Questioning the travel industry status quo, one blog post at a time

Archive for the ‘PSS’ Category

It’s amazing how, over the years, so many people have said to me, “Jim, you really need to get some professional help.” I never really understood what they meant by that, but maybe someday I will.

This got me thinking about another situation where the need for quality professional help is evident. Just consider the plight of the world’s airlines as they struggle to make major and agonizing decisions regarding their PSS.

Should the airline change PSS providers? Renegotiate certain contract provisions? What can be changed, exactly, to ensure that airline innovation is not stifled moving forward?

Keep in mind, the PSS market is still dominated by just a few powerful players that impose contracts lasting 10 or more years. 10 years! During those long years together, the airline-PSS relationship can often be characterized by performance problems, rising search costs, and painfully slow delivery of new capabilities. Oh, and don’t forget the one-size-fits-all community model, which these days is a setup for disastrous results when you look at today’s requirement for airlines to create, control, and deliver their offers in real time.

So what can airline execs do today to protect their products, brand, and innovation over the next decade? Well, for starters, it might make sense to get some professional help before signing that new PSS contract. There are many areas that deserve a deep dive, but just to suggest a few:

PNR Data Control. Nowadays, airlines need to delve into the minutiae when it comes to PSS contract terms around who controls the data. That’s because it is key for the airline to have unimpeded access to PNR data to be able to market products, services, and ancillaries to the consumer throughout the travel journey. As an example, look at what Delta just did. Wow! Happy Customers and More Revenue! (Hmm, Delta has control over its PSS…there’s some food for thought.)

Access to Third Party Products/Services/Engines. Airlines seeking to control strategic elements of their offer – Availability, Schedules, Pricing, Merchandising – are striving to bring these capabilities under their control. As dynamic retail evolves, these critical elements will need to operate outside of the PSS, yet interoperate within it. Will that new PSS contract allow it? And at what cost? What might be heresy to some is the path to dynamic pricing and offer control for many others.

Dealing with Fail Cycles and Penalties. And, of course, there is the problem of how to deal with PSS product delivery and fail cycle management and penalties. Service level requirements are increasingly more critical as airline outages appear more common than ever; as is the ability to renegotiate financial terms as things like the cost of computing power continues to fall. Does that new contract give you the ability to renegotiate fees (up or down) every few years based on scorecard performance and product delivery?

Airlines use traditional RFP processes, driven by procurement for a new PSS selection. I admit I find this interesting when, in general, it’s a two-horse race. But RFP or not, what’s essential is that airlines get smarter before agreeing to contract terms that may at first glance sound innocent enough but in reality prevent any technological progress throughout the term of the agreement. An up-front price reduction that seems like a win for the airline on the date of signature is often-times a long-term losing proposition if key non-price contractual terms are not thoroughly negotiated.

Airlines making PSS decisions today are not just making a decision about the cost of services provided; they are also making future revenue generation, brand protection, customer engagement, and loyalty decisions for the next 10 years. They are also competing with airlines who are in fact getting smarter on these same topics today and ensuring their path to controlling their offer.

It’s probably not a bad idea to get some Professional Help.

It’s an understatement to say that we are living Moore’s law in terms of the pace of technological change. The adoption of smart, wearable technology, and voice-controlled systems — and the fact we can do nearly everything we need to do on our phones — was not part of our reality just a few years ago. To keep pace, retailers of all types are challenged to engage with their customers using the latest technologies and methods. Airlines are no exception, and the pressure has never been greater for airlines to up their game.

Airline executives realize that they must find ways to engage with travelers at any point in the trip process, and make it easy for travelers to shop or be presented with offers anywhere, and at the right time. “Show me you know me” is the name of the game, and if the airline doesn’t figure out how to be a “single source of truth”, they will lose the customer relationship. (And by the way, there is a long line of entities willing to take over that relationship if the airline doesn’t claim it – more on this later).

For many airlines, shifting to the world of dynamic retailing is exceptionally difficult. Why? Because it means they have to take control of their offer – something most airlines have never done. And yet with Moore’s law in play, there is a need to do it now or risk losing out for years to come.

Here’s some good news: recently there has been an increasing amount of practical discussion about airlines taking control. Airlines are responding by examining available options to take control of their offers, distribution channels, distribution costs, and brand. As an example, Farelogix hosted a “Control Your Offer” event in April that was attended by airline executives from around the world, spanning Revenue Management, IT, Ecommerce, and Distribution – http://farelogixoffersymposium2017.com/. This demonstrates that this next wave of change is big, and involves the full range of airline stakeholders.

There is growing recognition that effective airline control means not only “single source of truth” API’s (NDC), but also airlines taking control of their own merchandising, pricing, and inventory (availability). Yes, I said it. Airlines must have control over their own pricing and availability for all channels. When you think about it for a few minutes, it’s these ingredients that command the respect of distribution companies from any sector around the world. Yet for reasons steeped in history (“it’s always been this way”), or performance (response times), or cost (excessive scan fees, MIPS charges, and look-to-book fees), or simple convenience (easier for someone else to worry about it), many airlines freely give away control to third party distributors, GDSs, Metas, OTAs, PSSs, whereby these entities “re-manufacture” the airline’s pricing and inventory in ways that they (not the airline) see fit. For decades, airlines have essentially given away control over their brand and product. And this is precisely what has to change if airlines want to succeed in the world of dynamic retailing.

Here’s more good news: Believe it or not, airlines today can easily retain or regain control by simply in-sourcing and controlling pricing and inventory, and requiring any and all distribution partners come to the airline for this information. Now I say easy and simple, two words that seldom get tossed around our industry. But, a few things have changed that make airline control as defined above a reality.

First, there is real competition in airline pricing and availability providers. The GDS/PSS and ITA/Google are no longer the only games in town. Farelogix, for one, has made a significant investment in developing a highly scalable, performant, and cost effective airline pricing engine (FLX Shop & Price) and real-time availability engine (FLX Availability Calculator) capable of serving the “single source of truth” requirement for airline pricing and availability, and interoperability with our merchandising engine (FLX Merchandise). I’m sure others are also innovating in these areas as choices grow for airlines that are ready to take control.

Second, the cost of computing power has drastically reduced, and this enables airlines to up-end decades of legacy IT models. For example, the new Farelogix pricing and availability engines run on commodity hardware and can be easily managed, configured, and even hosted (cloud or physical) by any airline, accessible by any distribution partner, and with better response time than any cache or incumbent solution can offer. This eliminates the need to have expensive legacy PSS-based community pricing and availability systems, and makes the words “scan charges” or “look-to-book” sound about as relevant as “hey bring over your VCR and we can watch a movie”.

With technology no longer the barrier, the biggest challenge for airline executives now is to move quickly before someone else takes the opportunity away. We know that incumbent PSS/GDS providers will certainly do their best to contractually delay the inevitable shift to airline-controlled engines, and airlines need to address this. But it’s not just the PSS/GDS vying for airline control; I attended a recent CAPA conference in Dublin where Bobby Healy, CTO of Car Trawler, made an impassioned presentation about airlines losing control over their customers to the world’s most powerful search engine. He also has elaborated on this in writing, and I encourage you to have a read: https://www.tnooz.com/article/google-enemy-airline-distribution/.

The clock is ticking. If airlines don’t find a way to regain control over their offers, there is a line of entities ready to take it from them.

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I recently attended T2RL’s New Generation of Airline PSS conference held in London. The audience included several of the world’s top airlines as well as a slew of companies representing the hungry crowd of vendors just waiting to get their bite of this lucrative PSS market.

Observation #1: The PSS market has massive opportunity…

…well not really. In Richard Clarke’s opening remarks, he put up a slide of the top 28 PSS providers. That’s right – twenty-eight technology companies, most of which had representatives in the audience. The problem is that once you get to number 4 on the list, you are pretty much done in terms of real opportunity. If you take TravelSky out (as that market is a bit tied up at the moment), and put Navitaire in its rightful category (under Amadeus) then voila… the list is down to two – Amadeus and Sabre, dominating the world’s PSS provider market share. Yet, bless their hearts, 24 other PSS provider companies are still giving it a go, hoping against all hope that they will land “the big one”!

This Notable Quote is from Cormac Whelan, CEO of Mercator and a man I look up to and probably always will: “The perceived technology challenges facing the PSS are not technical at all. They are commercial. The technology is already here.”

Observation #2: The airlines that attend a New Generation PSS conference are looking for a change…

…well again, not really. When the general audience was asked by a panelist “how many airlines are looking for change to happen in the PSS industry?” I could count the number of airlines raising their hands on one of my hands. Seriously! And of those airline hand raising rabble-rousers, Farelogix already has a commercial relationship with most. Which begs the question, why did we come to this event? Why did those other airlines bother showing up? My advice to those non-hand raising airlines – stay home next year. Save your money; you’ll probably need it to pay your rising PSS bill.

Notable Quotes: “I look at the PSS as I am standing on the bank of a rushing river of money flowing out of the airline to the PSS.” And on what a PSS migration does to an airline: “It constipates them; they can’t do anything for years.” ~ Tim Catling, PSS Program Manager at Cathay Pacific Airlines.

Another Notable Quote: “The people that made the mechanical diggers all sat back and laughed at the people making the hydraulic diggers because they were big and expensive and no one wanted them…until they were no longer big and expensive and everyone wanted a hydraulic digger and no one wanted a mechanical digger.” ~ Tim Hartford, Columnist and Author, Financial Times.

Final observation: The PSS business seems to be a really good model for the PSS companies, well at least two. But what’s in it for the airlines?

There you have it. Maybe I’ll be a reporter in my next life, because sooner or later someone needs to Ask the Question!