Wouldn't you like to see a world which doesn't reduce every service and product to the lowest common denominator?
- Companies receiving real tailor-made offers matching their travel requirements precisely: the cost-conscious buying the middle seat, the busy traveller one in the front row, negotiable upgrades, etc.
- Consumers' experiencing more in-flight advertising and getting a discount for purchasing products there
- Travellers able to book tailored seating, luggage requirements, snacks, food and drinks at a transparent cost
Because of the potential complexity, the intermediary suddenly has a strong role to play and a possible true and the possibility of new income streams including
- Advising companies about the real difference among the various airline offers
- Working with airlines to improve their offerings
- Designing special pricing structures to match the requirements of different sectors from sport to marine
Last but not least . . .
Give the individual airline the chance to control their own inventory and decide themselves how to price and distribute their seats.
The background
The original idea behind the design of the global distribution systems (GDS) was to maximise prices in a monopolistic world. Because of the complexity of government controlled pricing, inventory control, complex ticketing structures and collecting money, the combination of GDS and the IATA cartel, distribution rules enabled the airlines to build a truly global infrastructure.
This legacy created a virtual duopoly with two to three players controlling distribution globally. However, the total cost of distributing and global accounting represents a massive cost to the airlines.
The airlines enjoyed a golden era of growth of globalisation and an increase in consumer wealth.
However, deregulation in the US and Europe during the 1980s and 1990s combined with the rise of the low cost airlines (LCC) started a process resulting in the airlines' realisation that their monopoly security was disappearing.
The GDS claim they constantly develop their product to 'help' the airlines. The truth of the matter is that they have not touched their core programming since the 1970s. The reason is probably that the programmers are all retired, and why change a business model returning 40% of capital?
Why the thank you?
There have been many comments about Lufthansa upsetting the existing model but we should all thank them. The Lufthansa move is a true wake-up call for the industry. The airlines want to take total control of their production. With billions of dollars invested in planes, slots, inventory and staff, I fully understand the need to be able to control distribution and maximise load factors.
Challenges and solutions: customers
Challenges
Customers need to understand that new strategies make selection of the right product easier in some ways, but much more complex in others. The leisure traveller needs to include all the ancillary services and look at the TOTAL cost rather than the cheapest online fare.
The corporate world must understand that the new distribution structure will need careful evaluation. I have no doubt that the new distribution structure will benefit virtually all companies. The airlines' ability to tailor-make products will help travel managers to deliver better solutions for their companies. The main obstacle will be that companies will have to rely more in future on specialists or intermediaries and comparing various offers. It is going to be more difficult because the possibilities and complexities are increasing.
Solutions
The customers will enjoy a huge improvement and increase in offers and solutions. The corporate traveller and his/her employer will experience tailor-made solutions including more flexibility, more bundled product offerings, and more pricing solutions to match their strategic procurement strategy.
Metasearch engines such as Momondo, Kayak and Travelsupermarket are already commonly used. Products such as Travelfusion already search hundreds of websites and do bookings.
For all customer segments there will be a need to learn more and be able to identify the right solution for their trips. They will have to look at the total cost and value of the offerings. While software will help create some transparency, in many cases the offerings will be more opaque. That is no different from other industries. Do you remember the last time you bought a fridge, car or even an important tool? It was a time-consuming and complex process.
Challenges and solutions: airlines
Challenges
We know that all manufacturers in any industry want a direct connection with the individual consumer. However, most have realised that the consumer does not want to risk everything on one option, but prefers access to more suppliers. This means that no company can own no more than a certain percentage of 'its customer'. The airlines rely on their loyalty programmes, but they will need in future to rethink their whole income stream from fares to marketing. Think about the advertising income potential from being able to deliver up to 600 people's attention for 5-10 hours?
The ancient structure has created an animosity towards the 'old' intermediaries and no appetite to pay for distribution. However, at the same time the airlines pay metasearch engines handsomely. This logic has to change and appropriate remuneration must be introduced.
The development of LCCs shows an understanding of a different distribution strategy. Marketing and distribution represent a substantial percentage of costs and not much smaller than that for legacy airlines' marketing, distribution and sales. The new opportunities will force all airlines to measure and evaluate their costs in a very different way. I see a future where the single seat is the item being priced separately.
Solutions
Airlines will have to adapt to the new environment and learn from other industries. They need to be able to price an individual seat on any flight. Aside from the fares and related ancillary services, they can create income streams from a range of services and products such as
- Advertising and selling products during the trips. Flights are full of bored passengers who could be given the ability to collect their purchases at the destination or return airport.
- Designing pre-booked special meals
- Bundle products and services and offer rewards through the loyalty programmes
- Rethink the whole process from when the customer first registers interest in a trip to fulfilment after return
Challenges and solutions: intermediaries
Challenges
The 'unholy' alliance between the GDSs and the intermediaries needs changing. For decades, intermediaries have been governed by IATA, the global reservation systems and credit card providers. There is no doubt that available technology can do the job, but the mindset is much more difficult to change. I am aware than many intermediaries (travel management companies) believe they already offer tailored solutions.
Once all the airlines can meet many more customer needs, the world will change from making a booking and issuing a ticket to constantly scanning many sources in order to be able to offer the right solution.
Until now most of the resistance comes from the corporate world and the TMCs. The leisure sector is much larger but has had little reaction.
Solutions
It will be possible to create better structured and more valuable business models. The total process will need to change, but with an increasingly opaque market situation, better software and new learning it is possible to grow this segment. Intermediaries have a unique opportunity to become an important partner to the airlines. With access to the customer and knowledge of many different segments, they can help airlines fill their planes. They will give the airlines access to segments hard to reach through their websites as well as add services and wisdom to the product.
To corporate customers:
- Police the offerings they will receive from all the airlines and identify the right solution. Support the company's strategic supply chain and become their special adviser.
- Identify and design the right toolbox and mix of services that corporate customers will need to grow their business
- Build multi-source and distribution software matching the criteria of the various segments from marine to emergency services.
Summary
The future may not be easy, as the whole supply chain will change. Here are some areas needing new attention:
- New payment structures replacing BSP (Bank Settlement Plan) clearing houses and perhaps even credit cards
- Different booking process depending upon different software
- Creating business travel supermarket thinking
- Changes to the existing booking structure means educating all staff, changing the structure and introducing new structures and tools.
WELCOME TO THE NEW WORLD!