance issues before they occur, allowing airlines to address them before they cause disruptions proactively.

Finally, AI can help airlines to boost their revenue by optimising pricing and increasing ancillary sales. AI can analyse customer data and market trends to predict demand and optimise pricing accordingly.

AI can also be used to increase ancillary sales by providing tailored recommendations for ancillary services, such as seat upgrades, baggage allowances, and lounge access. By tailoring these offers to each customer’s preferences and needs, airlines can increase their likelihood of purchasing.

The challenges

While the potential benefits of AI in the airline industry are significant, several challenges come with its implementation. These include the cost of implementation, the complexity of the technology, and the need for skilled personnel to manage and operate the systems.

To overcome these challenges, airlines need to take a phased approach to AI implementation, starting with small proof-of-concept projects to demonstrate the potential value of the technology.

Another challenge is data privacy and compliance. Airlines need to ensure that their use of AI complies with all relevant data privacy regulations and that customer data is adequately secured. This requires a strong governance framework and robust security measures to protect sensitive data.

Airlines need to ensure they have the right personnel to manage and operate AI systems. This requires a mix of technical skills, such as data engineering and data science, and soft skills, such as communication and stakeholder management. Airlines should invest in training and development programs to build these skills in-house and ensure their personnel are up-to-date with the latest AI technologies and best practices.

Potential – but only by doing it right

In conclusion, AI has enormous potential in the airline industry, providing airlines with tools to increase revenue, improve efficiency, and provide customers with personalised offers that cater to their needs. However, implementing AI solutions has challenges, and airlines must be aware of them and take steps to mitigate them. It’s essential to have a dedicated team with the necessary skills and expertise to manage the project and communicate the process and results effectively. With AI, the airline industry can move towards a more sustainable customer-centric business model, identifying new opportunities that emerge from the direct distribution model.

AI has the potential to transform the airline industry, and airlines that embrace it will have a competitive advantage over those that don’t. While the airline industry is still in its infancy in using AI, it’s clear that it is a technology that will play a significant role in shaping the airline industry’s future. It’s exciting to see what the future holds, and we can’t wait to see how AI will continue to transform the airline industry.

 

This post has been published in collaboration with Terrapinn.

(Mona Kristensen, 5. May 2023)