Airline retailing, meaning the transformation of distribution away from legacy processes and artifacts into the world of modern retailing, has become a hot topic in the post-pandemic world. “The last two years has seen the journey to digitalisation accelerate and modernizing distribution has remained among airlines’ top priorities,” says Yanik Hoyles, IATA’s Director, Distribution. “It shows that it creates value for our members and their customers and that is what will drive its success.”
Airline retailing aims to give the airline ownership of the offer regardless of shopping channel and put the customer at the center of the shop/order/pay ecosystem. To support the airlines in their move to retailing, IATA has been working on several programs based on standards: NDC, ONE Order, Settlement with Orders, Dynamic Offers, the Future of Interline. The goal is the de-commoditization of the airline product and a focus on customer centricity.
While the NDC standard is the crucial gateway to enabling airline retailing by giving airlines control of the offer, achieving true customer centricity also requires the industry to retire legacy systems and processes associated with ticketing and back-office accounting. The move to e-tickets in effect electronized the related legacy paper processes but did not otherwise change them. Hoyles explains that it is impossible to come anywhere close to true online retailing if fulfilment is dependent on e-tickets, electronic miscellaneous documents (EMDs) to record ancillary purchases, and Passenger Name Records (PNRs).
This is the focus of ONE Order (the “order” in offers and orders). It will require moving to a unique identifier to replace PNRs, e-tickets, and EMDs and beyond the traditional Passenger Service System (PSS) to retailing platforms common to other consumer retailing businesses.
Revenue management will then be able to move away from traditional pricing, based on filed fares and booking classes, to indefinite price points and dynamic bundles. And whereas before a change of ticket would also require changes to the EMD and PNR and then force another reconciliation of these information silos, a retailing architecture simplifies matters. Restrictive legacy systems will be left behind so there will be just one order to handle. In other words, the industry will move from being record centric to customer centric.
IATA’s Board of Governors discussed the subject in their December 2021 meeting and arrived at three conclusions. First, the maturity of NDC suggests IATA should now broaden its scope in supporting all of its members looking to embark on the journey. To help them, IATA has just relaunched its guide to getting started in NDC for all stakeholders in the value chain. Second, the logical consequence of adopting the NDC standard is more control in payment. Improving customer choice in this area translates to improved conversion rates and a better customer experience. And third, the board requested IATA and willing airlines to develop milestones towards an end state of 100% offers and orders—no more e-tickets, PNRS, and EMDs. This is a significant transformation that will deliver true customer centricity.
What does it mean in practice?
The key point is that airlines can be more creative with their offers, expanding them through third party products where appropriate, updating them in real time, and personalizing them—no matter the sales channel.
Whether customers buy via the airline website or through a travel agent, they will be able to see the value in the offer through a multitude of options beyond fare and schedule.
And whatever offer is chosen is fulfilled with a single order. No longer will customers have to wrangle with different reference numbers for different providers, no longer will airlines struggle to reconcile different elements of the journey should it be disrupted. There will just be one order for the entire, bespoke journey.
And to complete the cycle, new payment options will make it possible for a customer to use the payment method of their choice while airlines may benefit from reduced merchant fee costs and the ability to onboard new forms of payment as demand dictates.
Each airline will have its own journey to a retailing environment. Currently more than 60 airlines have some degree of airline retailing capability and already the end of EDIFACT messaging by 2025 is being talked about by the likes of Finnair.
IATA has also established the Airline Retailing Maturity (ARM) index which was launched in October 2021. The ARM index looks at an airline’s technical capabilities, its partnerships with sellers, and a “value capture compass”—which is a tool to help airlines capture where value is being created and where it could come from tomorrow.
“A successful transition to airline retailing and customer-centricity is also dependent on C-level management buy-in,” says Hoyles. “This is a strategic choice for the long term. There needs to be a vision and a change of mindset and skills within an organization.”
The necessary changes in an organization to make airline retailing function correctly is an ongoing project. But it is clear that the status quo cannot be maintained. Already, some airlines have created new roles in offer management, a combination of distribution and revenue management skills. And revenue management professionals will revamp their abilities to consider ancillary products and bundled packages.
Business travel is another area in need of some work. There is no issue with the business case in this sector but rather it is a question of how that business flows through a travel management company (TMC) and online booking tools. User interfaces need adapting, for example, to better display content.
No major regulatory hurdles are anticipated although proposed disclosure regulation in the United States could complicate matters and would be unnecessary.
“But all players in the value chain realize this is the only way to go,” says Hoyles. “And there are benefits for them all. They can each choose their partners based on the value they bring. It will make for a stronger, more competitive market and that benefits the end customer.”
Global Distribution Systems (GDS), for example, may become aggregators and offer other back-office support. No single airline can connect with every travel agent worldwide so there will still be a need for partners with reach.
In the second half of 2021, the industry endorsed the latest NDC convergence standard 21.3, which contains everything needed for NDC to become mainstream, including backward capability.
It is estimated that most players in the distribution value chain will be using the standard by the end of 2023, cementing airlines’ evolution into retailers, and finally making true customer-centricity possible.
There is even value for low-cost carriers, who once were ahead of the game in terms of online retailing. Due to the maturity of NDC and the increasing maturity of the airline retailing concept, LCCs may decide their proprietary systems are limiting potential where they once enabled it. Converging on NDC with other stakeholders may give LCCs cheaper, faster and more extensive market reach.
“There is momentum in the short term and alignment in the long term,” Hoyles sums up. “Airline retailing means customer-centricity and a more efficient and effective distribution value chain. Airline boardrooms throughout the world are recognizing that this work can spearhead the industry recovery.”