Category: Digital Transformation

Tickets – can we live without them?

The commercial airline world has for decades revolved around one vital artefact – the ticket. As a traveller, the ticket has always served as something tangible to hold on to as an entitlement to travel (until this was replaced by the electronic ticket, at least!). However, as the world has become more digital, airline passengers have become accustomed to electronic tickets, and of course there are many “ticketless” airlines now, using receipts as confirmation of the entitlement to travel. Behind the scenes, however, many of these “ticketless” transactions are not really this at all, with tickets still being issued in the airline’s reservation system. Even with transactions using NDC messaging to facilitate the purchase, many airlines still choose to issue tickets, whether the traveller really needs one or not, because internal airline processes are often still heavily dependent on ticket numbers and the fare and fare construction information stored in the ticket, as well as the processes which transfer this ticket information to revenue accounting. At the same time, payment processes are evolving, with new alternative payment methods becoming increasingly in demand. Travellers’ expectations are also increasing – they expect to be able to change flights, add on optional services, and even rebook their entire travel plans with the same ease they can change their TV subscriptions. However, the complexity in the background that many airlines manage to hide from their customers gets in the way – an e-ticket is not in the status expected, or there is a mismatch between the ticket and the booking due to a schedule change, for example. Eliminating this complexity is an enormous undertaking, and currently many airlines are struggling to resolve this conundrum.

The shift towards orders may be helping airlines to think (and act) more like retailers. But this has not yet taken away any of the legacy complexity behind the scenes. There is a catch-22 situation for most airlines: tickets cannot be eliminated due to the many dependencies on them still in legacy systems, however the legacy dependencies cannot be eliminated while tickets are still so prevalent. But what are the drivers behind this complexity and the associated dependencies? Well, the ticket contains a few key items of information that are of extreme interest for many different entities within an airline. The fare basis code, for example, is used not only in accounting but in billing and settlement process, route profitability analysis and forecasting, revenue management and countless reporting processes. The flow of this information from the originating system (the PSS) into a plethora of downstream consumers is very difficult to disentangle. The transition from PNRs and tickets to orders would appear to give the ideal vehicle to redefine this flow of data, however the integration points between the various components tend to be very old, complex and are often unstructured or proprietary. Such a transformation is, therefore, costly, and laden with risks – things all airlines want to avoid.

Nevertheless, there is some hope in the form of NDC and, more importantly, ONE Order. The use of orders to augment (and eventually replace) the PNR and e-ticket brings a set of possibilities that airlines can use to address some of the transformation challenges mentioned earlier. The exact same information needed by the airline’s numerous reporting systems, accounting processes and forecasting tools is available in the order, however in a more structured and standardised format. The standards are also in place to facilitate the exchange of such information between users of the data – the ONE Order standards are simple, efficient and already implemented by most of the leading Order Management Systems (OMS) and accounting system providers. Along with NDC and ONE Order, a new IATA standard process known as “Settlement with Orders” (SwO) aims to address another common concern of airlines that has also maybe been holding back the transformation to orders. In indirect channels, where payment is often taken by the retailer (e.g. travel agency, corporate booking platform etc.), the ticket has been the sole basis for ensuring the flow of money from the retailer of the service to the supplier (the airline). As a result of this, tickets are still extremely widespread within indirect distribution, even where these may have been facilitated by NDC messaging. The same applies for interline distribution, where the use of NDC is not very common, or rather, almost non-existent.

While standard settlement processors such as BSP and ARC have adapted to support NDC, the SwO standard serves to provide “a framework for the settlement of orders between partners”. This differs from the previous approaches in that it introduces a new process and modernised set of messages, rather than trying to adapt an existing process to meet the needs of the future. As with NDC and ONE Order, the process does not mandate the use of tickets and EMDs as value documents and is expected to cover not only retailer-supplier settlement, but also interline and even intermodal cases. Will this bring any significant shift away from the dependency on tickets that many airlines still have? Well, as with NDC and ONE Order before, the SwO standard is not likely to solve all challenges and airline may have around settlement, reporting and accounting, data analytics and so on. Still, it does strive to ease another impasse in the existing legacy processes. First NDC gave an alternative approach to the creation of offers, providing the opportunity to get away from concepts such as booking designators, filed fares and other traditional fare and pricing concepts. Then, ONE Order took this a step further, allowing products to be managed more as Stock Keeping Units (SKUs) like in retail rather than airline inventory, independent of the need for tickets and EMDs. However, due to some of the key dependencies mentioned earlier, the majority of airlines have not been able to truly embrace these retailing concepts. And as with the earlier initiatives around “enhanced and simplified distribution”, SwO will not provide an overnight remedy to eliminate the legacy baggage most airlines still carry, it does provide a way forward for re-thinking the integration with downstream applications. Ironically, the interactions between airlines and those selling its products are some of the most disjointed. With SwO, along with NDC and ONE Order, these interactions can become richer conversations between partners. In turn, this may enable airlines truly to begin eliminating some of the legacy concepts that have been hanging around, slowing down the overall progress in the modernisation of airline distribution.

 

This post has been published in collaboration with Terrapinn.

(Nick Stott, 12. September 2022)

Dipping your feet in customer segmentation

There has been a lot of talk about customer segmentation and personalisation in the past few years. However, there is little evidence that airlines are actually applying any sophisticated level of either – personalisation or segmentation. We may receive marketing emails from airlines with very basic “Dear Mr. Friedli” salutations as an attempt at recognition, however the content of the mail is the same as the next and usually has nothing to do with my travel patterns or signalled intent. While some airlines are better than others in content marketing based on segmentation, most are far from the level which retailers are at. And the furthest extent of segmentation is typically in marketing mails.

During the offer creation process, the airlines’ lack of maturity is even more visible, be it on an airline’s website or app, or via new channels such as the API-driven NDC-channel. In the best case, there may be some differentiation based on the classification as a business traveller or a leisure customer. However, often I may be both, and here things fail.

The purchase process on the website, in most cases, is standardised in terms of process flow and content. Rarely do airlines apply a level of segmentation based on user data or ongoing input from the consumer. Even the promise of new distribution methods enabling “better personalisation and targeted offers” has rarely been fulfilled.

This article focuses on segmentation – or the lack thereof – during the offer creation process.

Why segmentation?

Traditionally, airlines would use very basic indicators to apply customer segmentation during the offer creation process. Segmentation was mainly limited to two segments: business and leisure travellers. This was controlled through characteristics such as weekend stays, duration and other, rather simplistic fare rules and parameters. Today, customers expect tailored content. As a matter of fact, 80% of customers expect a personalised brand experience according to research by Epslion.

The advantage of the basic, fare parameter-based segmentation method is that it will work through traditional channels such as legacy GDS distribution with ATPCO-based fare filing. The disadvantage? It is not a very fine-grained segmentation, nor does it reflect the changed travel behaviours, changed willingness to pay behaviour and changed airline fare products nor the new and enhanced airline and third-party ancillary products.

Applying fine-grained customer segmentation can increase airlines’ revenue, both by increasing conversion and by upselling products to the customer, thus getting just that little bit more of the customer’s wallet share. In consumer retail, estimates and past research show that revenues can be increased by up to 3% to 5% using segmentation and creating tailored offers. Additionally, it is safe to assume that applying smart segmentation can improve customer satisfaction by showing the customer more relevant content.

As distribution is shifting to more direct distribution for many airlines, and a shift towards NDC-based direct-connect distribution on the indirect side, there is growing value in segmentation as it can be applied to a larger customer segment.

What is holding the airlines back?

A combination of a lack of focus or strategy for segmentation, technology challenges, a lack of resources with the knowledge and experience and the inability to analyse customer behaviour, purchasing data and other data-related deficiencies seem to be the reason why airlines have not spent more time on this topic. It could be that airlines are just not convinced that better and more refined segmentation leads to additional revenue and customer experience. Let’s discuss these factors individually.

Strategy and focus

As segmentation has typically been the realm of the marketing and loyalty department, this is not an area which has been in the focus of the product and pricing teams in the past, except to the extent where it was required for basic segmentation. Furthermore, there is often a silo-challenge, whereby the eCommerce team is not in close communication with the revenue management and ancillary team, and the distribution team focusing on NDC and newer offer solutions such as an OMS are different yet again. However, the segmentation strategy for offer creation should, in our opinion, be anchored at the highest level with the overarching distribution strategy, and encompass all channels, segments and products.

Technology

There are a few angles of the technology aspect, and these differ considerably between airlines, depending on the organisation, the solutions in place and the organisation’s digital maturity. However, technology is available to enable an airline to do refined segmentation during offer creation. Optimally, an airline would have a central offer creation solution, or OMS. This would not only feed the airline’s own digital channels, but also the direct-connect channels such as NDC. Within or supporting the OMS, the airline would have a segmentation solution allowing it to determine, based upon each request, a customer segment and in many cases, the context or intent of the request and thus the customer.

Widely available are solutions for the website and mobile app today already and airlines are urged to grasp at the low-hanging fruit of segmentation in the digital channels, as these can be implemented relatively quickly and even managed by third parties, should an airline not have the resources. At the same time, these solutions are often quite advanced and allow for in-depth A/B testing of the success of your segmentation approach.

Resources and skills

Perhaps one of the greatest challenges is within an airline’s organisation. Many airlines continue to have the traditional organisational structure which has been prevalent for decades. Very few have adapted their organisations to align to modern retailers. These typically have a structure which is very much optimised and focused on sales (or channels), products, customer experience and finally, technology enablement. This type of setup could be well aligned to a commercial organisation within an airline.

The second challenge is having the skillsets which understand retail, digital and (new, digital) customer experience. Typically, these will need to come from outside the industry, meaning that they will lack any understanding of the fundamentals of the industry. However, an airline needs to ensure that the complexity of the business is understood, as there are elements of our industry which do not relate in the digital banking, insurance, or retail world. The airline industry is still governed by many standards and interaction protocols, we have regulatory bodies which allow us to interact with other airlines and, for example, governments. Thus, while the outside-in approach is a great way to bring new talent and knowledge, there is a need for bi-directional training within the organisations.

Should an airline be lacking the skills or resources, these can often be acquired as a service.

Product and offer optimisation capability

While we touched on the technology and skillset above, we now need to bring these together. Based on the segmentation strategy outlined previously, using the technology and the know-how we now have, it is time to execute the plan.

There are a number of tasks to be undertaken:

  • Define the actual segments or demand spaces, and create all required sub-segments based on, for example, geography, point of sale, demographics, and channels.
  • Define which ancillaries or fare products are relevant to which segments or demand spaces.
  • Define how pricing can be optimised to each segment’s willingness to pay, focusing on increasing conversion.
  • Creating bundles of products and services likely to be purchased by the segments.
  • Implementing the logic, business rules or algorithms within the offer engine or digital channels to analyse the request and the context or intent, select the right set of applicable products and create a number of tailored offers.
  • Implement A/B testing to measure the success and confirm any hypotheses made, especially in the initial phases, However, there is a need to continuously measure and test, as the optimisation is a never-ending process.

Data

For airlines, there is rarely a lack of data. It is available in abundance, however, perhaps not structured or easily accessible. Data is essential, however, to create an initial set of customer segments as well as an initial definition of tailored products and services per segment. Typically, this can be defined based on past purchase data.

Further, data from each request, as well as data from customer history or your customer data management (CDM) solution (e.g., the loyalty system) can be used to create the “on-the-fly” offer. There is a lot of valuable information in requests made through digital channels or the API channel which can be used. This includes obvious elements such as the cities travelled from and to, the number and types of passengers and the date of travel. However, other elements can be used as indicators as well, such as the amount of time a search is done before travel, the duration and days, the season in combination with the destination and many others.

Can an airline take baby steps to improve?

While the five groups of activities outlined above may seem a lot to deal with, this does not all have to be done at once. And, while there can be compelling events which offer the opportunity to consider the overall strategy and execution thereof as part of the process (such as when redefining your distribution strategy or implementing an OMS or upgrading your eCommerce platform), bits and pieces of all the above steps can already lead in the right direction.

An isolated micro-segmentation strategy can be a great first step, based on existing booking data and analytics from the website. Alternatively, implementing software on your website which helps with targeted offers and segmentation can be done in a matter of weeks, with initial results seen in a few months. This can be procured as a service, allowing the airline to focus on other topics at hand. Categorising the existing ancillaries and fare products to a basic and simple demand space structure, and creating some static bundles aligned to these can typically be implemented relatively quickly.

In any case, if you go big or small, take a giant leap or a baby step, it is strongly encouraged to seize the opportunity and not to wait with segmentation. As we work with airlines around the globe, this has become one of the key topics of interest and development, and will help airlines take one more step towards becoming retailers within the travel industry.

 

This post has been published in collaboration with Terrapinn.

(Daniel Friedli, 12. August 2022)

Airline Digital Retail – Vendors’ View on Challenges and Opportunities of the COVID Crisis

September 2020 – The airline industry has been hard hit by the global Covid-19 pandemic. Airlines have grounded their fleets, or reduced their capacity by 60, 70% or more. Since March 2020, travel has drastically changed, and the market is very slow to recover. At the time of this blog post at the end of September 2020, we are seeing a very slow recovery in the global air transportation market. For some domestic markets, things look a lot better, especially for China where domestic travel is at over 90% of the capacity it was one year ago, thanks in large parts to their effective management of the pandemic as well as government stimulus to travel.

Basically, the airlines’ opportunity to sell travel and related ancillary services has become almost impossible. However, it is not yet time to give up. Governments have been helping airlines through loans, while the airlines themselves have been streamlining their operations and reducing their fixed costs and their fleets. They are also becomming innovative and creative, offering products which are pandemic-compliant, giving customers the opportunity to travel more safely, rebook when necessary and protecting their staff from direct interaction with customers where there are other possibilities. Two such examples are the sales of free middle seats and a charge for checking in in person at the airport. Now, while neither is new, both of these product have been given considerable boosts through the pandemic, and more airlines have decided to offer these as a result of Covid-19. Supporting the airlines through the crisis are also the technology solution providers. They too are suffering from the loss of key revenue streams, however, have an invested interest in supporting their airline customers in the recovery.

Travel in Motion took this opportunity to talk to five of the leading airline digital retailers to gain an understanding of how this pandemic is affecting them, and how they are helping their airline customers get through this. We also heard a lot of considerations around how this is affecting their own companies and their respective strategies and key learnings. Except for the last podcast, which was moderated by Boris Padovan, Principal Consultant at TiM, the interviews were conducted by Daniel Friedli, Managing Director of Travel in Motion.

A final session with all five participants will close this series of TiM’s podcasts. In this 45 minute “virtual” panel we will jointly reflect on the consequences of this global disruption and discuss learnings for the overall aviation industry. This podcast will be conducted after the five individual interviews have been published.

We kicked off our discussion with Jim Davidson, Chief Product Officer at Accelya. After the acquisition of Farelogix through Accelya, Jim has taken the challenge to work on setting up Accelya to offer end-to-end retailing, from offers to selling, delivery to settlement.
Our favourite quote from Jim: The concept of retailing is proven to be resistant even to the pandemic… the concept is still trying to match those services that are best equipped to the needs of the flying customer.” Listen to our interview with Jim.

In the second podcast, we discussed these topics with Sean Corkery, CEO of Datalex. Having gone through a large transformation programme in 2019, they had already set themselves up to be very efficient and delivery focused.
Our favourite quote from Sean:This is not a time for gain, this is a time for really underlining your value-add to your customers.Listen to our interview with Sean.

The third interview was with Bryan Porter, Chief Commercial Officer of OpenJaw Technologies. OpenJaw is in the privileged situation to have a considerable part of their business in China, in which the domestic market is recovering faster than anywhere else in the world.
Our favourite quote from Bryan: Reassurance has become the watch-word for recovery.Listen to our interview with Bryan.

PROSSurain Adyanthaya was our fourth guest. With PROS’ growing ecosystem from revenue management to airline digital retailing solutions, their view on the market, especially with the insights into their customers’ revenue management strategies, was very interesting.
Our favourite quote from Surain: The key to success for airlines is to be nimble and flexible. Things happen!

Finally, we spoke with Andy Kidd from SAP. Andy outlined how airlines, especially in Asia, have circled toward digital, and how this will benefit them in these challenging times. He further elaborates on how the customer experience is affected and can be improved with ONE Order.
Our favourite quote from Andy: The majority, if not all airlines, have a digital transformation programme but what we’ve seen in retail is that some companies have accelerated what was years into months…

For the final session we are looking forward to hosting Jim, Sean, Bryan, Surain and Andy. It will certainly be an interesting discussion and we hope that it will gain more insights for our industry community.

These podcasts will be released in the upcoming weeks, one per week, on Mondays. The first podcast will be released on Monday, 5 October. Each subsequent release will be available on the Travel in Motion website. If you would like to be notified of each podcast, subscribe to our newsletter here.

Airline PSS Decisions – Challenge and Opportunity!

PSS Decisions Airlines need to take

There is no airline which has not been hit hard by the current global health crisis. The results for the airlines are challenging and in many cases devastating. Based on all the challenges, it probably is not at the front of the CCO’s mind to think about the Passenger Service System (PSS) right now. Or, maybe for some it is. In many cases, stakeholders are now thinking about how they can make the airline more efficient and, amongst other things, automate more processes to cope with these kinds of situations and reduce costs. Also, with much of the initial hectic related to rebooking and refunds, alongside figuring out where the fleet is and should be going (and not going) now behind us, thoughts must be focused on the future of the airline.

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