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One of the hottest topics in commercial aviation today is distribution. To get the lowdown, Kambr Media sat down with former IATA employee Eric Leopold. Leopold’s 15-year tenure with the association, included multiple director roles, with the latest being focused on industry strategy.
Kambr Media: Of course, airlines want to offer customers the best/most relevant offers, but that also means using personal data. How can airlines strike a balance between the two?
Eric Leopold: When we launched NDC announcing the ability to personalize offers through the travel agency channel, the first reaction from customer associations was their concern with data privacy.
Of course, they knew that the entire e-commerce ecosystem already relied on customer data to personalize offers, starting with companies like Amazon. Personalization is a good thing for customers as it saves them time searching infinite inventories.
Why spend time searching when a virtual assistant can guess your needs and send you the right offer at the right time? Of course, the line not to cross is data privacy, a concept now clearly defined in recent regulations such as GDPR.
KM: What do you think are the biggest hurdles keeping airlines from becoming present day digital retailers similar to the likes of Amazon or direct-to-consumer (DTC) companies?
Leopold: The biggest hurdle to change is the mindset. Most airlines focus on their core business of carrying people and goods safely and efficiently. Only a few airlines focus on addressing customer travel needs, which requires thinking as travel retailers or travel brands.
The risk for airlines is that digital brands become the travel brands and airlines serve them as white-label flight operators.
KM: How much does legacy infrastructure, software and process impend digital growth?
Leopold: Airlines’ legacy infrastructure was designed to process passengers efficiently at a time when the industry was regulated.
"While the legacy infrastructure enabled airlines to build a global transport network carrying billions of people annually (before Covid), it will not help airlines in their retailing journey."
After deregulation, new airlines emerged with low-cost operating models and streamlined processes.
While the legacy infrastructure enabled airlines to build a global transport network carrying billions of people annually (before Covid), it will not help airlines in their retailing journey.
One example illustrates it: airlines still issue tickets and EMDs when a reservation is made, which complicates the exchange or refund processes in case of disruptions, whereas solutions exist to simplify these processes.
KM: Can you discuss how differing business models (LCC, hybrid, FSC) affect airlines’ distribution and offer management strategies?
Leopold: The main difference between FSC and LCC in distribution is the travel agency channel which imposes consistency of offers for FSCs. FSCs must ensure that customers get consistent offers whether they prefer to shop directly with the airline or via a travel agent, which limits the airlines if the travel agents can only handle basic offers.
The objective of NDC is precisely to enable travel agents to access the same offers available on airlines’ direct channels.
KM: The fare price is just one product/component an airline sells. How can airlines effectively incorporate ancillaries into their retailing strategy?
Leopold: Airlines historically managed prices for a flight and the conditions attached to the flight as the supply and demand for a perishable product.
Prices would go up if demand is higher than supply or would go down if there is too much inventory left when flight time is approaching.
With the unbundling of the airline product and the creation of ancillaries, airlines discover the opportunity to dynamically price the ancillaries and to dynamically bundle them beyond the usual branded fares. Airlines can optimize revenue based on the total offer, not only the right-to-fly.
KM: How can airlines manage the gaps between their own website, GDSs and NDC?
Leopold: The airline perspective on distribution is shifting from direct / indirect to digital / legacy.
An airline’s own website and the NDC channel are both considered digital in the sense that airlines may know who is requesting an offer and can personalize the offer.
"The airline perspective on distribution is shifting from direct / indirect to digital / legacy."
In contrast, through the travel agent channel powered by a GDS, the airlines file content such as schedules and fares but do not know what offers are made and to whom.
Airlines with a digital retailing strategy in place are shifting transactions to digital, for example onboarding travel agents on their NDC channels.
KM: How would you define continuous pricing and how can airlines effectively deploy it?
Leopold: Continuous pricing is defined in opposition to RBD pricing, which allocates a price per booking classes.
"For example, if a customer is willing to pay $80 for a one-way trip with a bag, but the airline has filed a $60 and $100 fare, the filed fare will in theory either lose $20 or lose the customer whereas a continuous price of $80 would exactly match the customer's need."
Continuous pricing allows, in theory, for unlimited price points which can match the demand curve more closely than the steps of booking classes.
For example, if a customer is willing to pay $80 for a one-way trip with a bag, but the airline has filed a $60 and $100 fare, the filed fare will in theory either lose $20 or lose the customer whereas a continuous price of $80 would exactly match the customer's need.
Naturally, the demand forecast needs to be adapted, both in the absence of booking classes and in the absence of relevant historical data.
KM: To this point, how effective do you think NDC has been in transforming distribution?
Leopold: People mix NDC and digital retailing. NDC is a technical standard which makes all airline APIs work the same and accelerates the technical integration.
Whereas digital retailing is the trend that transforms distribution. Retailing means the ability to offer any travel product to any customer in a differentiated way, whereas legacy distribution was designed to fill seats efficiently in a commoditized way. NDC is an enabler of digital retailing.
KM: Do you think the aviation industry will ever have a truly universal standard?
Leopold: I think each standard serves a purpose. We designed NDC to support digital retailing, but it’s only a data format. If a seller and a supplier of travel products find a better way to exchange data, nobody is forcing them to implement NDC.
But overall, most suppliers and sellers will adopt NDC and make it a universal standard because the additional cost of customizing and maintaining custom APIs may not be justified.
KM: The topic has been approached, but there haven’t been many practical applications with blockchain. Do you think the technology has the potential to improve airline distribution?
Leopold: This reminds me of a similar question 20 years ago: do you think the internet has the potential to improve airline distribution? The answer to both questions is yes. The first application of blockchain that comes to my mind is airline payment.
The attempts to secure credit card payments over the internet are inefficient and the associated costs make it an area ready for disruption.
At the same time, the blockchain provides a frictionless mechanism to exchange value securely. It will impact customer payments to airlines as well as settlements between airlines and their partners.
KM: When it comes to creating offers, what are the limitations? How creative can airlines be?
Leopold: The first limitation to change is the legacy mindset. It is difficult for human beings to unlearn. From a customer perspective, the airline product is the origin-destination of the flight and the ground/in-flight experience.
Airlines which have separate departments for network and capacity planning, for scheduling, for pricing, for distribution, for ancillaries and for revenue management tend to forget what products they sell.
"The first limitation to change is the legacy mindset. It is difficult for human beings to unlearn."
The departments need to work together to identify demand in markets and make relevant offers, not twice a year but on a daily basis.
An airline which has a head of offers who can influence the network, capacity, schedule and the bundling of ancillaries into offers at the right price will be creative and more competitive, especially if the offers can reach the customers who prefer to shop through an intermediary.
KM: Coming out of COVID, how do you envision the airline industry being different?
Leopold: I could talk about the future of air travel for hours, and actually recently authored a white paper about it. The short answer is that it will be different post-Covid and some changes will last.
The Covid crisis removed inertia and accelerated digital transformation. Mindsets are ready for changes now more than before the crisis.
