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.