airline retail
467 days ago
 

Airlines want to be retailers – a mini-SWOT analysis of the issues

NB: This is a viewpoint by Derek Sharp, managing director for global distribution sales and services at Travelport.

When they succeed, high street stores, supermarket chains, the banking and telecommunications industries stand out as multi-channel retail experts.

The airline industry will also match the retail strength of these industries. But when?

Consumers expect excellent service, a consistent brand experience and the same quality product at every point of interaction.

In a ruthlessly competitive environment those organisations that have gone beyond merely surviving and have actually thrived understand the need for consistency across this channel mix in order to properly serve those consumers.

Ancillaries, bundling and unbundling; this is almost a broken record, the needle worn. The CD stuck. The track that no-one could download.

Yes, it’s been a long time coming.

Why has it been difficult?

The challenge has been partly based on how the respective players in the industry, from IATA to GDSs to Google to the airlines themselves, support the airlines’ urgent need to transform, grow and attract wider sales.

The need to drive that growth and profitability is making it increasingly unsatisfactory to discuss airlines in terms of whether they are flag, traditional, legacy, regional, low cost or hybrid.

Those days are over.

Attempted definitions such as these are blindfolding those who grapple with what drives airline priorities and how to service them better.

Let’s focus instead on what all airlines have in common: the need for growth, profitability and the different choices airlines take to build it.

For example:

  • Spirit Airlines announces charges for overhead bags – an unbundling move designed to shave off frustrating minutes and speed up aircraft turnaround in a bid to fill planes faster, get them into the air, make a profit and expand.
  • Domestic dog fights between new players (say, Virgin Australia) and incumbents (say, Qantas) mean that airlines used to dominating are having to focus on preserving their home-market position and how to react faster than ever before to these new entrants.
  • Airline 1 grows through a combination of joint ventures with various other airlines and builds strategic partnerships in a bid to catch passenger traffic. Airline 2 decides to get new planes, fly further, open new routes and occupy half an airport.
  • Air France, British Airways and KLM introduce some fares that do not include checked baggage, previously the sole domain of the low cost carrier, whilst easyJet introduce allocated seating as part of their strategy to entice more business travellers

Set aside your own view of these charges and recognize that each airline will make their own business choices in order to serve their own customers with increasingly better targeted products.

Why is this?

As each airline makes these choices it is critical that they are not restricted by or held hostage to any particular standard or technology and that they can achieve a multichannel retail experience.

Reacting in real-time to consumer trends and cunning competitor initiatives goes over and beyond the algorithms designed to plan for seasonal changes, holiday periods, transitory popular destinations and new routes.

The ability to be even smarter and faster will lead to airlines using different technologies for different circumstances across a multitude of channels.

Filing fares and modifying ancillary services at speed may require using an API – the technology that allows data to be transferred using XML-based paths.

These technologies are no-longer just the domain of websites for leisurely web-bookers but are transferable, to Global Distribution Systems which then present the products to travel agents, travel management companies and a wider audience.

On the other hand, securing more complex operations whether long haul routes, alliances and interlining partnerships will still require the sophistication that allows these products to work between carriers, bookable anywhere in the world, for whatever itinerary world travelers choose: industry standards will need to stick around.

Growth strategies for maturing, new entrant airlines are driving a resurgence in the value of the agency channel.

Websites can get saturated and they understand how web-reach can be limited abroad.

The strength of many online brands is regionalized at best, country-specific at worst and these brands, excuse the pun, do not travel particularly well across long distances – how well recognized are Kulula or SpiceJet in London, Washington or Tokyo?

Airlines are learning the lessons from other industries and the day when we can view the industry as an industry of air travel retailers is rapidly approaching.

A focus for enlightened players in the industry is to ensure that technology enables, as opposed to hinders, the need to provide customers with a truly consistent and dynamic multi-channel retail experience that caters for the wide range of business choices that individual airlines make.

NB: This is a viewpoint by Derek Sharp, managing director for global distribution sales and services at Travelport.

NB2: More on this and other airline distribution issues at the next Tnooz webinar. Sign up for free!

NB3: Airline retail image via Shutterstock.

 
 
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  1. Steve Sherlock

    I guess that’s the thing – there is the retailing of core airline ancillary product and retailing of (auxiliaries) such as cars and hotels etc

    Though many airlines do this sort of retailing pretty poorly in my view. Its as if its an afterthought as opposed to a genuine and convenient service to loyal customers. Also many have genuine PSS (IBE) restrictions from the likes of Sabre and Amadeus.

    One way i think Airlines could ensure the retailing of auxiliaries is of higher quality/value and less like an annoying add on, is to use rules engines to detect the fare class chose and the frequent flyer tier level, for example, and then display only the most relevant options.

    I see these sort of retailing as a genuine customization service rather than just an ancillary grab for cash.

     
  2. Timothy O'Neil-Dunne

    I support what Derek is saying here about retailing. But I would go further than he has. I would say that the needs for product differentiation are no longer possible using the current technology base. There has to be a pretty radical change at the core of both the PSS and the GDS technology layers. Or more accurately we should stop using those terms which reflect old mainframe thinking and move to Host Distribution Systems and Retail Distribution Systems. APIs and XML to legacy data structures and back end services are just different shades of lipstick on a very old pig. Don’t get me wrong. API’s and standards are the way out of here. Let’s not kid ourselves, we desperately need better core systems not just different access methods and UXs. (I caution of course throwing out the baby with the bathwater because inventory systems are really quite efficient. it is the Selling systems that I find so frustratingly bad.)

    During the submissions to the DoT one common thread espoused by some was that NDC would prevent neutral comparison. My interpretation of Derek’s position expressed here while not explicitly disavowing such a notion is clear; that product differentiation at the retail level is not just possible but a requirement NOW irrespective of the technologies used.

    IATA has a steep hill to climb to get the industry to turn around its dependence on legacy standards.

    I believe that one cannot wait for everything to be done before adoption. There will have to be early adopters and evangelists of many of these capabilities. Of course there is a risk that the industry will fall out of sync. In my view that risk is more than countered by the risk of running some of the steam powered engines we currently have in place.

    Cheers

     
  3. David Feldsott

    John Pope,

    I think you make a valid point here. In order to be considered a high-end retailer, you need customization and differentiation from competitors. Outside of Business Class on airlines, differentiation doesn’t exist! Now, I know someone is going to say, “well XYZ airline offers 3 more inches of legroom than its competitors” but that is not differentiation, that’s just incremental benefit!

    To be considered a premium brand, airlines have to treat passengers better than commodities; they still do (I don’t care what any airline executive tells me). Superior customer service, not nickel & diming customers on fares/ancillary revenues, a truly unique airline experience like a “luxury bar” on Emirates, etc. Until airlines actually act like premium brands / retailers, customers will continue to assume they aren’t and will therefore refuse to pay a premium price. I’m not advocating throwing away ancillary revenues, as they have single-handedly saved the airline industry (my old consulting firm essentially invented bag fees), but my personal opinion is ancillary revenues work well for LCCs (like Spirit Airlines), but if you want a premium product, it better be Club Med quality (all-inclusive price for the customer experience)

    Establishing a premium brand will be an uphill battle for most airlines because people still know what the “heyday” of flying was like and everytime they go to an airport, they gripe and want airlines to be “like the good ol’ days.” But, they will probably never be like the 1970s, and that places a ceiling on the customer experience; capping the potential illusions of grandeur that many airlines wish to instill in their customers. Until airlines find a way to separate the on-board experience from each other, not just in business class, but economy too, consumers will still use aggregators to find the cheapest fares and stock pickers should go long on Southwest Airlines and the other LCCs.

     
    • David Feldsott

      One clarification I meant to make. You don’t see high-end retailers selling premium products and low-end products, yet that is what airlines do. You get a “great experience” in 1st/business class and then an okay product (at-best) in economy. That confuses customers! A premium retailer can’t expect premium prices if they also sell “economy” goods. Very few retailers do a great up-sell job and I don’t know any airlines that do it well at all. Until airlines differentiate their brands like product companies do (an umbrella strategy w/ both premium brand & private label brands), I don’t see airlines becoming premium brands; their reputations are too low to begin with. Very few airlines have the brand equity to make that leap.

       
  4. John Pope

    Thought-provoking post, Derek.

    You’ve presented and articulated the “problem” of mass standardization, not just for air products, but also for almost any online vertical, in any sector.

    Michael O’Leary – everyone’s favorite Airline executive – is quoted recently as saying he wants to see the cost of flying Ryan Air go to £€$0.00 – and genuinely sees flight prices within Europe go to a maximum of €20 within 5 years, €10 within 10 years, €5 within 15 years and finally ending up at his commercial Nirvana of €0 within 20 years.

    That’s right – the basic, bare bones fare would be FREE; and then allow passengers to choose what ancillaries and complimentary services they would like to add to their package or basket based on their specific needs.

    Pretty bold vision, I’d say.

    But, it’s not so far-fetched either. Ryan Air’s market cap is presently greater than both EasyJet and British Airways – be honest, who’d have thunk that possibility becoming reality 5 to 10 years ago? As let’s face it, Michael O’Leary’s preferred customer service and satisfaction levels for Ryan Air are consistent with those of the late great Kim Jong Il.

    But what that clearly indicates is simply the fact that different passengers or customers want and require entirely different levels of service and experiences, and therefore the picture you paint – “of Airlines want to be retailers” – is not one of desire (want), it’s of necessity (need).

    The times they are a changin’, everybody.

    Gone are the days of standardization – in the name of cost reduction or efficiency – and here to stay are disruptive innovation, specialization and delivering what the individual customer wants. Full stop. Period (for my North American peeps).

    Failure to play by the new rules is a fast track to Chapter 11- or its international equivalent.

    That’s why I personally subscribe the Bruce Lee philosophy of life, liberty and the pursuit of profit:

    “Having no way as way. Having no limitation as limitation.”

    And even more profound:

    “You must be shapeless, formless, like water. When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip and it can crash. Become like water my friend.”

    Failure to do so, is at your peril. ;-)

     
 
 

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