4 weeks ago
 

Amazon primer – a critical examination of the crossover between retail and aviation

This is a viewpoint from Alexander von Bernstorff, director of airline solutions at InteRES.

There is still a lot of noise around NDC, and the idea that airlines should become retailers and start thinking like Amazon. Airlines and IT providers alike talk about Amazon in relation to flight distribution and use it as the benchmark.

IATA’s “The Future of Airline Distribution 2016-2021” said:

“The airline of 2021 will be a technology, data, and retailing company that happens to fly airplanes. It will have more in common with Google and Amazon than Pan Am and TWA.”

Let’s try to shed some light on the topic.

The problem with distributed offer management

Decades of distributed offer management and outsourcing of core IT functions created an environment where most carriers lacked the capabilities to transition  to the digital age. But this is not the entire problem. The technical infrastructure used to sell flights and ancillaries today was actually designed to sell flights of often government-owned, full service carriers, in a world with only a few (IATA-controlled) fares and booking classes, and with very limited competition and economic pressure. Digital was 20-30 years down the road.

This technology cannot be sufficiently adapted to the digital age. As a result, many airlines are now lacking the know-how needed to procure and install a state-of-the-art digital infrastructure.

Requirements of the digital consumer

The introduction of internet-based software and hardware technology  facilitated a digital shopping experience that can fully satisfy consumers. One notable difference from legacy technology is the speed of change that is now possible. Today’s technology means that new services can potentially be adopted by hundreds of millions of users within a few days. Consumers get used to this and will adopt new features instantly, abandoning former favourites and ways of working as a result. This represents a clear and present damage to any company that is bound to inflexible legacy technology.

There is the risk that some airlines will get out of synch with what their rapidly-changing customers want. Some airlines are taking bold steps to keep up with tech developments but those carriers currently off the pace might be left too far behind to catch up.

The Amazon approach to business development

Amazon was founded in 1994, about a year after the first real internet browser was introduced. Digital was present, just, and Jeff Bezos decided to sell books on-line. The way to be successful was not clear, as technology needed for online commerce was already exposed to a fast-changing environment. Obviously, when we look at Amazon’s first homepage, it was not quite what it is today:

Jeff Bezos, one of the most successful managers in history, knew from day one that he is on an endless journey and that he has to test and try out things and re-invent his business every single day. This is why he believes that “Day 1” must never end.

Today, there are thousands of deployments on amazon.com per single day, while new products, features and ideas are being constantly released. Testing (and the agility required to perform serious testing) is in Amazon’s DNA. It is most probably the biggest difference to our industry, where testing (and the failure that always comes with testing) is almost a no-go – quite in contrast to how much the importance of testing is being stipulated by consultants, researchers and other experts.

If airlines cannot create a culture of experimentation, including more agility and less risk averseness, it will be hard for them to keep pace with their very own customers.

Disruption of the airline industry has happened once, and it will happen again

With oil prices low, economies stronger and travel demand patterns generally positive, there is a danger that airline executives are becoming complacent about the risks to the sector stability.

It is worth remembering that the low-cost carriers took almost 50% share of the intra-EU market for air travel within 10-15 years. This was truly disruptive, particularly, as it brought a digital shopping experience to consumers who were also learning from retailers about the ways of e-commerce. The next disruption to the airline industry will be a massive one. It will be driven by companies with strong brands and tech which are closer to the customer than airlines are.

To manage overcapacity, or simply in response to the strong negotiating power of such entities, airlines will be forced to give capacity away, but under an alien brand. Imagine large tour-operators, cruise ship companies, hotel brokers or completely different players, offering seats on flights under their own brand, enhanced with their own services, and based on comprehensive technological capabilities with specific expertise when it comes to customer data management and analytics .

One of the countermeasures airlines may leverage is to regain full control over their offer, including all data, and to be free and unrestricted concerning their distribution channel management.

Decisions towards which provider to work with, and what technology to implement and use, is becoming one of whom to trust to support the airline in a way that will help them manage future challenges, rather than putting too much focus on current operational stability and expertise.

It will be key not to put too many eggs in the existing basket, but to save some (or many) for baskets we don’t know today, or do not see related to airline distribution.

Don’t let buzzwords confuse you

NDC is not all about personalisation, thankfully. The National Retail Foundation suggests that the point is rather segmentation, than personalisation. Amazon is considered a leading force in personalised retailing, yet despite a $17 billion R&D spend in 2016, what they have come up with so far, is “customers who bought this, also bought that”.

Wow. That’s a long way from “based on your shopping history, here’s what you should buy next” .

The message here is that if Amazon is doing it step-by-step, then so too should airlines. The principles of NDC – owning your offer, getting to know your customers better while the customer knows what you are selling, creating a simple, comprehensive sales order – is a good foundation for airlines to add value.

Last, not least: Retail & K.I.S.S.

Keep it simple and stupid. Be clear on what you want to achieve. You want to be able to make offers that are relevant. You want to be able to let the consumer choose the time, the channel and the device they want to use for shopping and along the customer journey. You also want to get to know your customers better and better. You want to be able to adjust your product offering easily and quickly, with the ability to factor in promotions and deals. And you want to have software that enables you to sell your own products and services, or those third parties of interest to your passengers, in a commercially viable manner.

Just like Amazon.

Many traditional department stores initially saw online commerce as something not for them, something too complex. Then along came Amazon, which in a few years changed the retail landscape for everyone.

One argument is that flights are too complicated to sell in an Amazon-like way. That may be the case, but the only reason flights are a complicated purchase is that we, the industry, has made it so. The time has come to make flights easier to buy.

Arguments around whether “the Amazon of travel” is desirable or even possible will continue, but all businesses can learn lessons from its approach. Airlines who take on Jeff Bezos’ Day 1 approach for example will be more flexible, closer to their existing customers and more appealing to new ones. They will also be better prepared to fight the next wave of disruption, a wave that has already started to form.

This is a viewpoint by Alexander von Bernstorff, director of airline solutuons at InteRES. It appears as part of the tnooz sponsored content initiative.

Image by BigStock.

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About the Writer :: Sponsored Content

This is the byline under which Tnooz publishes articles that are part of our sponsored content initiative. Our sponsored content is produced in collaboration with industry partners. The views expressed do not necessarily reflect or represent the views of tnooz, its writers, or partners.

 

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  1. Jane /OD/

    Interesting opinion. Yes, everything changes very quickly.

     
  2. Murray Harrold

    A very good example of how many travel tech pundits fail miserably to understand how travel works. This article demonstrates a lack of understanding of the differentiation between business and leisure travel, misses an understanding of how air travel is not a simple matter of A to B; that A to B to C and beyond, may involve multiple airlines across multiple affiliations … and more.

    There is a lack of understanding of what the GDS systems are about. They may be old tech but they are very efficient tech – for what they do, which is to present facts. The last thing any GDS needs is to be infiltrated by “marketing”. Such would make them cumbersome and difficult to use for their intended purpose. Heavens forbid that GDS users suddenly find themselves having to use glacially slow point and click screens or worse, touch screens.

    That low cost carriers have cherry picked routes is fine, it is an advance (not “disruption”) that was long overdue. What it has achieved though, is to increase prices for business travellers; though costs to people at the back may seem to have fallen, they have been subsidised by people at the front. The price of a B, Y, J or F ticket has gone through the roof.

    For all the waffle that comes from tech types these days, not one ever predicted the affect the RyanAir concept would have on air travel. No one predicted it and when it happened, the original thoughts all pointed towards the idea failing.

    To say that “the industry” has made selling flights complicated is really utter hogwash. Fact of the matter is, it is complicated. Not everyone makes simple there and back trips and when you get into the realms of hard and fast business travel or multi-sector itineraries, these are time consuming to assemble and only work due to things such as interlining and Minimum Connecting Times and so on and so forth being available.

    All this talks about, is putting more and more effort into those people spending minimal bucks a head to fly down the road and back and airlines then having to nickle and dime people to try and get some sort of half decent return.

    One does wish that, one day, travel tech would learn to understand travel.

     
    • Alexander v. Bernstorff

      Hello Murray,

      Thanks for taking the time to read and respond to my article. I wanted to answer quicker, but I’m travelling and waited until I had a hotel desk to put my laptop on. By the way, my current triangle-multi-sector-multi-alliance-itinerary (33.000 miles) didn’t inherit any complexity.

      The tonality of your response made it fun to read, however, I am confused about your tirade against “tech-guys”. Most people do in fact live in a digital age, but my article was not about technology. It was rather about how to approach current challenges in the areas of technology and consumer behaviour from a mindset point of view (e.g. Amazon’s Day 1 approach). So, to your point, I’m really not a tech guy (but selling business and leisure travel made me think about potentials of technology early on), but I do take it as a compliment because I feel that embracing technology can be tremendously helpful if we want to improve the way we do business.

      You may call the rise of the LCCs an advance, a disruption or whatever – in fact their commercial success pointed, among other issues, to shortcomings in how traditional airlines marketed their product. Many airlines understand this and work, together with their partners in the industry, on differentiation and better distribution of their product. Something businesses in any industry have to do in order to be competitive and profitable. Calling the ability for a marketplace (e.g. a GDS or any other platform) to help their content providers differentiate their product an “infiltration by marketing”, making these marketplaces “cumbersome” to use, is a weird understanding of professional business.

      The point of my article is that many airlines are not only significantly behind other industries, but also behind an increasing number of their competitors when it comes to digital capabilities. Airlines are putting their competitiveness at risk if they cannot respond to modern and fast changing consumer behaviour (which includes, unfortunately, touch screens on certain devices). One instrument that I am suggesting airlines to utilise, is an agile, technology-backed trial-and-error approach to new ideas, concepts and consumer requirements. We can see, not only from Amazon, that agile and risk-loving businesses that better and faster respond to consumers are typically the more successful ones in the digital age. Like it or not, the prerequisite for everything is technology.

      Last not least, shouldn’t you give me some credit for not failing to point to likely developments with high risk and impact (you mentioned the prediction of the Ryanair model) like some other “tech-guys”?

       
      • Murray Harrold

        Thank you. The main misunderstanding, (let’s call it!) appears to come from the idea that a GDS should be a means of presenting information “plus”.

        To my mind, there are two distinct ways in which flight (or other transport means) should be presented. Firstly, there is the factual (for the use of us agents, on or offline) and secondly there is the “marketing -style” presentation (for B to C). For agents, we only require raw, basic facts. What time does it leave, what time does it get there and how full is it…. are the questions we seek to answer.

        For the B to C version, then one can add in as many bells and whistles as one likes. The reason why “marketing” is not wished in the first kind of presentation, is that a) we, the agent, will do any “marketing” that is required and b) it does not help. If a meeting starts at 11:00 a.m. then the client needs to be at that meeting at 11:00 a.m. – all the marketing in the world (and certainly not a free seat and a bun) is going to get that client to get a flight that gets them there at 11:45 a.m.

        Now, if NDC can provide a surrogate GDS – GDS ver. 2, if you like, that is cheaper for the airlines, then fine – as long as it does not start to cloud any factual presentation and/ or start to orce people to use point-and-click which is a very slow way of having to work, compared to the coded entry system. Personally, I would have thought that negotiation with the GDS people could produce a better outcome…. better something we know works, rather than some thing that “should” work.

        There is also an agents fear. If we buy a fridge or a book and it is not right, then we can return it or get it fixed. If myoperatingsystem version has bugs, then we send out version 2 to fix those bugs. Agents do not have that luxury. We need a system we know will work, 110% of the time and 110% right. Until any new system is fully proven …. it will get little acceptance; we do not say that there cannot be innovation, but some tech type having an orgasm over some new system is not enough to convince us…. if we need to get someone from Katmandu to Tokyo and we press the “End” button, we need to be sure that person will be going from KTM to TYO. Period.

        Coupled with which, that KTM TYP trip will (probably) rely on such things as interlining and minimum connection time regulations, which is where the “complicated” bit comes in. Rules that are presently there, work … and there is a lot to be said for that.

        And yes, credit where credit is due. That said, technology should serve the function, not function serve the technology.

         
  3. John

    How stupid of an article. It would be wonderful if airlines would adopt the Amazon approach — a single price for each product!

    But I can not foresee that happening. I think we’re stuck in a maddening system where you or I will be in a middle seat for $1,000 and the guy with the aisle seat next to us will have paid $240 ($40 bring some sort of a rip-off fee). Complexity and awful (to the consumer) pricing policies for the legacy carriers is a drug they won’t let go: just look at the egg in the face from unbridled pricing algorithms doing the job they were programmed to do when hurricane Irma hit Florida!

     
 
 

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