In the heart of London last week, airline industry thought leaders gathered to discuss the evolving needs of airlines in an increasing digital world. For those not familiar, this topic is central to how the airline operates and drives revenue and profitability. PSS or Passenger Services Systems refer to the systems that power an airline’s reservations, inventory, and departure control systems. With the slow pace of change in the industry, it’s tough to see progress from one year to the next. After attending the last four T2RL conferences, I am starting to track progress across the industry on many key transformation topics that will help drive industry revenue, profitability, and efficiency.
At this conference the key debates were:
- ‘Full Suite’ PSS provider vs ‘Best of Breed’ providers. With the advancing needs of consumers, how can airlines both increase revenue and find new revenue streams with their ‘Full Suite’ PSS? What are the merits of choosing ‘Best of Breed’ providers to fill strategic capability alongside the PSS?
- Offer Management. How airlines are expanding their Offer Management capability, handling the exponential rise in shopping transactions, and bringing to market new ancillary products.
- Dynamic Pricing. How airlines are finding ways to overcome the restrictions of the 26 fare classes.
- IATA’s transformation initiatives NDC and ONE Order. The level of adoption across the industry, whether these initiatives will add value to airlines, and future direction.
- The age old GDS-PSS debate. How much control airlines have in distribution, and the evolving role of the PSS and GDS in an airline’s distribution strategy.
Following are my reflections on the latest industry thinking.
- Taking control of the Offer is Priority One. Airlines can no longer afford to be restricted by their current PSS systems; they must look at the new generation business capabilities to run their business, specifically when it comes to having full control over all aspects of the offer (from fares and ancillaries to bundles, dynamic availability, and even custom-tailored connection points). The discussion is evolving and it’s no longer only about unbundling, it’s also about adding value. This is particularly relevant for network carriers in Asia.
- Why Best of Breed? And what makes the current PSS systems legacy? Current PSS providers don’t have all the capabilities airlines require. Since airlines need to take control, they cannot leave it all to one vendor. At the event, attendees talked at length on what legacy means. Most agreed that it goes beyond sitting on a mainframe to include data structure, processes, and architecture. Current airline reservation, inventory, and departure control systems have been much the same for decades. Meanwhile customers’ needs have changed, and technology has advanced. Best of breed providers play a strategic role in the overall airline PSS architecture.
- PSS as a set of business capabilities. The industry is starting to look at a PSS as a set of capabilities; not just what the current set of PSS providers have in their solution set. By thinking beyond today’s PSS limitations, airlines can now focus on what they need to run their businesses.
- The NDC/ONE Order discussion is maturing. After some years I think we’ve gotten over the debate about what it is and why, and we are now getting past the misinformation about it. NDC is maturing and the discussion has moved past pilots, and is well into adoption, with millions of bookings a year and IATA expecting 20% of bookings to be through NDC by 2020 (for Leaderboard airlines). Technology providers such as Farelogix – who enable airline API onboarding, and support and develop NDC-based technology – are advancing on this with several of the world’s airlines. With NDC well on its way, the conversations are now turning to ONE Order and what will be required across industry to make this a reality in the next few years. It’s great to see there is no longer debate about whether we need ONE Order (the industry clearly does).
- Dynamic Pricing is already here. While airlines are not interested in dynamic pricing down to the individual, many airlines are looking at ways to get around the restrictions of the 26 RBDs that force a stepped pricing curve. The term “continuous pricing” was introduced to describe how airlines can smooth out the price points. Vendors, including Farelogix, are already enabling Dynamic Pricing.
In summary, as one presenter pointed out, there is a generational shift that will hit the industry in the next five to ten years, with a significant wave of retirements across the industry in both airlines and airline IT vendors. Not only are consumers’ needs changing, but also the people who will run the industry into the future. While there is still a streak of legacy thinking in the industry – particularly around the PSS and GDS debate – momentum is building on all the key topics facing the PSS.
What should airlines do? They should continue to challenge the status quo, find new ways to optimize existing revenue, and find new revenue streams through merchandising. They should also look at their GDS/PSS costs and capabilities, and realize they do not need to be constrained by the limitations of their current PSS system.
In closing, kudos to T2RL for a great conference. There was certainly more energy than we’ve seen in years past, and this was well reflected in all the sessions. I am excited about what the next year will bring to this space and look forward to being part of the new wave of transformation in distribution and commerce in the airline industry… especially here in the Asia Pacific.
Mark McDonald, Director, Asia Pacific