Category: NDC

NDC – Challenges in Adoption and Growth

 

New Distribution Capability (NDC) has been around for a while. We have written many blogs, whitepapers, and other articles on the topic over the past years. However even today, airlines are challenged with certain aspects of the implementation and adoption. In our view, airlines fall into one of the following five categories:

  1. All-in – These airlines have implemented NDC with a holistic distribution strategy. They had (or still have) an approach which drove volumes because they either had clear incentivisation for NDC, or disincentivised the GDS EDIFACT channel. However, they did this in a planned manner and could successfully grow their NDC adoption to 30%, 50% or even more of indirect distribution. This NDC volume shift could be with or without GDS NDC distribution depending on the airline. Based on public information, we would include airlines such as the Lufthansa Group and Copa in this category.
  2. Getting there – These airlines implemented NDC with a good intent, however either not with the right strategy, potentially lacking incentive, and capabilities (e.g., lack of servicing capability) without the right internal “drive”, or with the wrong timing. Their NDC adoption is mediocre, and many of these airlines are now looking for a boost by implementing NDC via the GDS – many times with a suboptimal commercial or content model.
  3. What went wrong? – This category represents airlines which implemented NDC without a solid plan. Often, this was looked at as a technology project, or “just something we need to do”. However, it was not tied to an overall distribution and channel strategy, nor was it widely supported throughout the organization. Some of these airlines have had NDC for 5 years or more and are still in the low single-digit percentages of channel shift.
  4. Just starting – There are many airlines just starting with NDC. Recent announcements include Turkish Airlines, Korean Airlines and Delta Air Lines. They have the chance to do things right by benefitting from the learnings and mistakes others made (if they are willing to). The models and processes are better known, the NDC APIs are more mature, and it should be clear to the airlines what the agency community likes and dislikes. In theory, these airlines have a great chance of “getting it right”.
  5. Oh that… – Yes, there are still airlines who are not yet invested or even thinking about NDC. And that is ok. These airlines have other priorities right now. They will adopt NDC naturally in many cases once it is the more common technology at the GDS – which, by the way, none of the GDSs dispute will be the case over time.

From doing many NDC audits for airlines of all sizes and regions, we have learned that airlines do the following things very right, or wrong – wrong also meaning perhaps not at all due to the lack of realisation of the importance, lack of time, lack of resources or other reasons.

  1. Distribution strategy – A solid, future-proof distribution strategy is of the essence. This must consider the direct and indirect channels, GDS contracts and the overall system and solution landscape. Optimally, they will define a path towards their optimal target state of distribution, identify hurdles and risks and clearly understand the distribution model and its cost implications. We have worked with many airlines creating these strategies, and one of the main challenges we often see is that the airline distribution team only does this type of work every few years and negotiates with GDS and PSS vendors even less. Thus, the understanding of the airline’s distribution contracts is challenging. Even for us, doing this on a daily basis, it is often complex to understand the intricacies of these contracts and recognise the consequences of certain decisions made during the strategy phase.
  2. Plan the growth – Create a target list by market, and optimally, follow the TAM/SAM/SOM methodology to correctly identify and qualify the potential sellers and seller types by market. Clearly assess your current (or planned) NDC solution to ensure it meets the functional capabilities as required / requested by the sellers. Educate the sales team and other parts of the organisation to ensure there is a good understanding of NDC basics, but also more complex topics such as incentivisation, connection methods, available content, etc. Equip the sales and account teams with confidence and with the information they need to go to the trade. Identify and work with the right aggregators to support the growth.
  3. Prepare for adoption – This step includes more training, defining internal and external processes (and optimising them), monitoring and measuring the traffic and volumes, and managing communication. Let’s take that apart a bit more. Before we do, we’d like to suggest that airlines create what we refer to as an NDC Adoption Playbook. A document which is accessible to anyone in the airline implementing NDC. This should include the documentation to the topics outlined below and updated constantly to be the single go-to reference for airline employees. This should be developed and maintained by the NDC core team with support from sales, the product team(s), operational support, and technology.
    • Training – Helpdesk and support – both technical and business support – require training to understand new and changed processes. A travel agent may call with a problem but not know if this is a technical issue or a functional issue. This must be identified and then handled accordingly.
    • Processes – Define the actual support process and flow – where and how is the problem ticket managed, who communicates to whom, and how. Or the implementation processes – the more standardised these are, the more efficient the implementations will be. There are other processes which are key and must be defined, documented, and understood across the affected parts of the organisation. Furthermore, taking the time to optimise these processes allows for more efficient scaling.
    • Monitoring and measuring traffic and volumes – Ensure that the operations team knows what is going on from a technical perspective. Are we responding fast enough to the queries, are there an unusual amount of error responses, is the system being swamped with “useless” requests. On the functional side, how are the sales volumes and values, are we reaching our targets, is there an increase in wallet share, a shift of channel or an increase in sales – or whatever the defined KPIs are. This is also how you can evaluate the efficiency and adoption rate of new products, or new decisions taken in your distribution strategy.
    • Communication – Both internal and external communication are, in our experience, often not done well or the importance of it underestimated. We urge airlines to develop a communications plan to keep the trade informed of changes, new functionality, and operational issues.

 

In a recent customer engagement, we interviewed travel agents on an airline’s behalf. One of the biggest complaints was the lack of communication from the airline to the agencies. This included both information and communication on roadmap, functionalities, and changes as well as communication about operational status or problems which had (or had not) been fixed.

 

 

What is my next step?

If you have identified yourself with one of the airline types above, you may be thinking “what should I do next?”. The answer, as is often the case, is “it depends”. However, we would recommend you do a quick step-check. Do you have “1. Distribution Strategy” covered and understood perfectly, and a path towards the distribution model which suits you? If not, start by defining it, as without this, your efforts to grow NDC may be futile. Then, step 2: do you have your plan for growth? Does it paint a clear picture of the actions you need to take and the KPIs which define success? If not, you should take this as the focus for your next discussions. If that plan is clear, then take a stab at step 3 and create your NDC Adoption Playbook. We have developed several of these with airlines, and the value of this single NDC data and process repository is not to be underestimated.

If you feel prepared and have completed the steps above, then there should be nothing in the way of success and growth.

This post has been published in collaboration with Terrapinn.

Daniel Friedli, Travel in Motion AG

[i] TAM = Total Addressable Market / SAM = Sales Addressable Market / SOM = Sales Obtainable Market

 

 

 

From DCS to Service Delivery

Panta Rhei, this is the name of the biggest excursion boat on lake Zurich. Sometimes, when we are in one of our shared workspaces downtown, we catch a view of this wonderful ship and think about the ship’s name: Panta Rhei, which means (according to Wikipedia, as none of our team members had ancient Greek at school): everything flows.

Panta Rhei also describes the status that parts of our industry are currently in: Airline distribution has started the next big evolutionary step. IT systems that have served the industry for decades are being replaced by modern technology that enables airline commercial operations to be focused on customer experience. Through this shift, airlines will be able to become retailers, replacing their legacy, trip-based system environments with modern offer and order management-based platforms. Under the stewardship of IATA, a lot of work on designing and defining the new world of commercial airline processes and airline IT has already been done. If we use the overall process of passenger, or rather customer experience from offer to order to delivery, we can also see that much more work has already been done on defining the “offer” and “order” parts compared to delivery. Delivery – some call it Service Delivery, others order delivery – covers the process and work that needs to be executed to deliver the services which were presented as offers and later ordered by the customer. In our airline industry, delivery mainly takes place in the airport environment. Numerous players, airlines, airports, ground handlers, security, customs, immigration, retail, etc. are stakeholders in an airport, leading to a great deal of complexity. Therefore, defining Service Delivery in the context of offer and order management is not an easy undertaking. At the same, time airports and their ecosystems need guidance from the airlines concerning the customer experience, otherwise the finger pointing between all parties may start (or in some cases continue) about why some strategic investment decisions have not been taken.

From an IT perspective, the Departure Control System (DCS) has traditionally played a pivotal role when it comes to passenger handling. As part of Service Delivery, the traditional check-in process becomes more of a back-office process, with the traditional boarding pass being replaced by a new format constantly synchronized with the actual order. This process is also designed to be supported by biometrics in the future. All information for serving and delivering to the customer is available in real-time to all involved parties at all touchpoints. The customer is consistently and continuously informed via mobile applications and the ground handler, or other airline airport staff have access to the order data with new and user-friendly front ends. This leads to a fundamental transformation of the legacy DCS to either operations management for aircraft handling and delivery orchestration or management of customer handling. For customer handling, the order remains constantly updated as a “single source of truth” and is integrated into all relevant airport processes, such as baggage management, waitlists, overbookings, etc. The order also feeds relevant parts of the airport and aircraft turnaround operations, such as fuelling or weight and balance operations. In addition, the customer shall receive relevant and personalized offers at touchpoints during the airport experience. Therefore, the future airport systems for customer handling must also be connected with the airline’s offer management system.

The (at least partial) substitution of DCS through Offer and Order Management systems (OOMS) leads to a call for action to DCS vendors. From a high-level technical perspective, vendors need to support passenger handling not only for order-based Service Delivery but also by providing the capability to offer relevant services to the customer at touchpoints at an airport. Overall, their future role can be summarized as the providers of the system that steers the passenger’s airline experience, by orchestrating and supporting the customer journey at the airport through interfacing into the relevant environment, especially the airlines OOMS and the relevant airport systems.

This requires an overall re-think of the vendor’s systems, integrations and capabilities:

  • The (ONE) Order message suite needs to be fully supported.
  • The system must be capable of working without legacy data formats such as PNL, ADL, PNR, e-tickets or EMDs, as they will no longer exist.
  • At the same time, the system needs to provide the ability to still access the aforementioned legacy components and artefacts, as airlines may partner with other airlines whose operations are still in a legacy environment.
  • In addition, an integration into the airline Offer Management System must be available to address retailing and ancillary opportunities at all customer touchpoints during the airport process, regardless of channel, such as a mobile app or airport service desk.

However, the roadmap for DCS might very well be an evolutionary one in which legacy DCS evolves over time to a Service Delivery system. With Order Delivery being at an early stage, DCS vendors have an opportunity to play a role in the new set up.

The legacy Passenger Service System (PSS) providers already have DCS in operations. With the evolution of their portfolio to cover OOMS capabilities, it can be assumed that they will also further evolve their current DCS to service delivery to meet the requirements of the future customer airport experience.

The market players that are not providing legacy PSS functionality have always been dependent on an underlying third-party PSS supporting their customer airlines’ operations. Thus, these vendors do not have a DCS and would have a significant gap to close if they were to develop all the required Service Delivery functionality. This product roadmap challenge is currently being addressed by numerous vendors separately. They have started looking at the market to evaluate potential partnership opportunities, either on an individual deal basis or as a strategic partnership.

Therefore, this offers a business opportunity for legacy DCS providers that are willing to evolve and become Service Delivery providers. Due to the overall modular design of OOMS in general, supported by defined APIs and business processes the system landscape is open enough to seamlessly integrate multi-vendor solutions. This modularity leads to new opportunities for Service Delivery vendors, as airlines are likely to be open to using a Service Delivery system from a vendor other than the one providing their OOMS, overcoming the usual monolithic design of legacy PSS.

This shows that the evolution within our industry offers opportunities for well-established providers, including DCS vendors. Embracing the change and being a front runner for Service Delivery may open new markets to be explored. We all know that the change needs to happen, as consumers expect airlines to digitally serve them as other industries have already been doing for quite some time: customer centric with relevant and personalized offerings at all customer touchpoints and the ability to deliver.

However, the Service Delivery part of the overall industry transformation will not be completely smooth and seamless. Hurdles will pop up that no one had on a risk sheet, timelines might be extended, but this is not unusual. When the MS Panta Rhei made her maiden voyage on Lake Zurich in 2007, the ship was floating in unfavourable positions and produced unusually heavy waves during the journey. As a result of this, some adjustments had to be made to the vessel to reduce the impact on other users of the lake. No one talks about these teething troubles any longer, as the ship is fully in service and the pride of the Lake Zurich fleet. We take this as a good omen for the transition in our industry.

Boris Padovan, Travel in Motion AG

 

 

The Magic Triangle of Payments

And it happened again! I was constructing a complex flight itinerary online, reflecting the preferences of my wife and our three adult children. I managed to create the perfect combination of segments at a good price. Only one final step was still pending: payment. I entered my credit card details and … an authentication through the app on my mobile phone was required. But where was my mobile phone? Not at my desk, not in my office – so I tried to call it from my landline, but remembered at the same that I muted it. Therefore, I ran two floors downstairs to the living room, still could not find the damn thing, but saw my Apple watch. I pinged my mobile phone, after shouting out to everyone to be silent for a moment and finally found it on the terrace. I accepted the payment on my phone (pretending not to hear my wife asking me to help in the garden), went back upstairs to my office only to see that the session of my favourite flight portal had already ended. No payment, no conversion and not a good customer experience, but a very secure (unfortunately unfinished) payment process.

I am sure that I am not the only one who has experienced this. We all understand that there is a big need for an airline, as with all other online retailers, to execute payment securely as the number of fraud attempts (e.g., using stolen credit card data) has continuously risen over the decades. Increasing security by enforcing regulations such as PSD2 (Payment Service Directive) and 3D Secure are de-risking payments but are also creating complexity and may even negatively impact conversion, as customer experience suffers.

At the same time, payments are increasingly becoming a significant cost factor for an airline. Numerous studies assume that payment costs represent up to 3% of airline revenues, which is very close to the annual profit our industry is usually achieving on average. McKinsey summarizes that annual payment costs for airlines have already hit the $20 billion barrier.[1]

What does this mean for an airline that is working on a payment strategy? In essence, an airline needs to optimize three strategic components: conversion, fraud prevention and cost efficiency. But these targets are conflicting. Conversion can be increased by the provision of easy and straightforward payment processes. However, this approach may compromise on security. Indeed, in my illustrative, but “based on a true story” example, I have not converted as a client, because I wasn’t able to meet the security requirements of the payment process. In this case, security took precedence over conversion – and I think for a good reason.

Let us take another example: supporting local payment methods is becoming increasingly a necessity for airline retailing. In Switzerland, “Twint” is one of the most used alternative payment methods (APM). Many local retailers support it, as it is secure, provides a good customer experience and Twint claims to lead to increased conversion rates. But APMs are known to be costly for retailers, especially if they need to support different APMs in different markets.

We do not need a lot of imagination to identify and describe other combinations where increasing conversion, reducing fraud and reducing cost are conflicting targets. Our payment “guru” Urs Kipfer summarizes this dilemma in a triangle.

 

It is obvious, that an airline’s payment strategy must follow a holistic view, which defines the strategic target that should be achieved, and thus also takes into account the need to compromise on the other targets. As airline organizations traditionally have the tendency to be complex, it is essential to include all internal stakeholders – especially as the affected business units may have conflicting interests among themselves.

A strategic approach that clearly defines the targets to be achieved, includes internal stake holders and is driven with the airline’s senior management endorsement is essential for success. It is worthwhile to choose to follow this path. McKinsey estimates that our industry is not addressing an annual $14 billion in potential revenues and savings. Missing revenue opportunities during the payment process itself, too complex payment methods and unaddressed cost reductions all contribute. It is now time to strategically address the payment potential for every airline!

In the end I finally booked our flights – but used a different portal, as my initial itinerary wasn’t available any longer. But I still had to run down two floors afterwards, again – this time to help in the garden, but this is another story.

This post has been published in collaboration with Terrapinn.

Boris Padovan, Travel in Motion AG

Meet the team: Do you want to further discuss this topic or are you interested in an exchange about how airline distribution is changing? Meet us at the Aviation Festival Americas on 15 and 16 May 2024 in Miami, USA. You can register here and by entering the discount code INMOTION40 you will get a 40% discount on the admission fee.

[1] McKinsey Sep. 2022 – Airline retailing: How payment innovation can improve the bottom line. (https://www.mckinsey.com/industries/travel-logistics-and-infrastructure/our-insights/airline-retailing-how-payment-innovation-can-improve-the-bottom-line)

 

 

Meet the Team

Personal interaction with our industry partners is key to how we work. This May will give us good opportunities to meet, discuss and catch up.

 

Daniel Friedli and Thibaud Rohmer will be at the Aviation Festival Americas in Miami on 15 and 16 May. Daniel will moderate the retail and payment track on the first day of the event. On the second day he will be on a fireside chat about airlines’ shift to retailing with Marc Rosenberg, the chair of the programme committee.  Register now through this link for the Aviation Festival Americas and receive a discount of 40% quoting the discount code “INMOTION40.

We will also be present at PROS Outperform from 20 till 22 May in Orlando, FL. Daniel Friedli will be on a fireside chat on 21 May discussing IT and tech implications of the shift to offer and order. If you are interested in attending, please register here.

Our engagement with IATA is key for our work and therefore Mona Kristensen and Jason Balluck will be representing Travel in Motion at the IATA Offers and Orders Forum in Geneva on 21 and 22 May.

Urs Kipfer will represent Travel in Motion and Oystin at the ATPS 2024 Airline and Travel Payment Summit in London (on 22 and 23 May), further focussing on our engagements in the airline payment sphere. If you are interested in attending, please register here.

Jason Balluck will be one of the chair persons of the Digital Travel Connect conference on May 23 and 24 in St. Albans, London, UK. He will run the sessions on day 2 of this international conference and moderate several panels with high profile representatives of Accor, Iberostar, TAP Air Portugal, Virgin Atlantic, Club Med, Edelweiss Air, easyJet and Melia Hotels. If you are interested in attending, please register here.

Boris Padovan will host the IT track “Technologies that are Shaping the Future” of the Southeast Europe Aviation Network on 29 May in Dubrovnik, Croatia. This conference focusses on the booming aviation region of South East Europe and Eurasia and is attended by numerous airlines, airports and other aviation affiliated companies. If you are interested in attending please register here.

Evaluating the success of a distribution strategy

1. Simple question. Multi-faceted answer.

At Travel in Motion, we support airlines in defining their distribution strategy and the execution thereof, creating NDC adoption strategies, evaluating their NDC readiness, and other related topics. During these activities, one important question is bound to come at some point: “How do we ensure that we made the right choice?”

In other terms, how can an airline evaluate the success of its distribution strategy? While the question is very straightforward, the answer, interestingly, is not.

2. Defining your goals, monitoring your success

First, it is important to identify the goal of said distribution strategy. While most airlines tend to agree that the end goal is optimising distribution cost versus revenue opportunities, airlines will have different focal points to do so. Many airlines are currently focusing on shifting distribution from EDIFACT to NDC, enabling them to better support of Offer and Order processes and technologies: However, each airline has a different path to that end goal or even different visions of what those entails.

Some are going on that journey with the intent of reducing distribution costs, others focus on the customer experience with targeted offers or better servicing, and yet others aim to increase revenues with dynamic pricing and other new capabilities.

Furthermore, with airlines gaining more control over their distribution, new KPIs have started to appear, allowing them to monitor with more precision the efficiency of their strategic choices.

In the rest of this post, we look at some of the industry’s KPIs – old and new. Please note that we are focusing on distribution performance, so, while security, on-time performance, and other metrics are very relevant for airlines, they are not this post’s focus.

3. The Big Five

For a long time, the airline industry has mainly been using five categories of KPIs for distribution which can each be then evaluated per channel and as a global airline performance view.

  1. Sales and Revenue

The main measure of a successful distribution strategy is its impact on sales and revenue. By analyzing sales data, airlines can understand customer preferences, optimize pricing strategies, and tailor their offerings to meet market demand. Revenue analysis, on the other hand, helps assess the profitability of different routes, flights, and services, enabling strategic decisions about resource allocation. Together, these metrics offer a comprehensive view of the airline’s retail performance, guiding the refinement of its distribution strategy for enhanced customer satisfaction and profitability.

This includes not just ticket sales, but also ancillary revenue from add-ons like seat upgrades, extra baggage, and in-flight meals. These ancillary revenues should be tracked as a percentage of total revenue, by market, customer segment, route and other metrics, allowing airlines to identify opportunities for diversification.

  1. Cost Efficiency

The other side of the coin in evaluating the success of a strategy is to look at the evolution of distribution costs. Each channel has its own associated costs, and with airlines starting to shift their distribution to different channels, it is crucial to monitor the impacts of that shift. Furthermore, while NDC comes with new capabilities, the first steps for an airline with NDC may come with a lesser servicing capability than its other channels, resulting in an increase of customer care costs (and, as we will see later, a decrease in customer satisfaction). Then, by increasing self-servicing capabilities, these costs will start decreasing. Also, as indicated earlier, some airlines become airline retailers with the aim of reducing their distribution costs: for such airlines, this metric is paramount. Further, a shift in channels and distribution model may increase costs for some channels. While this is typically a calculated risk, and offset by channel shift or other means, this must be carefully monitored to ensure the cost increase remains within the bounds as set by the strategy, and the cost offset is successful.

  1. Reach

Reach refers to the number of potential customers that an airline can connect with through its various distribution channels, such as direct sales on its website, indirect sales through travel agencies, or digital platforms. Reach is often related to market distribution but can also nowadays refer to customer segmentation or agency type.  The higher reach an airline has, the more customers it can target. However, as we will see in “conversion”, reach is just the first piece of the puzzle. Converting these potential customers to actual customers is the second. Measuring reach also allows the airline to create products and offer content which is better suited to the various channels, markets buyers and travelers. This, in turn, should increase conversion as well as revenue.

  1. Conversion rate

Conversion rate measures the quantity of search requests that result in a booking. A high conversion rate indicates that the airline’s offering is well suited to the target markets and segments – or at least, the offering is more attractive than the competition. By evaluating conversion rate, and combining it with markets and segmentation, an airline can tailor its offering to ensure higher conversion, resulting in higher revenues. Most airlines evaluate conversion rates primarily for airfare sales, but a new trend sees airlines starting to monitor ancillary conversion rates as well.

  1. Customer Satisfaction

Lastly, in the era of modern airline retailing, customer satisfaction is paramount. NDC enables airlines to offer a more personalized and seamless booking experience, which can significantly enhance customer satisfaction. High levels of customer satisfaction indicate that the airline’s distribution strategy and product offering is effective, with products and services being successfully and seamlessly delivered to the customer. Conversely, low satisfaction levels may signal issues, such as inefficiencies in the processes or a mismatch between the airline’s offerings and customer needs. As indicated earlier, during its first step in this new world, an airline may have limited servicing capabilities in its new channels, resulting in a higher need for the airline’s customer care agents to intervene.

4. The new KPIs on the block

  1. ARM Index score

Becoming a full retailer is a journey, and a long one at that. IATA provides the Airline Retailing Maturity Index, which is a way for airlines to evaluate how advanced they are on that path. By regularly self-evaluating through that score, and tracking the evolution of its ARM index score, an airline can get a good estimate on how far along they are in their retailing maturity. And while these are not directly cost and revenue related, it is safe to assume that a higher maturity can generate more revenue and potentially lead to lower cost of servicing.

  1. Channel contribution

Channel contribution refers to the percentage of total sales that each distribution channel contributes. If a particular channel has a high contribution, it indicates that the airline’s offerings and marketing strategies are resonating well with customers on that platform. With airlines aiming to see a shift in their distribution, from GDS towards digital direct and NDC (or other direct-connects), monitoring channel contribution is the best way to evaluate this shift. Similarly to previous metrics, this KPI can be evaluated through several factors such as the channel contribution for a specific market, customer type, or even agency type when focusing on indirect distribution.

  1. Sustainability

Either due to regulations, customer motivation, or company policy: sustainability is a serious consideration. Travel in Motion recently published a number of posts on the topic on this very same site (go read it, it’s good!). Sustainability involves assessing factors such as the carbon footprint of flights, the use of renewable energy in operations, the implementation of waste reduction strategies in onboard services and many other aspects. A successful distribution strategy should align with the airline’s sustainability goals, promoting eco-friendly options and communicating the airline’s green initiatives to customers. Furthermore, by doing so, airlines can attract environmentally conscious customers, enhance their brand image, and ensure their operations are future-proof against increasing environmental regulations.

5. Conclusion and call to action

Deciding which KPIs to use in order to evaluate your strategy is quite complex. However, with airlines gaining control of their entire distribution, with more visibility, it is now possible for them to have a holistic approach to evaluating their success. Thus, once the airline has defined the key metrics, it must also evaluate where the data for these measurements is best gathered from, where they should be stored and how these can be visualized. Further, it is key to present the relevant KPIs at the right levels and to the right audiences, ensuring that there is no information overflow which will result in the data being ignored.

It is now up to each airline to define their goal, decide on a strategy to target them and pick the relevant KPIs to evaluate this strategy. Travel in Motion helps airlines in many ways, and part of designing a new distribution strategy is how to properly evaluate it. By setting proper goals and monitoring every step of the way towards these goals, we support airlines in moving forward in the right direction. There is no one path to modern airline retailing, but rather many interesting journeys.

 

Thibaud Rohmer, Travel in Motion AG

Meet the author: Do you want to further discuss this topic or are you interested in an exchange about how airline distribution is changing? Meet Thibaud Rohmer, as well as our Partner and Managing Director Daniel Friedli at the Aviation Festival Americas on 15 and 16 May 2024 in Miami, USA. You can register here and by entering the discount code INMOTION40 you will get a 40% discount on the admission fee.

 

 

ESG in the world of airlines

In the fast-evolving landscape of the airline industry, the adoption of Environmental, Social, and Governance (ESG) principles is increasingly becoming a pivotal factor in shaping the strategies of airlines. In this blog I explore how airlines are integrating ESG to contribute to a more sustainable and responsible future for air travel – not only by compensation or using sustainable aviation fuel (SAF).

ESG in airline distribution, for example, starts with a focus on reducing the environmental impact of distribution processes. From paperless ticketing to digital boarding passes, airlines are leveraging technology to minimize the use of paper, thereby decreasing their ecological footprint. This move aligns with broader sustainability goals and reduces the demand for natural resources, contributing to a more environmentally-friendly distribution system.

Furthermore, airlines are exploring ways to optimize their logistics networks to reduce fuel consumption and emissions associated with the transportation of goods and cargo. By adopting eco-friendly packaging and optimizing delivery routes, airlines can make significant strides in reducing their overall carbon footprint.

The social pillar of ESG in airline distribution revolves around ensuring fair and inclusive practices that benefit both employees and consumers. One key aspect is enhancing accessibility. Airlines are increasingly investing in user-friendly digital platforms and mobile applications, making it easier for passengers to access information, book flights, and manage their travel itineraries. This not only enhances the overall customer experience but also promotes inclusivity by catering to a diverse range of travellers.

Moreover, airlines are extending their commitment to social responsibility to their distribution partners. Collaborating with travel agencies and third-party distributors that share similar ESG values is becoming a priority. This involves ensuring fair business practices, respecting workers’ rights and fostering partnerships with organizations that uphold ethical standards in their operations.

Governance in airline distribution capabilities involves adopting ethical practices, ensuring compliance with regulations, and maintaining transparency in dealings. The integration of ESG principles requires airlines to carefully evaluate their business partners, ensuring that they adhere to ethical business practices and contribute positively to society.

Airlines are increasingly focusing on data security and privacy as part of their governance strategies in distribution. Protecting customer information and ensuring secure transactions are critical in building trust with passengers. By prioritizing these aspects, airlines can demonstrate their commitment to responsible governance and ethical conduct in their business processes.

Implementing ESG principles in airline distribution capabilities is not without its challenges. One major hurdle is the need for technological investments to overhaul existing systems and processes. The transition to digital platforms and the adoption of sustainable logistics solutions may require significant upfront investments. However, these challenges present opportunities for innovation and differentiation.

Airlines that successfully integrate ESG principles into their distribution capabilities can gain a competitive edge. Beyond meeting regulatory requirements, they can appeal to an increasingly conscious consumer base that values sustainability and ethical business practices. By addressing these challenges head on, airlines can position themselves as leaders in responsible and sustainable distribution.

As the airline industry continues to undergo profound transformations, the integration of ESG principles into airline process, practices and capabilities emerges as a key driver of change. From environmental considerations like paperless initiatives to social responsibilities in promoting inclusivity, and governance in ethical practices, the adoption of ESG principles is reshaping the way airlines distribute their services.

The challenges posed by this shift are opportunities for airlines to innovate and demonstrate their commitment to a sustainable future. As passengers become more discerning in their choices, airlines that prioritize ESG in the way they think and act are not only meeting regulatory requirements but are also contributing to a more responsible and resilient aviation industry. In the journey towards a greener, more inclusive future, ESG in the airline world is steering the industry towards new horizons.

 

At TiM, we are unwavering in our dedication to maintaining a carbon-neutral footprint across every aspect of our operation, from travel and home office practices to digital engagement. We believe that every action counts, which is why every member of our team actively participates in reporting their individual home office footprints, striving to minimize emissions wherever possible.
But we don’t stop there. TiM takes proactive measures to offset all carbon emissions we generate, ensuring a substantial reduction in our environmental impact. Our meticulous approach to calculating carbon emissions, using the trusted MyClimate.org platform, ensures transparency and accountability in our efforts.
By investing in impactful global projects through MyClimate, we’re not just reducing our footprint – we’re actively contributing to a more sustainable future for all. At TiM, environmental responsibility isn’t just a duty – it’s our passion and commitment to creating positive change.

This post has been published in collaboration with Terrapinn.

Mona Kristensen, Travel in Motion

 

 

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

 

 

Airline Distribution and Retailing Masterclass

Airliners: Join our first 2024 Airline Distribution and Retailing Masterclass of Travel In Motion and Oystin.

The Airline Distribution and Retailing Masterclass will take place:

We’ve evolved and expanded our content to reflect the latest developments in airline distribution and retailing. Thus, this Masterclass will focus on:

  • GDS: pushing the limits and overcoming the GDS vs. NDC dichotomy through multi-channel models
  • Payments: a crucial component of a holistic commercial strategy
  • NDC: making a difference with differentiated content and functional maturity
  • Offer and Order: from concept to design

The event will be conducted by our partners, Daniel Friedli and Felix Dannegger. Please note that this is an airline only event.

Please register here for the Airline Distribution and Retailing Masterclass.

We are looking forward to discussing and seeing you in Singapore!

 

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!