In 1943, IBM president Thomas J. Watson famously predicted that there was a world
market for about five computers.
He might have been better off following Winston Churchill´s advice: "I always avoid prophesying beforehand because it is much better to prophesy after the event has already taken place."
So let’s admit
it, predictions rarely turn out the way we imagined them - even more so today with the breakneck speed technology is transforming almost all industries, plus the giant digital wave spreading into our personal and work lives.
So, meet airline distribution:
shifting user behaviors (mobile, voice); the rapid expansion of digital giants (Google, Amazon?); new technology standards disrupting the existing ecosystem; a rapid consolidation of intermediaries; and strong determination by airlines to directly connect
with the end consumer.
These elements are sending shockwaves across the distribution landscape.
Add to this the rapid adoption during the next decade of transformative technologies like artificial intelligence, cloud computing, the Internet
of Things, augmented reality and blockchain, etc., and you get the picture: The airline industry is at a digital tipping point where seismic forces will shake up the existing ecosystem.
But, ask yourselves these questions:
- Is there any sense in trying to predict how the airline distribution landscape will look like in 2030?
- Will the airlines' dream of transforming themselves into digital mobility brands become a reality?
- Will the doom-and-gloom predictions about an online travel agency/metasearch/global distribution system apocalypse become a reality?
- Will the gatekeepers' (or shall we call it Google?) endgame of owning the traveler journey from beginning to end materialize?
Eleven years' time is a long horizon in such a fast-moving environment, so I decided to take a more holistic approach, creating a scenarios that illustrates the possible directions the future might unfold and how the airlines and the rest of the key players
in the ecosystem, notably OTAs, travel management companies, metasearch players, GDSs and non-industry tech giants will adapt to deal with the disruptive changes they will be facing during the decade.
Fasten your seat belt and travel with
me to the year 2030 to take a peek at four possible scenarios envisioning the future of the airline distribution landscape.
Building the scenarios
The scenarios we will be seeing are narratives of four specific and plausible future environments which substantially differ from each other to highlight relevant forces that might move in very different directions.
The foundation of them is
a set of underlying drivers, I called "game-changers," with a high impact but unpredictable evolution that will play out during the next decade in the airline distribution ecosystem.
To better illustrate the outcome, I created a scenario matrix
built on two axes addressing the critical uncertainties with these two questions:
- Will the power shift from existing travel players to global tech giants?
- Will the customer be owned by airlines or distribution?
The X-axis - “Will the power shift from existing travel players to global tech giants?” - reflects the increasing power of technology giants across almost all e-commerce verticals.
This dimension illustrates today’s trends such as Google’s rapid
expansion in the travel industry with products like Google Flights and Google Hotel Ads and Amazon’s seemingly unlimited ambition to conquer all major retail sectors.
It also takes into account how these platforms are vertically expanding into the entire value chain from cloud computing to shaping new user behaviors such as voice search.
Subscribe to our newsletter below
These digital titans are major disruptors in the distribution landscape posing an existential threat for the existing industry players. Will they succeed in gobbling up the entire value chain in the next decade?
Another critical uncertainty that will determine the future of airline distribution is illustrated in the Y-axis with the question: "Will the customer be owned by airlines or distribution?"
Looking back in recent airline history, the most disruptive force have been the phenomenal rise of low-cost carriers.
These carriers, born in the internet era, shook up the existing ecosystem by entirely bypassing traditional distribution and using the web as their direct sales platform.
Legacy airlines took a page out of the LCC playbook and have been busy
in beefing up their transactional websites and breaking up the traditional distribution pipelines powered by GDSs.
Under the IATA umbrella, new initiatives like New Distribution Capabilities and One Order represent an attempt to profoundly
change the design of these legacy booking, pricing and distribution systems, unleashing an unprecedented power of personalization by allowing to shape products (seat, in-flight and airport services) and prices customized for each individual customer.
seems reasonable to think that these new technology standards will be widely adopted across the distribution landscape during the next decade.
What remains to be seen is how they will potentially reshuffle the power balance of the ecosystem
and if airlines will use it against or in cooperation with the existing distribution partners.
The Chinese exception
The airline distribution landscape in China (similar to other industries) is a different world for itself.
The OTA landscape is monopolized by Ctrip, state-run GDS Travelsky rules the massive domestic market and the tech giants fiercely battling for the end user are local players Baidu, Alibaba and Tencent (BAT).
Consumer behavior and technology
usage are in many ways moving at different pace and directions than in the Western world, so we will focus on the Western world for our future scenarios.
Which game-changing trends will shape the possible scenarios of the distribution ecosystem?
all the moving pieces we can see in the current landscape, a number of consumer, industry and regulatory trends stand out. These “game-changers” will have a distinct evolution, deeply impacting the industry in potentially different ways and shaping
the four future scenarios. Let us dive deeper into them.
Personalization is all the rage, but does the customer really want it?
The display of airline content has been ruled in the last few decades by the GDS pipelines and regulatory frameworks such as the so-called CRS Code of Conduct, ensuring a neutral
display for travel agency screens. This structure led to a strong commoditization of the product where airlines could effectively only compete on price and flight schedule.
Airlines have been desperate to break out of this mold inspired by
the success of retail giants like Amazon in customizing their offer and recommendations to each individual user.
With the gradual unbundling of the services, the move towards NDC and the improved retail experiences on their websites, airlines
are pushing hard to reach the proverbial one-to-one customer relationship.
But it is not all plain sailing in the world of personalization. Multiplication of options and lack of comparability means end users are increasingly lost in a jungle
of prices, services and sales channels.
Is a personalized retail experience actually feasible for such a low-frequency consumer product beyond the frequent business traveler? Can travelers flying for very different reasons be clustered
in homogeneous segments?.
The underlying dilemma to these questions is if the airlines' personalization efforts during the next decade will allow them to boost loyalty or push travelers to rely on intermediaries on for a comprehensive and
The rise of the virtual assistants
Tech giants GAFAM (Google, Apple, Facebook, Amazon, Microsoft) are waging multi-sided battles in the West with the goal of moving beyond the existing internet paradigm towards a proactive, always-connected digital companion that will profoundly change
how we interact with the web in the coming decade.
In their quest of providing a continuity of experience and keeping users locked in, they are massively investing in software and hardware to impose their platforms, ecosystems and hardware
These virtual assistants, combining chat, voice and gestures in the coming decade on all sorts of connected consumer devices, will revolutionize how we search, communicate, share and buy.
This paradigm shift will impact the travel industry in
a profound way. In the current embryonic state, the use cases for the airline industry are mainly focused around post-booking information updates such as flight status, boarding gates, etc.
But experts predict that in the coming years these
exchanges will become more action focused, moving from commands such as "what is my departure time?" to "rebook me to the next direct flight in the afternoon."
On a transactional level, current volumes channeled through these virtual assistants
are insignificant, but the so-called "conversational commerce" on these platforms will likely evolve during the next decade, combining voice and text interactions supported by visual information on all types of smart devices.
will airlines and existing distribution players position themselves in this world dominated by the digital gatekeepers?
The unlimited wealth of user data the tech giants collect, coupled with the stronghold on upper-funnel hardware and software
and an exponential progress in the underlying machine learning algorithms such as natural language processing (NLP), natural language understanding (NLU), automatic speech recognition (ASR), robotic process automation (RPA) and predictive analytics
give them an unmatched power to shape the future of our digital behavior.
It remains to be seen if airlines and the rest of the distribution players will become dummy pipelines feeding these gatekeepers or if they will be able to stay relevant in
the value chain as owners of the content and capable to directly connect with the end users.
NDC: The holy grail for a better retail experience across the industry or the airline's master plan to cut out the middleman?
IATA’s NDC and One Order standards will shake the distribution ecosystem to its foundation, with lofty ambitious
to have 20% of sales powered by NDC by 2020 and reach mass adoption in 2025.
These might sound over-optimistic, considering that current standards are not yet servicing post-booking orders (rebooking, canceling, etc.).
the NDC train seems unstoppable now, and intermediaries and GDSs are not sitting on the sidelines waiting for the arrival of the tsunami.
A frenzied activity of acquisitions, joint ventures and partnerships are unfolding as we speak, with each
player trying to carve out its competitive niche in this new brave world.
Some key movements worth highlighting are:
IATA has been careful in promoting and supporting the adoption of the new standard across the entire distribution landscape, and most airlines are using a “stick and carrot” approach, adding GDS surcharges on one hand while offering incentives for shifting
to NDC on the other hand.
But some larger carriers like Lufthansa are already taking a more aggressive stance by also removing lowest fare groups outside the NDC environment despite the fact that the platform is far from being mass-production
ready, hence steering sales towards its direct channel.
Will the NDC standard flourish to push a richer and deeper retail experience across a wide spectrum of distribution partners or will it ultimately become the airlines "Trojan Horse"
to gain direct control over the end customers?
Moving beyond the airline seats
In their aim of maximizing ancillary revenues and deepening connections with end users, airlines entered a frantic race of adding new services
into their retail store fronts. Becoming the "Amazon Of Travel" seems to be the common dream of any airline executive who prides him or herself of being visionary.
Technology plays a major role in this new retail experience, and a large amount of startups
are popping up in the airline ecosystem to cater these services with a digital-first approach.
They can be broadly categorized into three areas:
- In-flight services: Wi-Fi onboard, richer in-flight entertainment, on-demand food services. etc.
- Pre- and post-flight services: luggage delivery, airport transfer, duty free items preordering, business lounge access, etc.
- Other travel services: insurance, hotel, car rental, packaged tours, in-destination activities is the standard set, but also credit cards, abroad Wi-Fi service, etc.
How strong will the adoption rate of these services be among airline shoppers? Will airlines be capable to build a competitive edge against the large OTA groups? Or will this retail expansion backfire, creating friction and diluting airlines' core value
With the dramatic changes unfolding in the industry during the next decade, regulators around the world risk to suffer chronic headaches trying to find the right balance between a level playing field for all parties while avoiding red tape and crippling
Airlines, GDSs and OTAs have a love-hate relationship
These three sectors have had a long history of court battles behind them and lawyers are right in rubbing their hands together, as the years to come are unlikely to see
a slowdown in court activity related to surcharges, withdrawing of fare groups and channel discrimination.
ETTSA, the European GDS and travel agency lobby group, filed an antitrust complaint at the end of 2018 against Lufthansa due to unjustified
GDS charges in dominant markets. Go West and Lufthansa and Sabre are fighting over the same cause in the Supreme Court of Texas.
But GDSs haven't escaped lawmakers' scrutiny either. The EU commission launched a preliminary
investigation into Amadeus and Sabre agreements with airlines and travel agencies about possible restrictions to use other distribution services
A critical regulatory topic overarching this legal battlefield will be the decision to review
the now-10-year-old Computer Reservation System Code of Conduct. EU regulators launched a public consultation at the end of 2018 and the ramifications of the outcome might have a profound impact in the future of our industry.
In a world of increasing
channel and content fragmentation generating lack of transparency for the end user, will regulators try to enforce a new and much larger framework ensuring a neutral price display across all existing user touch points? Or will the scope be limited
to traditional travel agency desktops in a world where each user has a powerful booking engine in its pocket called a smartphone?
Tech titans: time to clip their wings?
On a much larger scale, the ever-increasing concentration
of power from tech giants in the global economy will be topping the regulatory priority list. Europe has so far taken the most decisive step with its record fine to Google for favoring its own shopping products over rivals ones.
The regulatory slap did not include Google's travel products, but given their trajectory of favoring its own products not only in the search box but in its expanding ecosystem such as Google Maps, Trips and Assistant to name a few, chances are, that travel
is on the top of the EU antitrust agenda.
U.S. regulators have so far looked to the other side on Big Tech dominance. Anti-competitive practices generally are ruled illegal only when a clear consumer damage can be proven, mostly by price
increases. Will they keep staying at the sidelines during the next decade if tech titans keep amassing power and use it to crush competition?
The data conundrum
Another far-reaching regulatory topic will be around data,
the lifeblood of the digital economy. In the coming decade, almost every action will leave a trail of data breadcrumbs both in the digital and real world, and Big Tech will be harvesting and processing them for their own commercial use.
2018 EU General Data Protection Regulation (GRDP) implementation was a first baby step of a legal framework around the use of data. Experts predict that 2019 will see a collection of U.S. bills around this topic possibly being embodied into one overarching
Personal Data Privacy Act.
Public pressure certainly seems to be mounting after an onslaught of bad headlines in 2018 around Facebook privacy mishaps, data breaches across several industries and fake news-fueled election interferences.
Fintech regulation as a blueprint
focus could also focus on breaking down the walled data approach of current industry players in travel, similar to what happened in the European banking sector. EU rule-makers implemented at the beginning of 2018 the so-called Payment Services Directive
2 (PSD2), requiring banks to share account data with competitors as long as customers gave them permission, sparking a new wave of innovation and competition in the fintech sector.
Will next decade see lawmakers enforce Big Tech new standards
of data collection and its commercial use, striking at the heart of ad-driven technology giants like Google or Facebook? Will the regulators create a level playing field to user data access across all players in the industry similar to the banking
* In part 2, we will look at the scenarios that could lead to a radically different landscape for airline distribution by 2030...