You may remember we chatted with Ben Vinod last year about his charter startup Charter and Go, his airline yield management book and his perspective on airline tech.
We caught up with Ben again to discuss his new book on lodging revenue management, what airlines can learn from hotels and the latest tech trends in aviation.
You've recently published another book Revenue Management in the Lodging Industry: Origins to the Last Frontier. Can you tell our readers a bit about it and why your latest book focuses on the lodging industry whereas your previous one focused on the airline industry?
This is a companion book to The Evolution of Yield Management in the Airline Industry: Origins to the Last Frontier. The book covers the advances in hotel revenue management since its inception leading up to intelligent retailing with attribute-based room pricing for hotels to sell experiences rather than a room.
It is an exciting time for the hospitality industry. I also felt the need to address unique challenges faced by the lodging industry, both business and technology, such as fragmentation, single image of room inventory and eroding margins through intermediaries which are rarely discussed at industry forums.
My involvement with hotels started a few years after we successfully launched the first airline revenue management system for American Airlines in 1986.
Besides working with major hotel chains on enterprise revenue management initiatives, I also focused on revenue management from a distribution perspective for Sabre GDS Hotels and online travel agencies (OTA) when Travelocity/Lastminute.com/Zuji was a Sabre company.
The objective of the book is to provide an end-to-end view of the hotel revenue management space. There are several aspects of hotel revenue management that are not covered in books, journal articles, or industry conferences, and it is a gap I wanted to address.
Our readers are predominantly from the airline industry, but there are always things to learn from adjacent industries. What are some of the things airline professionals can take away from Revenue Management in the Lodging Industry?
There are several key priorities that are similar between airlines and hotels. Examples are offer management, personalization, the context for travel-based customer segmentation, distributed inventory with an availability proxy to support high-volume channels, and migration to the cloud.
For airlines, offer management is the process of selling the right bundle, base fare and air ancillaries, to the right customer at the right price at the right time. Offer management is one of the core value propositions of IATA’s New Distribution Capability (NDC) for airlines to control and promote offers to customers through intermediaries (Global Distribution Systems, Online Travel Agencies and Travel Management Companies).
It is viewed as a multi-million dollar opportunity. Similarly, the lodging industry has embarked on attribute-based room pricing and inventory control to sell experiences to guests rather than a hotel room. Selling an experience instead of a room increases customer satisfaction since the customer purchases exactly what they want.
This approach to retailing requires a mapping of the fixed room attributes to individual rooms. Examples are rooms close to the elevator, the top floor of the property, a king bed, two queen beds, oceanfront rooms, ocean view rooms, mountain view rooms, connecting rooms, etc.
Flexible attributes include printers, yoga mats, exercise equipment, Nespresso coffee maker, etc. Early check-in and late checkout also qualify as attributes for the booking. Room attributes may or may not have a price attached to them. Based on the customer's request, the bundled price is calculated dynamically to determine the total price of the stay.
One area where hotels and airlines can work closer together is when it comes to partnerships and ancillary revenue. Can you share how airlines and hotels can better work together to benefit one another and the travel industry as a whole?
Generating incremental revenues from ancillary products and services for hotels is a vastly untapped opportunity. The permutations and combinations of fixed room attributes and flexible room attributes are quite large and can offer ideas to airlines whose ancillary products are far fewer.
A door-to-door seamless travel experience is much talked about but does not exist today. This requires a decentralized digital ID for the customer and a secure message routing platform between travel partners that is administered by a non-profit entity.
Consider the situation when a customer’s Delta Air Lines flight is delayed by a few hours. The customer can grant permission to Delta to send the updated itinerary to the Westin Hotel where the customer has a booking through the exchange.
Based on the status of the flight, the hotel can now plan for early and late arrivals and plan on additional product offers to recommend to the customer upon arrival at the hotel. All travel entities need to register with the universal data exchange to receive real-time notifications authorized by the customer.
The universal data exchange should not store any PII data (personally identifiable information such as social security number, passport data, biometric data, date of birth, etc.). This concept can be extended across multiple travel partners. It requires a decentralized digital identity where every customer has an encrypted electronic key that is used to identify the customer across travel entities such as airlines, hotels, cars, rideshare, and local activities.
In our last interview, we discussed your startup Charter and Go. What's the latest updates?
We have developed a best-in-class dynamic offer, order management, and dispatch solution for the business aviation industry in two years.
Unlike the airline industry where separate solutions exist for airline planning (flight scheduling, fare management, revenue management) and airline operations (airport staffing, crew planning, airline operations, disruption management), general aviation is very different.
A single integrated application generates dynamic schedules, generates a price quote, checks crew qualifications, recommends crew assignment, and manages all aspects of a trip with a single order (termed ONE Order by IATA).
To elaborate further, the event-driven order management capability, within the context of a charter passenger reservation, brings together all the elements associated with the charter flight booking such as the cost of a charter flight, quoted dynamic price, payment status, ancillaries (e.g. catering, Wi-Fi, luggage, entertainment, pets, layover fees, international handling fees, etc.), crew assigned to the charter flight, upcoming maintenance events for the aircraft, hotel and car bookings for customer and crew with a single reference order.
We also launched a solution for charter operators with floating fleets, where the aircraft do not return to a home base. The floating fleet solution consists of a risk-adjusted price quote and a least-cost solution for the fulfillment of customer requests on the day of departure.
The customer fulfillment solution has similarities with the commercial aircraft routing model that requires intelligent column generation to solve the set partition linear program.
We have two customers who are live on our system and are currently onboarding more.
How do you see the charter industry shaping up?
The charter industry is highly fragmented, with over 20,000 private jets and 3,000 charter operators who on average have 3 to 6 aircraft. The ten largest charter and fractional operators account for less than 25% of the total private aviation flight hours in North America. This is unlike commercial aviation where the top 10 US airlines garner a 90% market share.
There are also no established standards for communications for interoperability between systems like you do, for example, in the commercial airline industry with IATA, AIRIMP (A4A-IATA Reservations Interline Message Procedures), and PADIS (Passenger and Airport Data Interchange Standards). We saw this as an opportunity to eliminate ad hoc responses to customer requests for charter flights with a consistent and repeatable process.
Unlike commercial aviation, the COVID-19 pandemic led to increases in business aircraft sales and utilization in the second half of 2021. We expect aircraft values to stabilize and anticipate modest growth in general aviation in the years ahead.
As we are into 2023, new tech such as AI and machine learning are part of a lot of discussions within the travel industry. What is in store for technology this year?
The well-known AI-powered applications in travel are focused on customer service improvements with speech and text recognition. They include chatbots and facial recognition for customer identification at check-in.
However, the potential for AI is much larger. There are opportunities for leveraging AI in the areas of robotic process automation for air and rate shopping and monitoring, cognitive insight analytics to identify hidden signatures in the underlying customer data, and cognitive engagement where the intelligence about the customer segment or individual customer is used to maximize revenues and enhance brand loyalty with relevant offers and customer service improvements with every interaction.
Today we live in an AI-enabled landscape. Investment from travel entities will continue at a rapid pace to gain a competitive advantage in all facets of travel. Machine learning is used for predictive modeling to make recommendations. Machines are given access to data to make predictions through a process of continuous learning and self-recalibration.
Notable examples are customer segmentation based on context for travel, demand forecasting, personalization of the travel experience, recommendation engines for bundled offers, dynamic pricing, test and learn experimentation, fare and rate structure calibration, optimizing the screen real estate with NDC content for authorized travel agencies, optimizing the screen real estimate for hotel websites, dynamic ranking of hotels during a search to maximize conversion rates on hotel and OTA websites, and many more.
The focus on and investment in offer management by airlines will require an efficient approach to determine the optimal price of an offer consisting of a base price, which can be a dynamic price and air ancillaries based on prevailing market conditions and changes in consumer behavior over time.
Periodic calibration with machine learning or statistical models belongs to the past. An AI technique called reinforcement learning, a test-and-learn experimentation model also known as the multi-armed bandit will go mainstream to fine-tune and promote offers to customers that resonate in the marketplace.
The incremental value of extending the multi-armed bandit algorithm to contextual bandits cannot be understated. While it is a greater computational burden and adds technical complexity, the inclusion of contextual features in the decision process is worth the effort and some airlines will adopt it.
Experimentation with blockchain in travel will continue at a rapid pace. Decentralized digital identity, personalization for a segment of ONE, and peer-to-peer interaction between travel suppliers and travelers (without an intermediary) with a distributed ledger will probably be the most significant impact of blockchain in travel over the next decade.
As demand continues to climb, what other trends should we be on the lookout for in the coming year?
In the commercial airline industry, corporate travel will continue to rebound and should reach 2019 levels, before the COVID-19 pandemic, by March 2024, if not sooner.
However, growth in leisure traffic will continue to outpace corporate travel. The larger airlines and the intermediaries will continue to invest in IATA NDC. NDC aggregators who provide an alternative to travel agencies to access content directly from airlines will thrive and dis-intermediation of the GDS with airline-preferred NDC channels will continue, though there is uncertainty on its magnitude.
The scalability of IATA NDC is a fundamental challenge that should be addressed by a coalition of the willing: airlines, GDSs, Travel Management Companies, Online Travel Agencies, and NDC aggregators to reach the finish line.
In business aviation, mergers will continue to create economies of scale. During the pandemic, demand for private jets scaled to new heights and new customers augmented the baseline by an order of magnitude. Trained pilots will continue to be in high demand and the shortfall in pilots will continue to be an operational burden on charter operators.
The corporate sector, an integral component of charter travel, is in the throes of a major revolution influenced by the intersection of advances in technology and evolving customer expectations. While chartering a flight is considered expensive, it is affordable on popular routes and, depending on the number of individuals in the group, can be competitive or even cheaper than first-class travel.
Charter flight operating economics with advances in technology will make leisure and corporate travel on a charter flight more affordable in the future. Faster and more fuel-efficient aircraft, hybrids and all-electric aircraft for short distances will pave the way for affordable travel that is competitive with commercial airlines.
Given the importance of time, convenience, and a frictionless journey to attract and retain corporate customers, we anticipate significant innovation from charter operators.