Tag: airline distribution

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)

If you are interested in a deeper discussion about this topic: Listen to our latest TiMCAST 15 on 15 where Joanna Catalano  of Piano.io shares his views on the subject.

 

At the crossroads: remaining on traditional PSS or entering the brave new world of airline retail?

The pandemic brought the airline industry to a standstill. Not only were flights and aircraft grounded and much project work came to a halt, the shutdown also affected many activities around airline commercial systems. Due to the sudden drop in revenues, airlines often had to request relief from contractual commitments with vendors, which was often granted in return for early contract renewals or agreeing contracts for additional services.

Now the pandemic seems to be over and the industry is fighting other challenges such as the effects of the war in Ukraine and an overall shortage of resources and infrastructure. At the same time, projects once stopped have been restarted again. The experience of the past two years has shown that customer service and the need for additional revenue streams are becoming essential for airlines. Thus, a flood of engagements in airline customer centricity, customer servicing and airline retailing are currently underway, shaping the commercial future of the industry. But when outlining and executing a strategy in this area, airlines often hit reality when identifying that their current Passenger Service System (PSS) represents a bottleneck. Traditional PSS are built around supporting a trip and do not focus on customer-centric servicing. In addition, growing revenues through ancillaries is often limited to seats, additional baggage, and other flight-related offerings. Providing further third-party ancillaries (not even considering a broader retailing strategy) often appears more wishful thinking then reality. Modern Offer and Order Management Systems are being built to close these gaps, but as they are in most cases dependent on a PSS, they are also limited by them. In addition, existing PSS contracts are typically of a monolithic nature, meaning that airlines have little freedom to pick and choose solutions from a handful of providers at competitive cost.

But as the pandemic has ended, numerous PSS contracts (including those that were temporarily renewed during the crisis) are coming to market. This provides airlines with an opening to rethink and restructure their setup of commercial systems. In essence, they need to achieve two sometimes conflicting targets: continue their operations on a proven “legacy” PSS that supports existing industry processes and industry-specific connectivity (codeshare, interlining, etc.), as well using this opportunity to shift to customer-centric, retail-driven commercial systems. In essence: combining the old world with the new. But the providers, both “legacy” and more “modern” ones, try to push the airlines into their own direction: remain on a classical PSS with a promise to enhance services towards real customer centricity and airline retailing, or move into the bright new world built around customer centricity and airline retailing, but with limited integration into the legacy airline world.

The ultimate target for airlines currently thinking about renewing or changing PSS is to secure the best of both worlds: to remain on a legacy solution at least temporarily, while preparing to embark on their customer-centric retailing journey. Consequently, airlines need to shift from a “one-stop shop” to a multi-vendor approach and avoid putting all their eggs in one basket.

A number of items should be considered when contemplating this approach:

  • Be clear about the airline commercial model and the commercial strategy, as these are key to choosing the right commercial ecosystem. Some basic questions must be answered, such as how will the airline interact with other airlines, what kind of service will be provided to the customer and how does the airline plan to sell its services?
  • How will products and offerings be distributed? Through digital-direct channels? Will aggregators be used? Maybe even legacy GDS? The airline’s distribution strategy needs to be clearly defined, as this sets basic parameters for many subsequent choices.
  • Is the airline willing to be a trailblazer, with the ability and appetite for something new to really differentiate from competition? Or is the preference to de-risk the use of new technologies, maybe at the cost of competitive advantage?
  • Are the resources available to integrate technologies and services from numerous providers? Regardless of whether they are in-house or provided by system integrators, they represent a cost that must be managed.
  • What is the optimal split between capital expenditure and operating expenses? Using a system that is provided out of the box as Software as a Service (Saas) mainly drives operational costs, while a dedicated solution from multiple vendors carries higher capital expenditure.

Not all questions can be answered ahead of a procurement process, especially as most of these considerations are highly interdependent. Therefore, the structure of a procurement strategy should reflect the following points:

  • Do not focus on buying a “prefabricated house”. Identify and define modules which can be combined, even if they are provided by different providers.
  • As the industry is evolving, prevent long-term commitments for services that are only starting to take off. Maintain flexibility to replace modules through third-party suppliers, even during the term of the contract and have this reflected in the contracts.
  • Agree on pricing for the integration and utilisation of third-party solutions. Do not accept paying for services you no longer use.
  • Get the providers’ commitment to technically support and integrate third-party solutions based on APIs and web services.
  • Look for integration capabilities – a “custom-made house” needs an architect and the staff to put it together. The same applies for the procurement of unbundled commercial system components.
  • Do not neglect the importance of data, the ownership thereof and the airline’s access to own data in light of making this data available throughout the ecosystem.
  • Start the procurement exercise early, based on the airline’s commercial strategy. A complex process with numerous solutions and suppliers providing different modules may take up to a year. Migration planning and the actual migration may easily take an additional year.

The industry is changing, and the pandemic and current resource crisis have accelerated the need for change. It is more necessary than ever to bridge the gap between legacy and the new world, with a clear commitment to customer centricity and retail-driven commercial systems. Unfortunately, the airline industry is one of the slowest movers, and at least for the time being, airlines need to have a foot in the door of both worlds.

 

This post has been published in collaboration with Terrapinn.

(Boris Padovan, 14. July 2022)

 

 

One Order: The proof of the pudding is in the eating

NDC has transformed airline distribution. Well, while that particular statement can be debated for many hours, one thing that can be said is that it has changed the vocabulary of airline distribution. The mindset of airline distribution has genuinely been transformed to think in terms of “offers” and “orders”, about APIs and dynamic bundles and so on. Indeed, many airlines are implementing these concepts in their distribution landscape.

But what has really changed, beyond some terminology? Well, for certain, airlines are thinking much more like retailers. They are thinking about the customer (purchasing) experience, products, bundles, segmentation, and they are thinking about how to get these into their distribution channels as offers – through NDC and their digital direct channels. The transformation of an offer into a sale of products is resulting in the creation of orders. However, most orders still rely on a system which also uses legacy artefacts such as PNRs, tickets and EMDs.

As airlines become more retail-focussed, more confident in their capabilities as retailers and more well-equipped with tools to enable this, the more creative and ambitious airlines will become. More products in bundles, different products in different markets, integrations with providers of travel-related services that see the market developing as the technical obstacles of legacy artefacts are steadily removed from the equation. This gentle transformation is also driving changes elsewhere throughout airline organisations, as the knock-on effects of these begin to be noticed. Orders created within an order management system provide a vehicle for simplified settlement processes between sales channels (retailers) and the airlines as sellers. While the full complexity of airline revenue accounting, proration, BSP and other settlement flows cannot be eliminated overnight, the ONE Order accounting standards are enabling change. As the maturity of NDC distribution increases and orders become more prevalent, airline IT providers are presented with opportunities to bring further simplification, leveraging NDC and ONE Order. Providers of Order Management Systems (OMS) are now able to integrate directly with airline accounting systems in real-time, bypassing much of the legacy complexity associated with PNRs, tickets and EMDs.

However, there is more to being a successful airline retailer than creating offers, converting them into orders and feeding the fruits of these sales into the airline’s financial systems. At some point in time, there will be a customer who has expectations based on their wider retail experiences. The retail possibilities that airlines are now becoming exposed to go far beyond their own domain. While the additional bag will (hopefully) be visible at the time of check-in, and the lounge may be run by the airline, what about the pre-booked parking, fast-track security or the express train to the airport? The airline is unlikely to be the entity responsible for delivering the service in these cases, but the expectations of the customer are the same as when they present at the desk to drop off their bag – it should just work. However, interacting with all these new parties to ensure “it just works” is unchartered territory for many airlines. More and more, this involves pushing an order notification to the external service provider via the OMS to fulfil a service. Interactive two-way messaging related to order fulfilment is new. And, in the envisaged world where the PNR and ticket are superfluous, even the interactions with the check-in providers need to be brought into the era of APIs and open integration standards.

In conjunction with airlines, vendors and other industry stakeholders, IATA has anticipated this and has developed a set of standards within the ONE Order framework to enable the delivery of services using orders. These messages can be used by an OMS to trigger the delivery by pushing information to the responsible party or can be used by delivery providers to pull the necessary information proactively. They can track consumption of services as well, which is key to triggering accounting and settlement processes. However, certification for ONE Order capabilities is still very light compared to NDC. While the certifications only may only be taken as a loose measure of maturity, it would appear that there may be a vast gap between what airlines can now sell and what (or rather how) they can deliver.

The reasons for this apparent mismatch are manifold and varied in their nature (technical, process-related, commercial), and some may be easier to resolve than others. What is more concerning though is the apparent lack of awareness of this mismatch among the broader industry. Great focus has been placed on promoting the need for modernisation in how airlines define and sell their products and services. However, there is still one key component that will become a challenge sooner rather than later – where the customer gets to seamlessly experience all those products and services that the airline invested so much effort in to get the customer to purchase.

The collaboration between airlines and their OMS partners is, generally speaking, mature, collaborative and based on a common understanding of business value and goals. The relationship between airlines and their ground handling partners is of a very different, operational nature and is often very cost-driven to extract the maximum value at the lowest cost. On the other hand, the relationship between OMS providers and ground handlers is non-existent in most cases.

Planning and executing the smooth delivery of products is key to being a successful retailer. Achieving this requires close alignment between all stakeholders: airlines, their OMS providers and crucially, the ground handlers and other partners, in and around the airport, in the air or wherever else they may be. So far, the focus has been on the selling aspect of retailing and increasing revenue and airline wallet share. However, if airlines are really to succeed as retailers, customer satisfaction will be determined by what, and how, they deliver. The proof of the pudding is in the eating.

This post has been published in collaboration with Terrapinn.

(Nick Stott, 7. June 2022)

If you are interested in a deeper discussion about this topic: Listen to our latest TiMCAST 15 on 15 where Jost Daft of LH Group shares his views on the subject.

 

Putting the (NDC) cart before the (distribution) horse

Even though NDC has been around for several years, there are still many airlines either planning an implementation, just starting an implementation, or expanding a basic implementation to a higher level of functional maturity. NDC can change an airline’s distribution opportunities considerably and is much more than a technology project around API integration. It is very much about the opportunity to make relevant offers to the customers, sell more and better-suited ancillaries, potentially implement new pricing concepts in the indirect channel and controlling the offer and the order.

A common criticism, especially from travel agencies, is that NDC provides no added value and differentiation, but rather only leads to higher complexity. This criticism is fair in some cases, as a lot of airlines still barely differentiate the content distributed via NDC, providing largely the same products and services to the same conditions as in traditional GDS distribution. There are basically three reasons why that may be the case; it could be that the airline lacks a clear strategy on how to serve the NDC channel, the airline is constrained in their distribution via NDC by existing distribution contracts, or they may have a strategy, however, do not yet have the necessary systems and business process in place to execute the strategy. In many cases, it is a combination of all of them.

When an airline goes down the NDC route, its GDS contracts are often neglected, as is the overarching distribution strategy. The effects that these both have on an airline’s NDC strategy and the underlying system capabilities to fulfil the strategy is, however, critical. It is strongly recommended to not look at these in isolation, but with a holistic view on distribution, optimally combined with the direct distribution strategy as well. Often, NDC is implemented without much thought of the GDS contracts and the airline’s ecommerce strategy. This will typically not lead to a satisfying level of NDC adoption nor to happy agencies, as the content or functionality will not meet their expectations.

The challenge with all of this is that the GDS contracts are often dated, complex and difficult to understand. They are managed in a different department or have been recently renewed in a disconnect from the NDC team and cannot be changed in the short term. Often however, the GDS distribution contracts are simply not considered when creating an NDC strategy. In fact, airlines have in some cases implemented NDC with no holistic strategy at all, focusing on an initial technical implementation first with the idea to align it to distribution at a later stage.

Based on our experience working with airlines on distribution strategy and negotiation, as well as the NDC adoption engagements, we believe that it is key to view distribution as the combination of all channels, considering the constraints, opportunities, strengths, and weaknesses of each one of these channels. As a first step, the overall distribution strategy must be reviewed and potentially adapted to the new situation and capabilities that NDC has to offer. Then, it is key that the existing distribution contracts (primarily including the airline’s GDS contracts) be taken into consideration. The key elements in the contracts to be reviewed in this context are:

  • The definition of content and the differentiation between legacy or traditional content versus NDC technology or NDC content
  • The definition of channels, and potential differentiation of definition of these channels between home markets and other markets
  • The permitted freedom (or lack thereof) to vary content depending on distribution technology, distribution channel – and all of this potentially by market
  • The definition and scope of parity and non-discrimination commitments, and what this means for distribution via NDC based on the topics outlined in the bullets above
  • The contract language related to the provision of technology solutions and who is responsible for these. Additionally, if there are additional costs and responsibilities on the airline to ensure the GDS is technologically capable of a given distribution technology. In this context, it is suggested to also review the lead times for the implementation of new features and functions, and any restrictions related thereto.

In summary, it must be said that an airline’s approach to NDC, be it with a full-blown NDC strategy or merely with a plan to implement basic NDC, should always be planned with full knowledge of the airline’s obligations and freedoms in its GDS contracts, including any required changes for the next round of GDS negotiations. Optimally, the airline will carefully analyse the existing distribution contracts for any restrictions or opportunities to be exploited. For each contract, all key characteristics must be compared to each other to identify the most restrictive paragraphs in each, and the effect these will have on the NDC strategy. Just as important however, when renegotiating GDS contracts, is ensuring that NDC is an integral part of those considerations. Creating a negotiation strategy or approach for the distribution contracts can help, even if these are not yet up for renewal. Defining what the airline should and could do in the future to ensure these two distribution paths share common goals and enable the airline to meet the needs of the agencies as well as the airline’s own distribution needs.

Putting the distribution horse in front of the NDC cart will enable an airline to reach higher levels of NDC adoption, have more distribution freedom and address the travel agency, travel management company and corporate buyer needs better.

This post has been published in collaboration with Terrapinn.

(Daniel Friedli, 5. May 2022 *  Photo by Erik Odiin via Unsplash)

If you are interested in a deeper discussion about this topic: Listen to our latest TiMCAST 15 on 15 further reviewing on how to embed NDC into an overall distribution strategy.

 

See you at the Aviation Festival Asia

Travel in Motion and Oystin are privileged to have strong relationships with Asian airlines. Therefore, we are happy to meet many of our partners and customers at the Aviation Festival Asia, which will take place 14 and 15 June in Singapore. Daniel Friedli and Boris Padovan will be on site and are looking forward to meeting you.

In addition Daniel will moderate the panel “Airlines as a data-driven transportation ecosystem” on 15 June at 11:10 a.m.

We welcome Larissa Höcklin to the team

The Oystin and Travel in Motion team is growing. Our joint knowledge resulting in a broader spectrum of services not only received great feedback from our customers which have benefited from the partnership, but we have also expanded the team.
We are proud to announce that as of April, Larissa Höcklin has joined the Oystin team. Larissa is located in Frankfurt, Germany and has a consulting backgound in Airline Distribution and IT Strategy, Airline Commercial Due Diligence, as well as in Airport Commissioning. We welcome Larissa to the team.

Meet Daniel Friedli and Marc Rosenberg at the Aviation Festival Americas, June 7-8

Daniel Friedli and Marc Rosenberg of our strategic partner Oystin Partners will play an active role in the Aviation Festival Americas.

Daniel will host the session “Personalization and Segmentation: How much is too much?” on June 8. Marc will run the panels “Alternative  Ancillaries: How are airlines getting a greater share of travel wallet” and “Modern Distribution: From NDC to GDS and What is the best distribution mix for you and your customers”, both on June 7. So register and participate. We are looking forward to your contribution to the discussions.

 

Travel in Motion’s Fifth Birthday

The summer is coming to an end in our northern hemisphere and the summer holiday period has confirmed that air travel is on the raise, again. Within Europe, Northern America and China there have been plenty of leisure flights, and although we have not reached pre-COVID numbers, the trend remains positive and promising.

A lot is dependent on potential virus mutations and vaccinations, but also on streamlining the numerous different rules, regulations and processes for air travel. Examples like the IATA Travel Pass Initiative have shown that technology, especially ongoing digitalization of processes, can contribute to the restart of global air travel.

Thus, digitalization has become one of the top priorities for our industry community, and we at Travel in Motion are engaged in helping our partners to reach the next level of digitalized distribution, disruption management and airport operations.

We have helped our partners now for over five years – yes, TiM celebrated its 5th birthday, and we have enjoyed every single day within TiM and within our community.

We are looking forward to continuing our work with you for many more years to come, and perhaps we can meet at one of the upcoming industry events where Travel in Motion will be present, such as IATA’s Digital, Data and Retailing Symposium in Madrid from 26th till 28th October, the PROS Outperfom Virtual Conference which will take place from 16th till 18th November or the World Aviation Festival on 1st and 2nd December in London. See you there!

 

Interview with TiM in the latest Air Transport World

The latest edition of Air Transport World (ATW) features an article about new opportunities in Airline Distribution. It reflects on Emirates Gateway, as well as discussing advantages of IATA’s New Distribution Capabillity (NDC) with Lufthansa –  a very good summary about the status, opportunities and challenges of NDC.

We are proud to have contributed to this article through an interview with the author Kurt Hofmann.

Please check the latest edition of Air Transport World.