Category: Customer Service

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)

 

 

What is the Future of Revenue Management?

Many years ago, I used to work as a TPF mainframe software developer, building applications for one of the leading global PSS providers at that time. Over the years I have had the privilege of working on some ground-breaking projects. When I first started in the mid-nineties, we were putting in place API layers for web services to power some of the first airline e-commerce platforms. In the early noughties, I was involved in the integration of one of the first origin and destination (O&D)-based revenue management systems, promising to deliver incremental revenue gains of 1-2% for airlines. This was, and still is, big money for any carrier.

Around 15 years after this project, in my role as solution architect I was responsible for integrating another airline with this same RM application. Not surprisingly, considering the pace at which the airline industry evolves, this integration was more or less identical to the initial implementation, although with a different PSS provider. Every night, a dump of booking, inventory and schedule data is pushed to the RM application which ingests this data along with numerous other files containing flown ticket data and who-knows-what else and begins running its nightly optimisation processes. Around eight hours later, new steering controls, bid prices and so on are pushed back into the reservation system and the process is complete for another day. Outside of this, ad-hoc changes may be triggered for a flight, either manually or automatically based on certain events. Essentially though, for almost all of an airline’s network, each flight goes through this process once a day.

Optimising the price of every seat on every O&D of an airline’s network is a very complex process, and back in the eighties when the first airline RM systems were implemented, this daily cycle was all that was technically possible. The enormous computing power needed was both expensive and scarce, and only available to airlines with deep pockets (we carry more computing power these days in our pockets!). Pretty much every airline RM system still works this way today: batch data is downloaded from booking systems (i.e., the PSS), optimisation processes run, and the output is uploaded into the airline’s pricing and inventory control systems (usually PSS). However, the (technology) world has moved on since then: computing power has become much more affordable, and the growth of cloud technology has made this available on demand and instantly scalable. At the same time, the volume of airline shopping transactions has increased exponentially in the last decade or two. Airline products have also become diversified and more complicated, with the advent of de-bundling components of the air ticket (seats, bags etc.). Markets have become more competitive, with demand exceeding supply in most cases. Considering all these factors, one must consider whether the RM approaches still used today are effective.

In one regard, the answer to this question is clearly yes: the RM methodologies themselves. Many clever people have dedicated their lives to perfecting the algorithms used to forecast demand based on all manner of data sources, statistical methods, and highly complex algorithms. These continue to adapt to the new ways in which airlines price and sell their products, although this is still predominantly limited to the air fare only. However, it could be argued that the manner in which these powerful algorithms and calculations are applied is somewhat outdated, considering the technological capabilities available today. Let’s consider an airline carrying 50 million passengers a year in a typical hub-and-spoke network. Using some schoolboy mathematics, this might give an average of around one booking created every second, give or take a few. For reference, Amazon gets something like 18 orders per second[1]. Assuming the airline is using O&D-based revenue management, this potentially means that the demand on a significant portion of the network has changed – and therefore of course the price. But these incredibly dynamic changes are not ingested by the forecast algorithms until the RM machines get their batch files to churn through and deliver new demand forecasts hours later. Of course, airline pricing is much more complicated than most products sold through online retailing, where prices are (relatively) static, but does that not mean that it is even more important that airlines stay on top of pricing and adapt in real time?

What is holding us back?

So why don’t airlines do this non-stop, 24x7x365? Well, the answer is the same as for many questions in the airline world: silos. Way back before many of you were born, there was just PSS – schedules, inventory, PNRs and tickets (eek!). The RM systems were bolted on using big interface files. But today’s computing world looks different – we have real-time integrations, artificial intelligence and machine learning engines that never sleep and enough computing power to run the numbers over and over again and get the results instantly. With the advent of offer and order management systems, we are also a goldmine of offer, pricing and conversion data that is just waiting to be tapped into. Sending a dump of booking data can tell you a lot about what was sold, but nothing about what was offered or who asked. Unlocking the value in this data and understanding what it tells you is the key airline retailing – offering the right products in the right channel at the right price.

Traditionally this data has been difficult to interpret – EDIFACT messages, tickets, fare base codes, RFISCs, RBDs all in cryptic formats. NDC and ONE Order bring some standardisation to these key sources of data, but we need to work harder to break down the silos and truly start working with offers and orders (instead of just bolting them onto our legacy systems).

Indeed, this issue is not only to be found within the RM domain. Many of the initiatives in the industry at present are reliant on removing these silos in the end-to-end chain of distribution. Instead of a set of standard integration points based on interfaces from the 1990s, a dynamic and real-time exchange of key data is needed to be able to make offers that are truly relevant, targeted, and likely to lead to conversion. The flow does not simply end with the completion of a booking. Real-time delivery of sales into financial accounting can simplify settlement and revenue recognition. Real-time operational data can drive automated, proactive service recovery in case of disruptions – a task today that often requires extensive manual intervention. For far too long, as an industry, we have looked at these barriers individually – and indeed, in the execution this is the way forward. However, we must also to step back and look at the flow in its entirety – offers, orders, service delivery, payments, financial accounting, RM, customer management and so on. This transformational journey will involve many steps along the way, but without seeing the big picture, the course cannot be plotted.

At Travel in Motion, we are passionate about driving this change forward – let us share our expertise with you and help guide you on your transformation to a world of offers, orders and airline retailing and unlocking the value in that vast amount of data.

[1] https://landingcube.com/amazon-statistics/

This post has been published in collaboration with Terrapinn.

(Nick Stott, 5. April 2023)

 

 

The super-app experience of Southeast Asia

The Travel in Motion and Oystin teams attended Aviation Festival Asia this week. We had the opportunity to catch up with industry colleagues in warmer climates, and the opportunity to taste some fantastic local dishes too! Though there was one experience that we rarely get to trial at home in Europe: the super app.

Super apps are prominent here in Southeast Asia and China. They offer a wide range of financial instruments and online-to-offline services such as food delivery, package delivery and transportation. These super apps position themselves in their user’s daily life and create a marketplace around just about anything. The apps are typically connecting buyers with suppliers that, until now, may not have had a digital presence, for example taxi drivers, takeaway houses, and laundrettes.

The super apps have the similar measures for success: user acquisition and retention. It’s all about user activity (and accompanying revenue, of course). They prioritise having access to the right content overlaid with making a customer’s shopping, booking and fulfilment experience excellent. In doing so they increase their share of sales with the supplier, putting them in a superior distribution position. For some services they even set the price, for example with ride hailing.

Customers who find something easy to use return time and time again, often no longer giving the competitors a second look. The super apps are a snowball, the value users place in their brands are increasing and the more daily users they acquire, the easier it is to launch a successful new service.

Airlines too have capitalised on their well-known brand to become part of a user’s daily life, albeit in a different way – the loyalty programme partnership. Your wallet may contain a credit card with an airline logo, your supermarket may advertise the opportunity to earn points and whilst you top up fuel for your car, you may also be topping up your air miles account too.

Whilst airlines are striving to become better retailers, a super app is an extreme form and its value versus cost is unproven. Here are some questions to consider before going down this path:

  • “Is it a feasible proposition for an airline to execute on? Would it lead to positive daily experiences with its brand or lead to negative brand impact?”,
  • “Why would consumers choose an airline over Grab, Uber, WeChat etc…?”,
  • “Should an airline offer these additional services and become a more integral part of users’ daily lives?”,
  • “Does the current loyalty play, where airlines partner with everyday brands, already go far enough to build brand loyalty and affinity to the airline?”, and
  • “Would it lead to consumers valuing the airline brand so much that they don’t shop for flights elsewhere?”

Super apps are built on a deep motivation for excellent user experience, consistency, and commercial policies which promote an ease of doing business. To meet these expectations, super apps have modern, fast, and scalable systems.

One question that arises is whether super apps pose a risk to an airline’s distribution and commercial strategies, could a super app change the airline market in the same way it did for ride hailing. Very few super apps offer public transportation services today. Air Asia’s super app does sell flights and hotels. However, it is powered by an online travel agency (OTA) so the experience is limited to what the OTA can provide, which in turn is often limited by the functionality of the airline. Uber has recently launched trains and coaches on its app and has shown an intent to sell flights too. However, they obtain their content, they are likely to face the same issues as Air Asia, the experience they can provide is limited to what the airline’s capabilities are.

So, should an airline enter this space too? Are they at risk of missing out? Airlines have a lot of competing priorities to contend with, such as their own financial stability as they recover from the COVID-era. Purists may argue that airlines should focus on efficient, safe, and enjoyable transportation. Others within the airlines are focused on a diversification of income streams by leveraging the airline brand. An example of where this has been successful is the airline loyalty business units. They were able to raise funds during COVID, which for some airlines provided a significant lifeline.

Travel in Motion’s (TiM) opinion is that running a consistent experience across multiple services is not for the faint-hearted. This takes considerable focus to get it right, and that will lead to less attention on the airline’s core business. However, we do believe airlines still can learn a lot from the super app experience to guide their own digital offering. Offering relevant and personalised offers, easy-to-use booking systems and a well-designed digital experience to accompany the physical travel journey is extremely valuable to a growing segment of customers.

Airlines have already started down this path by pursuing modern offer and order management systems, a key enabler to meeting the modern customer’s expectation. Those systems could help airlines become a super app. However, we at TiM believe there are many areas airlines will choose to improve once they have a modern technology stack. In doing so they will strive to improve customer satisfaction, revenue, and de-risk being commoditised.

In the meantime, whether you are attended Aviation Festival Asia or not, consider downloading a super app and experience what your customers are experiencing on a daily basis.

 

This post has been published in collaboration with Terrapinn.

(Jason Balluck, 7. March 2023)

 

 

OPPORTUNITIES IN AIRLINE RETAILING

 

We are happy to publish our first whitepaper in 2023, sponsored by OpenJaw. This whitepaper provides a comprehensive overview about opportunities in airline retailing. Our authors have taken a deep dive into modern airline retailing in combination with a view on customer’s expectations and also focussed on how to compete with LCCs – the “inventors” of airline retailing. We invite you to download a copy of the document here.

 

 

 

 

 

 

 

 

 

We haven’t mentioned Blockchain, for quite some time

We at Travel in Motion have already published numerous blogs, white papers, and podcasts about, hopefully, relevant subjects in our industry. But until now we have only once discussed blockchain and this was quite some time, ago. Are we missing out on something? Or are we “clever” enough to know that blockchain is simply a buzzword and will disappear like many others that were once hype and are now out of sight, out of mind? I think it is a case of “neither one nor the other”. As many others, we have mixed feelings about the relevance of blockchain technology in commercial airline IT. Thus, we are simply not yet confident enough to take a definitive position.

Maybe it would be helpful to summarize what blockchain technology really is and where it makes (or could make) the difference in comparison to “traditional” systems, such as databases. For me a good, but non-scientific start to get a high-level understanding of a new topic has often been Wikipedia, which describes blockchain as:

“a distributed ledger with growing lists of records (blocks) that are securely linked together via cryptographic hashes. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data (…). The timestamp proves that the transaction data existed when the block was created. Since each block contains information about the previous block, they effectively form a chain (…), with each additional block linking to the ones before it. Consequently, blockchain transactions are irreversible in that, once they are recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks.”

Comparing blockchain technology with traditional database technology shows that it delivers advantages. IBM provides an informative and easy-to-read summary on their website, which I have used for this blog:

  • Enhanced security: as the records are distributed over numerous entities with an end-to-end encryption, fraud-like manipulation of data and other unauthorized activities are simply not possible.
  • Greater transparency: as a blockchain uses a distributed ledger, all data and transactions are recorded identically in multiple locations. Thus, all participants see the same information at the same time, leading to transparency.
  • Instant traceability: through blockchain the provenance of data is documented and can be audited.
  • Increased efficiency and speed: compared to traditional paper-heavy and manual processes blockchain technology can lead to faster and more efficient execution.
  • Automation: through “smart contracts”, transactions are automated when pre-defined conditions are met. Smart contracts are programs stored on a blockchain that run when predetermined conditions are met.

As I am not a computer scientist, I am still not 100% sure if I understood all the above, but it has at least given me a view of where blockchain technology may provide advantages over traditional database technology. In a traditional database setup, data is stored in tables and can be modified any time. Blockchain is more secure, more or less immune to fraud, transparent and does not require a centralized third party to secure the system. Through this, blockchain as a technology creates confidentiality and trust without being managed centrally.

The probably best-known use of blockchain technology is cryptocurrencies. I must admit that the volatility of values, stored in and managed through cryptocurrencies does not impress me – it even makes me suspicious. But cryptocurrency is just an application that uses blockchain technology and it is probably the best proof point that the underlying blockchain technology really works.

So, what does this mean for commercial airline IT systems? Our ecosystem can also be characterized as an environment where participants are globally distributed, representing different interests with a need to cooperate, and where values are shifted through digitalized channels, requiring the highest security and traceability. Doesn’t this ring a bell? Aren’t these the characteristics that also describe the advantages of blockchain technology? Blockchain is exactly a technology that meets the requirements described above. The issue is only that these requirements already existed long before blockchain became available – and not only that, also these requirements have already been solved long before blockchain appeared on our radar screens. So, is blockchain a wonderful technology that addresses issues which have already been solved in our industry? I think there is an element of truth in this. Replacing legacy technology and processes for the sake of using modern technologies has always been a big challenge and an issue in our industry. Or in other words, while blockchain promises a lot and has also proven to deliver what it promises from a technological standpoint, what are the potential areas of use in our industry? What are the killer use cases for blockchain technology in commercial airline IT? In settlement process? Or distribution perhaps? Or perhaps even a combination of NDC; offer and order management together with blockchain – doesn’t this sound more like a nightmare to some of us?

But as of today, most of us still feel that blockchain is a technology that is rising and becoming more mainstream, but we do not yet know how it will be utilized and what impact it will have. Therefore, I come back to the point mentioned earlier in this blog. We at Travel in Motion are not yet confident enough to take a definitive position. This time we need your help: how do you see blockchain in commercial airline IT? Where do you see a value add? Where do you see use cases? We are looking forward to receiving your thoughts!

This post has been published in collaboration with Terrapinn.

(Boris Padovan, 6. February 2023)

 

 

Airline Distribution Masterclass in Singapore

Airline distribution is evolving faster than ever. Fuelled by advances in technology, communication standards such as NDC, and more recently by the disruption of established GDS commercial models, traditional channels are being complemented and challenged by new ways of distribution. 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.

Together with Oystin we 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 look forward to sharing our learnings, views and actionable insights. Thus, we invite you to our Airline Distribution Masterclass. During this half-day event we will discuss the following topics:

  • Pushing the limits of your existing GDS agreements
  • Overcoming the GDS vs. NDC dichotomy: Evolving GDS commercial models
  • Increasing NDC adoption – overcoming the hurdles to get to critical mass
  • NDC implementation and operational challenges – what to look for

On a recent podcast, Daniel Friedli discussed these topics and the general state of distribution in Asia.

The Airline Distribution Masterclass will take place in

  • Singapore on
  • February 27th, 2023,
  • from 14:00 till 17:30, 

just prior to the Aviation Festival Asia. After the hard work, we invite you to join us for a drinks reception for a further informal exchange.

Please register for this event – space is limited to 40 participants and for airlines only, therefore we will immediately work on your confirmation.

 

REGISTER NOW!

 

 

Big Fish Little Fish

Once a year, when I’m not busy helping airlines figure out their latest integration challenges around NDC or their IBE, I like to go scuba diving and snorkelling. If you’ve never been, I really recommend you give this a try – the underwater world will blow your mind. While scuba diving is allegedly an “adventure” sport, what I like to do most is just lay still in the water and watch the fish go by. It’s fascinating to watch the interactions between the fish, and soon you come to realise that a reef is a real community. The place is usually teeming with little fish going about their business – which usually involves avoiding being eaten by the big fish! However, the little fish also help to keep the reef clean, and some of them even clean the big fish of parasites contributing to a healthy ecosystem. All the fish have to get along, so it’s not simply a case of the big fish eating the little fish (luckily for them!).

One day I got to thinking about the plethora of airlines we have in the world, and all the various systems they choose to use for their various services. In total, there are more than 5000 airlines in the world and about 25 providers of what we would typically call “PSS” services. Here, just like in the underwater world, we also often have big fish and little fish happily living alongside each other. Smaller airlines have very different needs to a larger airline, but often use some of the same reservation system providers – small and big fish in the same big pond. Usually these are the bigger system providers, although there are also some pretty big airlines that use smaller, more niche providers. So, what motivates an airline to be a small fish in a big pond, or a big fish in a little pond? Let’s start with the small airlines, who essentially have two choices: one of the smaller, more niche providers or one of the big two providers of “classic” PSS services. While in earlier times the choice of vendor may be influenced by the airline’s chosen business model (LCC vs. FSC), there is less of a clear demarcation here these days. Most airlines operate a hybrid model with aspects of both an LCC and FSC, and as such need flexibility. The smaller providers tend to be more focussed on the retail aspects of distribution with extensive ancillary product and bundling capabilities in their base product offering. This matches well with the needs of the airlines, who also have to be nimble enough to react to changing market situations with great flexibility. New products can be defined on the fly, while cloud-native applications allow safe, rapid deployment of new features.

The obvious choice for a larger airline would of course be one of the larger PSS vendors. These may not be as flexible in terms of speed to market or modern airline retailing capabilities, as they tend to still rely on legacy artefacts such as PNRs, e-tickets and EMDs for booking, fulfilment, and settlement. However, they do make it work through add-on components and, if your airline has been in business for a few decades, this probably makes perfect sense. While this is not “wrong” per se, it does imply some upstream and downstream complexity within distribution and the afore mentioned processes. Complexity in IT systems typically equates to cost, and as such smaller providers may be able to offer more attractive pricing. On the other hand, the larger providers have the benefit of economies of scale and are often perceived as “a safe pair of hands” (the old adage “nobody ever got fired for buying IBM” springs to mind).

However, the industry is moving in a different, more modern direction with NDC, ONE Order and the transition to offers and orders, pushing the vendors to evolve. Some have embraced this change and are moving forward where they can, while others have been rather hesitant; big fish are not always the most nimble. There are also some airlines that are realising that modern airline retailing is the way forward and are also pushing where they can. But this is change that is of more an evolutionary nature, and as such will take time to show tangible benefits. Together though, airlines and vendors large and small must drive this change forwards and continue to innovate and evolve. Smaller providers have this in their own hands and need to invest in their products and show innovation in driving this transformation forward. The larger vendors have traditionally built-up capabilities based on the needs of their community of users. Here, the onus is on the airlines to communicate their expectations towards their providers in terms of industry change and ensure that the industry as a whole keeps moving in the right direction.

Considering all of the above, it really seems that, just like the coral reef, there is a real community within airlines and vendors, and the fish all need each other to get along, survive and indeed thrive. Without the smaller airlines and providers, the innovation needed to drive lean operations and enable airlines to grow would be missing. Without the bigger airlines, the economies of scale would not work and (at least in the case of some larger airlines) the thought leadership to drive the industry towards modernisation would be lacking.

Working for more than two decades in the industry, jointly my colleagues from Travel in Motion and Oystin Advisory have worked with airlines of all sizes and business models and discovered that the biggest challenge is not necessarily choosing the right PSS vendor – at least not initially. It is about understanding and formalizing the airline’s business needs and challenges based on the overall strategy. Part of executing this strategy is then to choose the right set of products for an airline to suit their own unique needs and enable to them to survive, thrive and drive their business to the next level. Based on this, and unlike the fish in the sea, you have the choice of ponds you want to swim on. Either, as a small fish in a big pond or as a big fish in a small pond. Or, you can even make your own pond.

 

This post has been published in collaboration with Terrapinn.

(Nick Stott, 5. January 2023)

 

 

Customer centricity in aviation

What does that mean to me?

I keep reflecting on the concept of customer centricity in the context of airline passengers. For a long time, I only saw it from the perspective of an airline loyalty programme, because having a particular status meant I got extra benefits to make my trip more comfortable (sometimes). Over the years, however, I have come to realise that this has little to do with the concept of customer centricity, but rather is used as a vehicle to bind a customer to one particular airline (or group of airlines). It is a one-way street that lures the customer in with the promise of benefits and privileges that are actually becoming less and less valuable as airlines reduce the level of service in order to reduce costs. Indeed, I can often get most of the common airline loyalty benefits with a branded credit card.

As an airline, when it comes to judging the loyalty of a customer, there are many factors that need to be considered beyond the simple mechanism of miles or segments flown. Am I really only judged as “important” to an airline if I flew a lot with them within a fixed timeframe? This is a potentially flawed assessment, particularly considering that, regardless of how much I paid for those flights, I might not actually have paid for them myself if I travel a lot for business. In this case, the “customer” may be the company paying for the travel, however “customer centricity” still focuses on the individual travelling. How should lifetime value be measured and assigned between the customer and the traveller when these are not identical? What about my changing needs and behaviours as a traveller, particularly as airlines evolve their product offerings? The airfare for a journey may be optimised to generate the highest possible revenue, but total spend is often not considered. Ancillary products such as more bags and seats typically have higher margins, however loyalty is often only rewarded on the fare paid or distance flown. The view of measuring loyalty over an arbitrary time period may not be the right way for all customer segments. If I only travel a lot every other year, is my total customer lifetime value not worth anything? By stripping benefits through the loss of a status level, airlines run the risk that customers may be less inclined to remain loyal to the airline, rather than recognising that loyalty spans more than a period of 12 months and providing incentives to keep wallet share even when customers are not flying.

My reasons for travelling are usually different for each journey – even if there are similarities. However, the service I receive (as a loyal customer) is almost always the same. While airlines cannot read my mind, does it always have to be the same service I receive when my needs are constantly changing? There may be clues in my travel patterns and behaviour that can be used to give direction when trying to become more customer centric. However, picking up on these subtle hints can be difficult and actioning them even more so. Maybe, as a result of my status, I get to take a second bag on a short business trip. While I may appreciate the extra luggage if I’m travelling long-haul for two weeks, I don’t need two heavy bags when traveling alone and using public transport upon arrival at my destination.

Recognising such situations is not difficult, but usually airlines do not take time to join the dots and figure out what I might really appreciate. The needs of every traveller are unique, and my needs are different almost every time I head off on a journey. However, there are patterns that are not necessarily common to me as an individual traveller, but rather to my demographic (“segment” or “cohort” if you prefer). Through tracking decisions and actions taken (or not taken), airlines can begin to make sense of a collection of seemingly random data points. If we then apply some machine learning to this and ask the right questions of this data, perhaps things become a little less hazy. When airlines begin to action some of these findings is when I will start feeling that the airline is focussing on my needs. Then I will finally start feeling the customer centricity, and can choose the additional services according to my needs. These needs may, or probably will, be specific to each journey. I may want to forgo the lounge because I prefer a short transit time to get to my destination faster. I may want to take two carry-on bags so I don’t have to go to check-in or risk the bag not arriving. I always want the option to upgrade my flight with miles or for cash if there is space on the flight – I always ask, so why do airlines not ask me, especially if there are premium cabin seats available and I have sufficient miles? Having to wait until I get to the gate only to be told there are not enough meals loaded is neither customer centricity nor good business sense. I am not unique with having these same behavioural patterns, but if we never look for patterns, we will never find them.

Travel is a journey rather than a flight between two points, and as a traveller, I make dozens of decisions along the way. I decide how I get to the airport, how I take my luggage, how comfortable and pampered (or not) I’d like or expect to be on board, where I stay when I get to my destination, how I get there. I make decisions about what I buy and what I don’t buy. And very importantly, I decide on whether I was satisfied with what I bought or whether my needs were not met. Did the airline ask me how I found the service on board or how the booking and check-in process was?

There is a vast ocean of data available on every single airline customer which can be collected from the time of shopping for flights and throughout the customer’s journey. Many customers will be happy to share even more data with airlines if it is used for their benefit and not just for maximising revenues for the airline. This is a call-to-action for airlines to rethink their customer-centricity processes, their availability of the related data, and for the airlines to collect and use the data to improve customer service and create personalised or tailored product offerings.

While I understand that airlines constantly have to balance customer centricity with operational and financial efficiency, a lot can be done with presumably manageable effort and investment. However, unless all organisations within the airline agree on what the airline’s goal and business model is, will there ever be agreement on what customer centricity means?

 

This post has been published in collaboration with Terrapinn.

(Mona Kristensen, 5. December 2022)

 

 

Hey Airline Exec – Put your bum in my seat!

Hey Airline Exec – Put your bum in my seat!

There is a lot of talk about customer experience, customer centricity, net promotor scores and the like amongst the airlines. Seemingly more now than ever before. But where and when does customer centricity come into play? And more crucially, why is it not working – or at least, not the way the customer feels it should?

What is Customer Experience?

To get us all on the same page, we should define what we mean by the term “customer experience”. Basically, we are talking about how an airline engages with customers in any form – through personal contacts at a counter or on board a flight, through digital means such as an airline website or mobile app, through visual means such as airport signage and onboard materials or through communication such as emails, phone calls, chats, and others.

A good customer experience instils trust, is easy and quick, provides clarity, and focuses on the customer’s need and should be (where possible and feasible), in the customer’s interest even if that clashes with the airline’s. Now, that doesn’t mean that a good customer experience results in an airline always giving in, but it does mean the airline finds a solution.

Also, what may be perceived as a great customer experience for me because it is all digital and self-service does not mean it is a good customer experience for my grandmother.

The Journey

Let’s start with the customer journey to get a better understanding of where and when the customer experience really comes into play. This is fairly simple: the experience encompasses everything from the first interaction with an airline until well after any trip I take. That was easy, wasn’t it? Well, perhaps we can break it down a bit more to get a little more insight.

First, let’s consider the inspiration phase where the airline is sending promotional mails, or a customer is hunting for prices and destinations on an airline website. In this phase, the airline should focus on an initial understanding of the customer – who is asking, and why? Sometimes the airline will know quite a bit about certain customers, in others they know very little. In such cases, creating a meaningful mail or putting the right products and destinations on the website can be done by applying segmentation and sampling logic.

During the shopping phase, very much like in the inspiration, the airline may or may not know the customer. However, the contents of the shopping request and the meta-information related to the request (e.g., what time and which weekday was it made, which channel etc.) can help in figuring out the intent of the customer and give some context. And in the cases a customer is known, previous behaviour and purchases (or the lack thereof) can help.

In the pre-travel phase, which are the days and hours leading up to the event and can be somewhat emotional, and stressful, for many who do not travel often, some guidance can help. While many airlines send emails, these are seldom helpful or focused on a specific customer or journey. But hey, it really isn’t that hard to get the context and content right. I don’t need the weather for 10 days if my return flight is two days later. Or instead of a generic, text-only email which is nearly two pages long, how about a mail which is simple to understand, focused on my journey and my travel class, and has links if I need to know more? Has anyone ever asked the customers what they want to know?

At the airport, the biggest challenges are often the signage, and the lack of control over many processes such as security and managing crowds. However, where an airline should be able to take influence is in their staff, or the representation through the ground handlers. The often-heard stories of customers who know more about flight delays than staff should be long gone and shows the lack of a communication strategy within the airline. Better pre-flight information via email or the app can help and simplifying the search for relevant information through enhanced chat and FAQs would serve customers well.

Each flight experience and airline is different. In flight, there are of course many aspects of customer experience we could talk about, from levels of service to staff friendliness and onboard facilities, however this would be enough to cover a blog post itself. Most airlines do a really good job and hats off to them.

Perhaps one of the biggest areas in which improvements can be made is when the need for changing travel plans arises, be that willingly or not. Or, when during a journey, unexpected things happen – because they inevitably do. How do we communicate and interact with the customer? How much information do we share? Can we be proactive in suggesting smart alternatives and solutions?

After the journey, a simple follow-up mail with a thank you would work wonders. I have rarely received one. And when things didn’t go to plan, how about an apology mail? I have never received one of those either. I don’t expect more – I don’t need miles or vouchers – at least not if the disruption wasn’t drastic. But not receiving a “thank you” or “we’re sorry” basically shows that for the airline, the journey is somewhat “fire and forget”. Does the airline even know or care how my journey went?

Well heck, why doesn’t it work?

I have a theory. and will turn this theory into a call to action. First and foremost, I wonder how many C-Level airline executives, VPs and directors actually travel, well, like travellers would travel. In my experience, none. They have staff tickets and people who book for them. They never follow the customer’s path. When missing a flight, they can easily no-show, knowing they can go-show on the next flight. Sure, they sometimes have to deal with being a “passenger available for disembarkation”, however they can also get insight into booking figures or call duty travel to rearrange flights, often with other airlines with no cost to the “customer” at all. Why don’t designated decision makers search, book, rebook and travel like the 99% of people sitting on their aircraft? Why don’t they use the apps to check-in or try to change their bookings like a consumer would? That could result in some eye-openers, I’m certain. Most likely it would also lead to a better understanding of the Net Promoter Score (NPS). Oh wait, you don’t measure that? Or you do, but don’t analyse the results and take action?

Surveys such as NPS are a great means to understanding satisfaction. However, it is not enough to conduct a survey. Two airlines we have worked with over the past years had task forces in place to evaluate NPS surveys and create action plans for improvement. These were very structured processes, with a dedicated team and empowerment to influence the different departments in the airline to constantly improve customer service. The issues, actions and improvements were presented twice a month at executive level, with buy-in from all departments within the airline. In both cases, NPS scores increased, and while the increases were only marginal in the first six months, they grew considerably faster once the improvement team and the processes were established and the first “quick wins” identified and implemented.

We suggest that airlines start doing two things if you do not already:

  • Make sure that decision makers can travel like customers a few times each year. Make them book online or via the app – or even with a travel agency. Travel like the masses – don’t call in for privileges, sit in the back, book non-flex tickets.
  • Measure and act and get help doing so if necessary.

Why are we asking you to do this? Well, as an industry, we have moved so far towards this vision of retailing and customer centricity. All the talk is about systems and technology, about retailing and customer data, about segmentation and creating personalised offers. That is all great, and we share the vision here at Travel in Motion. However, there is more to it than a vision of airline retailing with offers and orders, or other buzzwords like NDC, ONE Order, Dynamic Offers, Continuous Pricing and what have you. At the end of the day, the customer has to be happy.

 

This post has been published in collaboration with Terrapinn.

(Daniel Friedli, 3. November 2022)