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Airline Distribution: Reset or Revert?

"WE MUST AND WE WILL, I PROMISE YOU, USE THIS CRISIS TO SEIZE STRATEGIC OPPORTUNITIES BECAUSE THERE WILL BE NO BACK TO NORMAL. LUFTHANSA WILL NOT BE IN BUSINESS-AS-USUAL AFTER THIS CRISIS, AND NEITHER WILL THE INDUSTRY." LUFTHANSA GROUP CEO CARSTEN SPOHR

 

As the global economic crisis caused by COVID-19 plays out, we are seeing our airline customers face a common challenge. With bookings near zero and airlines in survival mode, should they ride this out and revert to old ways of working? Or is it an opportunity to reset and push for long-lasting, positive change for their business and the industry, when and if they can?

In my mind, the current crisis has again exposed long-standing industry issues that airlines can now address in ways not possible in normal market conditions.

  1. Take control of the distribution portfolio and technology stack to save costs, drive revenue opportunities, and forge direct relationships with customers.
  2. Automate to quickly adapt to new conditions and customer servicing needs so that people need not contact call centers to make changes to their bookings.
  3. Implement Dynamic Pricing, to help address the disruption of existing Revenue Management (RM) models and to respond to supply and demand volatility.
  4. Introduce flexible ancillary products to meet changing operational requirements and to make the most of a new world order.
  5. Experiment and rehearse to take advantage of low transactions, low flight volumes, and under-used RM and Pricing experts to try out new ways to increase revenue and make customers happy.
Airline Controlled Distribution

Despite being in the middle of a ‘once in a 100-year’ crisis, the consistent message Farelogix hears from airlines is that the transformation of airline distribution and NDC remains a priority. The fact that the majority of our airline customers are continuing to work on their transformation programs to enhance their NDC distribution capabilities backs up this position. Also, for those airlines who have not addressed distribution transformation, the current crisis provides an opportunity to rethink channel strategy, renegotiate, and adopt new approaches. As Norm Rose pointed out in his article, “this is more than a simple issue of cost ….. airlines are determined to control the quote and offer more personalized services to travelers”. For some airlines, building on their traditional GDS channel model may suit just fine. For each airline, the choice will be different. The point is, a silver lining of this slow-down is that it provides airlines with an opportunity to re-evaluate the way things have 'always' been.

The time is now for airlines to reset by:

  1. Taking a fresh look at existing commercial agreements with their PSS and other providers in the post-pandemic age, in favor of airline controlled distribution.
  2. Assuming control over the distribution portfolio and focusing on developing direct relationships with certain customers while maximizing channel reach (i.e. tech aggregators or GDS) with others.
  3. Accelerating NDC adoption by putting measures in place to speed the shift to NDC transactions.
Automated Customer Servicing

In the indirect channel, travel agencies (mainly corporate travel agencies) are a lifeblood of full-service airlines. However, as has been widely reported, the crisis has shown agencies cannot always provide a complete duty of care, and much falls back on the airline.

  • Changing a booking often requires manual work from an agent that forces people to contact call centers.
  • Only the bookings made on the airline’s website can be serviced on that website.
  • People needing to change or cancel a reservation that was purchased elsewhere (e.g., via a retail agency or OTA) need to contact an airline’s customer service center.

Is it any wonder that call centers were/are jammed? In one reported case, a wait time exceeded an agonizing 11 hours. It is frustrating because it doesn’t need to be this way. Arbitrary rules rather than technical incapability is at the root of many of the problems. Restrictive processes can easily be lifted, at least during a crisis, to ensure a poor customer experience and operational nightmares are not outcomes.

The time is now for airlines to reset by:

  1. Reviewing indirect channel servicing capabilities to allow as much flexibility as possible for the traveler. Adopt automated ticket rule changes and processes to handle simple servicing requirements to lessen the burden on call centers. Push for transparency by ending processes such as fare suppression and manual pricing. Use rules to determine the duty of care actions, as some airlines managed to do during the crisis. See Nancy Delgado’s blog.
  2. Rethinking self-service capabilities to enable more people to change their tickets on airline.com, regardless of where the passenger bought the ticket. In certain circumstances, the airline may decide to charge a fee.
Implement Dynamic Pricing

Airline RM models rely on historical data. As the COVID-19 pandemic caused a catastrophic disruption to air travel this data is no longer relevant and no one knows what demand and willingness to pay will look like in a ‘post-lockdown’ world. Flexibility will be essential to recovery as airlines seek to quickly capitalize on demand, take advantage of trends as they emerge, and respond to erratic changes to supply and demand. Such flexibility will require the decoupling of price and product (i.e., fare rules) and the adoption of dynamic/continuous pricing.

The time is now for airlines to reset by:

  1. Reviewing pricing and fare management models to reduce inefficient practices.
  2. Accelerating dynamic pricing adoption to ease the extraordinary pressures on RM. With historical data rendered near irrelevant, we can’t assume previous price points will resonate and make commercial sense. Competitors may change supply at an unprecedented pace, and some markets will need to be stimulated while others will not. Getting pricing ‘right’ has never been more important, as airlines will need to capitalize on demand as it grows. Adopting dynamic pricing will provide much-needed flexibility.
Ancillary Merchandising in a Post-Lockdown World

How can airlines quickly provide new products and services that meet customer expectations and enhance the customer experience in a post-COVID-19 environment? At the same time, how can they protect customers in the skies?

What are some of the opportunities?

  1. Social distancing-related seat products enable airlines to adopt dynamically adjustable seat maps. This ensures individual travelers are seated apart when onboard, while at the same time enabling flexibility for families and couples traveling together. Seat preferences for corporate and loyalty customers could also be protected. See Michael Zumdieck’s recent blog post In-Flight Social Distancing for Relief and a Bumpy Road to Recovery.
  2. Inflight ancillaries such as pre-ordered meals that can be collected before boarding, are among the new inflight ancillaries that we may see emerge.
Conclusion

Despite the current challenges in the industry where many in the ecosystem are fighting for survival, the situation provides a re-baselining opportunity for airlines who are fast and can take advantage. In a near zero-booking environment, the industry can reflect on old ways of working that are inefficient, costly, and not customer-focused. And reset.

It’s great to see many Farelogix customers already addressing opportunities the current conditions present and are well on the path to reset to the new normal.

“THAT’S WHY I THINK AFTER THE CORONAVIRUS, NOTHING WILL BE BACK AS NORMAL. WE REALLY WANT TO START FROM POINT ZERO. WE ARE ALL AT ZERO. SO THAT IS A CONDITION WHERE YOU SAY WE’RE GOING TO START AGAIN. WE DON’T KNOW WHEN, IT WILL TAKE A FEW MONTHS, BUT THEN REALLY YOU START FROM POINT ZERO AND WE HAVE THE FORCE TO CHANGE THE DISTRIBUTION.” GIANCARLO CARNIANI, TOFLORENCE HOTELS

mm blog[Image from the Phocuswire Article]

References

https://www.phocuswire.com/italy-hotels-coronavirus-booking

https://skift.com/2020/04/16/airline-direct-selling-through-travel-agencies-may-prove-its-worth-after-the-crisis/

https://skift.com/2020/04/17/new-wholesale-model-could-shake-up-airline-distribution-thanks-to-american-airlines-test-with-sabre/

https://www.thebeat.travel/News/Lufthansa-Group-CEO-There-Will-Be-No-Back-To-Normal

https://www.thebeat.travel/News/Distribution-Chain-To-Automate-Ticket-Rule-Changes

https://www.traveltechnology.com/2020/05/the-role-of-ndc-in-a-post-covid-19-world/

 

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