“The analogy that I like to give is this: imagine you're walking by a retail storefront,” says PROS VP, Principal- Travel Retail Mike Slone. “The outside of the store looks terrible, but inside, they actually have amazing products and the best prices. Would you ever go into the ugly store to see their products? On the flip side, you may have an amazingly beautiful outside storefront, but then you go inside and the prices on the merchandise are all wrong. Are you going to continue to shop there even though it’s beautiful, but priced incorrectly?”
Airlines’ emphasis on developing fuller digital retailing strategies and capabilities has never been clearer. But determining and priorities remains a challenge.
It’s also a major opportunity: a recent McKinsey & Co. report suggests that digital retailing strategies could add $40 billion annually by 2030 (equivalent to 4 percent of current industry revenues). Put another way, modern retailing might be worth up to $7 per passenger. That should be welcome news to an industry that, despite some strong economic tailwinds, does not consistently make economic profits for its shareholders.
As PROS tries to help its airline clients realize some (or most?) or that prospective $40 million in retailing revenue, it’s worth looking back at the Houston, TX-based company’s $12 million acquisition of French e-commerce platform Travelaer this past August.
In addition to Travelaer’s e-commerce booking engine and New Distribution Capability (NDC) to help advance PROS’ own artificial intelligence-based revenue management, analytics, and distribution software for airlines, the company also has the ideas of Mike Slone, which we discussed in late 2019.
Currently serving as PROS VP, Principal- Travel Retail, Slone was previously Travelaer’s chief experience officer before the acquisition. Before that, Slone was Global Lead, User Experience for global distribution system Amadeus.
Kambr Media: How much has changed for you and the Travelaer group since the PROS acquisition last August? What’s the transition been like?
Mike Slone: The transition is going very well. It is very exciting to be part of the PROS family and we are making huge progress on the integration of our products. Once we have full cohesion, the PROS product suite for airlines will be hard to match.
Being a small startup in the travel industry, specifically an airline tech start up, is quite difficult. In most cases, travel start up’s have more innovative and better products than the legacy IT providers. The issue is that airlines rarely trust small travel tech startups with their core business. So, strategically to get more traction from the Travelaer products, we knew we needed to partner with a much larger company such as PROS. Even though Travelaer has only been part of PROS since August, we have been working with Vayant since 2014. [Editor’s Note: PROS acquired Bulgarian airfare search platform Vayant Travel Technologies in Aug. 2017 for $35 million].
We knew, as a company, that we didn't want to get into pricing engines. The industry already had pricing products. We knew that this space was already crowded, so we wanted to focus on an area that most legacy airline IT companies were missing or ignoring- the Customer experience. Travelaer’s focus had always been on the user experience and improving the user experience across all phases of travel. This is still a huge weak spot for most airlines and the reason is mostly because of the underlying technology.
In order to address the user experience issues with airlines, we quickly learned that we needed our technology stack and a platform that would enable us to empower airlines to do more with their digital experience. We looked at working with all of those pricing partners very early on- in fact, we have integrated with all of them.
We've worked with PROS on multiple airlines and multiple projects and we recently signed two new airlines in early 2019 before the acquisition. So, I think it was fairly natural that we would continue working with PROS more formally as the same company.
What I like about PROS is their science-based approach. Since PROS began, they've been investing in science –specifically machine learning and artificial intelligence.
I like the idea of our platforms becoming smarter and more integrated across the full life cycle of PROS products. PROS started with revenue management and now they have products that go throughout the full customer journey. Is this quite unique for an airline solutions company.
How does an e-commerce platform complement what PROS offers?
I was meeting with the product guys in Houston one day last fall and I asked a fundamental question to their head of travel products: "If you apply your merchandising product to an existing airline website, what can it improve?"
I showed him an example of a poorly designed legacy airline IT booking engine and asked, "How can your merchandising product improve this?” He said, “We'll have the best price we can and can change the order of the elements on the page."
I then responded with more questions: "What if the airline page looks like this? How is having the best price and changing the order of elements really going to help?" "Would you buy something from this airline with a page that looks like this?" And the answer was- the merchandising product couldn’t address the visual or presentation issues.
We started talking about how dynamically changing user interfaces, in addition to price and ordering, can maximize selling.
The analogy that I like to give is this: imagine you're walking by a retail storefront. The outside of the store looks terrible, but inside, they actually have amazing products and the best prices. Would you ever go into the ugly store to see their products?
On the flip side, you may have an amazingly beautiful outside storefront, but then you go inside and the prices on the merchandise are all wrong. Are you going to continue to shop there even though it’s beautiful, but priced incorrectly?
With PROS, I felt like they already have the right products, they had the right pricing, but they needed a storefront to display things appropriately.
You talked about your ideas of using artificial intelligence for design elements. How would that work? And how do you view the need for this use case in terms of AI for airlines and travel brands? How do you see the problem AI would solve in the case of design?
I've been working on strategy, design, and research for airlines now for almost 20 years. Airlines typically hire digital agencies or other companies to help them with user experience projects in order to define what their future digital experience is going to look like.
Airlines spend a lot of time and money to defining and designing new user experiences. It takes a typical technology provider, especially the legacy providers, years to build out the new experiences and even then they only get it about 70 percent correct. By the time an airline builds their new digital experience, it is already old. This is a cycle that happens over and over in the airline world. In addition to issues related to speed to market, who says that one user in Frankfurt, Germany likes the same user interface as someone from Denver, Colorado versus Tokyo, Japan?
It's nearly impossible to design a perfect user experience that is appropriate for all of the different geographic regions in the world. An idea that I’ve always been intrigued, with as a UX centric leader- what if we could stop the cycle of manually redesigning airline websites and instead we could apply artificial intelligence to dynamically create and morph user interfaces?
I refer to it as “AI powered UIs,” or dynamically learning user experiences, “D lux.” I want future airline experiences to be “D lux”, which essentially will mean the end of these manual cycles of redesigning airline websites and instead will rely on creating new experiences based on user behavior and modifying the user experience to match their needs.
There are a number of proprietary factors that we may put into an algorithm to automatically change the display, not only the price, or the order, but the visualization of the elements on a page and the entire page itself.
How have you been working with ATPCO’s Next Gen Storefront and its NDC Exchange?
One of the big problems with NDC as it exists today is that most airlines don’t have access to the web services needed from their PSS to convert them to NDC. At industry conferences it's always the big airlines that are talking about NDC, rarely the small or medium sized airlines. The reality is that the largest portion of airlines barely have a good retail presence, booking engine, pricing, shopping, etc. For those carriers, that don’t have an API strategy. They really can't even move to NDC without web services.
Now, let's say that they do have APIs. We've been working for more than a year now with ATPCO’s NDC Exchange and with a major airline to launch a replacement booking engine that is only built on NDC via ATPCO’s NDC Exchange. We consume the NDC feed into PROS Retail for Airlines, which allows us to apply business rules and then display the retail experience via a user interface and/or mobile application.
In this situation, when you take it from the top down, you have a user interface that is on top of a frontend API on PROS Retail. PROS Retail is connecting via NDC to ATPCO’s NDC Exchange. Below that, NDC Exchange is actually getting an API from another company who has an orchestration layer, or from the airline directly. That company is consolidating APIs from the PSS and from the airline.
If you look at the stack of how many companies are involved, there are real issues with speed and accountability. Whereas today, when we build PROS retail on top of the PSS directly, it's PROS Retail, then the PSS.
You have airlines today who are looking for an NDC partner when they don't actually even know what their airline direct strategy is. Airlines don't need an extra NDC partner. What airlines need is a direct retail strategy. Part of that is dotcom, part of that's mobile, and part of it is NDC. If you have everything focused on one retail provider, there then you remove all of those extra layers.
What do you see as the main challenges for airlines from a revenue and tech perspective?
What no one's really talking about is what it actually takes to build on top of NDC.
Obviously, OTAs and metasearch engines are tech companies so they can build on top of NDC just like they've been building on GDSs in the past. But there is much more to airline digital distribution than just NDC through a metasearch engine or Google Flights. We really have to start to look at how do you build on top of NDC? Do you have a partner like PROS Retail who can supply you with an orchestration layer, business rules, and a user interface?
Standardization means that we can go to market very quickly with mobile apps and other digital products that whereas in the past you might have to build different adapters for different PSSs and then account for you. Then maybe different pricing providers or different merchandising providers. Whereas with NDC, that standard consolidates all of that.
There was a lot of investment and acquisition activity in the airline tech space last year. What do you think investors and larger companies should be looking for this year?
Airlines are very conservative – this is an understatement. Typically, the way airlines approach startup companies is through venture capital - small investments in companies, mostly so that they can monitor startup ideas, but not enough funding to really get them to the next level. Frankly, you rarely hear about too many airline startups that actually move to a successful level. You hear about many companies getting angel funding, but you don't really hear that a lot of them have been acquired or they're getting another round of funding. A good example is chatbot technology startups. There were quite a few chatbot startup companies, but most of them have disappeared, maybe a few have pivoted, but most don’t exist today.
What I've learned in this whole experience with Travelaer is that it's very difficult to create a travel technology startup focused on airline customers without a large investment.
Airlines want large, stable technology companies to work with. If startups are lucky, airlines might be willing to try a small project or a POC, but very rarely do airlines trust their core IT or digital experience to a small startup. This makes it difficult for airline focused startups to gain traction and be successful.
There are a lot of great ideas in the travel space. There are a lot of great travel tech startups. But the issue is that airlines, typically, are just risk adverse.
Ultimately, this is an issue because it means the airline industry is leaving the future of innovation to the legacy airline tech companies. We are risking the complete innovation of the travel industry to several dinosaur companies that move at a prehistoric pace. These legacy companies move super slow and we're going to wait a long time if we expect innovation to come from them.
Today, travel and digital experiences are an extension of our fingertips. But, when you look at airline travel experiences and the core components that make up an airline booking, we are still using the same HTML forms for searching and the display of flights- it's almost exactly the same as it was 20 years, except it looks a little better and perhaps loads a little faster now.
A lot of people prefer to book with OTAs because they are innovating faster than airlines. OTAs do not the complex flight display compared to airlines. Customers don't care about “economy light, economy basic, economy-plus, economy-super.” And I don't care how many cool photos you add to it or how many attributes that you use to explain them – most people just don't like them. The OTA digital experience is so simple and that's why people book on those sites. That’s the tech challenge airlines need to invest in to solve.