Innovation vs scaremongering - airline direct connects will cause warts
It is no secret that one of the most powerful ways to influence individual and societal behavior is fear.
Just turn on the evening news or read a history book to see all kinds of examples where fear – those who exploit others’ worst fears for political or commercial benefit – manage to scare people into doing what might otherwise not make logical sense.
It is tremendously disappointing to see the extent of fear mongering taking place right now within the travel industry. I am referring to the recent communications from the Business Travel Coalition (BTC) on the topic of airline direct connects and ancillary services.
The BTC allegations range from troublesome to outright ridiculous. If they are to be believed, new direct connect strategies such as those put forth publicly by American Airlines and quietly by several other airlines, will cause (among other things), the following tragic developments in the industry:
Opaque price increases
Harmful channel restrictions
Degradation of managed travel programs
Higher end user costs
Extreme/prohibitive technology investment
Withholding of key travel information to consumers
Subversive economic models
Consumer dissatisfaction and warts.
[OK, I made the last thing up]
Loaded with exaggerations and a glaring lack of any real-life examples, the BTC documents do a disservice and frankly are an insult to the entire travel supply chain.
In classic scaremonger style, the campaign is designed to rally the travel industry against change, preserve the status quo, and allow for outdated commercial business models to once again win over real innovation. To me, the entire thing can be summarized as follows:
“Hey airline CEO’s, you’d better get right back into the box and stop innovating your product. Don’t you dare introduce change to the way we’ve done business for years!”
Fortunately, despite its high annoyance factor, I do not believe BTC’s campaign stands a chance of working. The promise of new direct connect technologies coupled with the revolutionary impact of ancillary services is far too great to be defeated by fear-based manipulation. I’ll get back to that in a minute. In the meantime, we need to separate fact from fiction.
First, let’s look at the term Direct Connect. Put simply, Direct Connect reflects nothing more than an airline choosing to use a different software technology or ‘language’ (XML) to access its core reservation system.
The new technology gives the airline more opportunities to differentiate and control its product in a way that is easier and less expensive than legacy (e.g. Edifact) connections. American Airlines, clearly the target of BTC’s message, is actually one of several airlines investing in a Direct Connect strategy for these very reasons and the fact that it makes it much easier for third parties to connect directly to the airline.
It is important to note that Direct Connect is not a synonym for GDS or TMC bypass. As BTC correctly points out, GDS systems and travel selling intermediaries are fundamental to the airline business model. For this reason, most airlines investing in Direct Connect will still embrace a multi-channel strategy, in which GDS and other intermediaries are granted access to a newer, improved airline product.
Sure, some technology investment may be required as all parties wanting the latest airline features (such as merchandising) adjust to the new pipes (XML) used to access the airline system. But since when has any product or service worth its salt not required some investment for buyers and sellers alike?
Let’s move on to the topic of merchandising, or ancillary revenue. Finally, after years of being demoted to a commodity level and forced into a lowest fare comparison, airlines have found a way to differentiate their product and service, and control what is offered to whom based on “who’s asking”.
At last, airline distribution executives are gaining the capability that so many other industries already have: the ability to leverage CRM data, customer demographics, psychographics, frequent traveler status, and of course corporate account information all before the airline has to decide what will be made available and for what price.
Even more exciting, thanks to new mobile technologies, airlines can finely hone their offers based on the stage in the trip lifecycle, trip status, and other variables such as available inventory or lounge utilization. Three cheers! Product and channel marketing have arrived in the airline universe – and all players in the supply chain can benefit from this new added value and capability! Where’s the champagne, we should be celebrating this….
Oh, but wait: there aren’t fully documented standards yet for all of this new merchandising stuff…and according to BTC, without standards, the travel supply chain will grind to a halt or at least suffer massive productivity losses. This is complete nonsense. Most travel technology intermediaries who intend to remain competitive in this age of mobile technology and lightning-speed innovation are far more interested in how they can capitalize on and add value to the ancillary revenue movement, and improve the experience for their travelers, as opposed to stonewalling and procrastinating until all the standards are worked out.
For example, did all the bookstores and publishers in the world agree on all the bits and bytes before Amazon and Apple invested in e-books and related devices? If they had, would the iPad have ever seen the light of day?
The fact that there is such emphasis on ‘apples-to-apples’ standardization is evidence of how grossly commoditized and limited the airline product has been until this point: people have forgotten that principles of product marketing and management control can even be applied to it.
Take airline ancillary selling for example. As long as the airline files it ancillaries through ATPCO, picks the standardized categories and is willing to let the GDS create the offer, price it with everything being displayed in a common (read commodity) format, the airlines are free to differentiate all they want.
Remember Henry Ford’s view on differentiation…you can have it in any color as long as it is black. This may be very workable for some airlines, but to “mandate” the approach as the only one for the travel agency channel is short-sighted and most likely, will end up creating more fragmentation, and leave travel agencies scrambling to find adequate selling systems to keep them relevant to their customers.
I honestly can’t think of any travel agency owner or GDS executive that would agree to operate their business under terms outlined by BTC for the airlines to adopt: a one-size-fits-all, commodity-based selling approach to distribution. As an industry we are better than this…or at least we had better be!
Lastly, we have the matter of Pricing Transparency. Here, BTC and other proponents of the status quo are demanding that airlines make every possible optional or ancillary service known to the TMC or consumer, up front, in all channels.
Here’s an idea: how about travel agencies start disclosing to their corporate and leisure clients the amount of financial incentive they get per booking from the GDS and the amount of airline overrides. Silly, ridiculous, one would say… of course it is. Airlines are a competitive entity just like travel agencies and GDS. GDS pay different levels of financial incentive to agencies based on their production, loyalty, etc.
Agencies charge varying levels of service fees to their customers based on the same thing. Why can’t airlines do the same for their customers? We as an industry can’t be that hypocritical, can we?
Looking ahead, I have no doubt that we have reached a point where the airline product, and the channels that sell it, are changing for the better. Travelers have unprecedented levels of control and choice that can improve the trip experience and for corporations, bolster travel programs. New self-service and mobile entrants are changing the competitive landscape for post-booking reservation servicing and ancillary product opportunities.
There will always be fear mongering when change is imminent. But let’s not let the fear of change cloud our vision of the future or even worse, distract us from opportunity. After all, remember the days when many of us were debating (and even dismissing) the relevancy of the then emerging dot.com distribution channel?
Before we knew it, half of those billion tickets went around the established distribution model. The time to move is now!
NB: This guest post is written by Jim Davidson, president and CEO of Farelogix.
NB: This guest post is written by Jim Davidson, president and CEO of Farelogix.
It is no secret that one of the most powerful ways to influence individual and societal behavior is fear.
Just turn on the evening news or read a history book to see all kinds of examples where scaremongerers – those who exploit others’ worst fears for political or commercial benefit – manage to scare people into doing what might otherwise not make logical sense.
It is tremendously disappointing to see the extent of scaremongering (or fearmongering, for readers in the US) taking place right now within the travel industry. I am referring to the recent communications from the Business Travel Coalition (BTC) on the topic of airline direct connects and ancillary services.
The BTC allegations range from troublesome to outright ridiculous. If they are to be believed, new direct connect strategies such as those put forth publicly by American Airlines and quietly by several other airlines, will cause (among other things), the following tragic developments in the industry:
- Opaque price increases
- Harmful channel restrictions
- Degradation of managed travel programs
- Higher end user costs
- Extreme/prohibitive technology investment
- Withholding of key travel information to consumers
- Subversive economic models
- Consumer dissatisfaction and warts.
[OK, I made the last thing up]
Loaded with exaggerations and a glaring lack of any real-life examples, the BTC documents do a disservice and frankly are an insult to the entire travel supply chain.
In classic scaremonger style, the campaign is designed to rally the travel industry against change, preserve the status quo, and allow for outdated commercial business models to once again win over real innovation. To me, the entire thing can be summarized as follows:
“Hey airline CEO’s, you’d better get right back into the box and stop innovating your product. Don’t you dare introduce change to the way we’ve done business for years!”
Fortunately, despite its high annoyance factor, I do not believe BTC’s campaign stands a chance of working. The promise of new direct connect technologies coupled with the revolutionary impact of ancillary services is far too great to be defeated by fear-based manipulation. I’ll get back to that in a minute. In the meantime, we need to separate fact from fiction.
First, let’s look at the term Direct Connect. Put simply, Direct Connect reflects nothing more than an airline choosing to use a different software technology or ‘language’ (XML) to access its core reservation system.
The new technology gives the airline more opportunities to differentiate and control its product in a way that is easier and less expensive than legacy (e.g. Edifact) connections. American Airlines, clearly the target of BTC’s message, is actually one of several airlines investing in a Direct Connect strategy for these very reasons and the fact that it makes it much easier for third parties to connect directly to the airline.
It is important to note that Direct Connect is not a synonym for GDS or TMC bypass. As BTC correctly points out, GDS systems and travel selling intermediaries are fundamental to the airline business model. For this reason, most airlines investing in Direct Connect will still embrace a multi-channel strategy, in which GDS and other intermediaries are granted access to a newer, improved airline product.
Sure, some technology investment may be required as all parties wanting the latest airline features (such as merchandising) adjust to the new pipes (XML) used to access the airline system. But since when has any product or service worth its salt not required some investment for buyers and sellers alike?
Let’s move on to the topic of merchandising, or ancillary revenue. Finally, after years of being demoted to a commodity level and forced into a lowest fare comparison, airlines have found a way to differentiate their product and service, and control what is offered to whom based on “who’s asking”.
At last, airline distribution executives are gaining the capability that so many other industries already have: the ability to leverage CRM data, customer demographics, psychographics, frequent traveler status, and of course corporate account information all before the airline has to decide what will be made available and for what price.
Even more exciting, thanks to new mobile technologies, airlines can finely hone their offers based on the stage in the trip lifecycle, trip status, and other variables such as available inventory or lounge utilization. Three cheers! Product and channel marketing have arrived in the airline universe – and all players in the supply chain can benefit from this new added value and capability! Where’s the champagne, we should be celebrating this….
Oh, but wait: there aren’t fully documented standards yet for all of this new merchandising stuff…and according to BTC, without standards, the travel supply chain will grind to a halt or at least suffer massive productivity losses. This is nonsense.
Most travel technology intermediaries who intend to remain competitive in this age of mobile technology and lightning-speed innovation are far more interested in how they can capitalize on and add value to the ancillary revenue movement, and improve the experience for their travelers, as opposed to stonewalling and procrastinating until all the standards are worked out.
For example, did all the bookstores and publishers in the world agree on all the bits and bytes before Amazon and Apple invested in e-books and related devices? If they had, would the iPad have ever seen the light of day?
The fact that there is such emphasis on ‘apples-to-apples’ standardization is evidence of how grossly commoditized and limited the airline product has been until this point: people have forgotten that principles of product marketing and management control can even be applied to it.
Take airline ancillary selling for example. As long as the airline files it ancillaries through ATPCO, picks the standardized categories and is willing to let the GDS create the offer, price it with everything being displayed in a common (read commodity) format, the airlines are free to differentiate all they want.
Remember Henry Ford’s view on differentiation: you can have it in any color as long as it is black. This may be very workable for some airlines, but to “mandate” the approach as the only one for the travel agency channel is short-sighted and most likely, will end up creating more fragmentation, and leave travel agencies scrambling to find adequate selling systems to keep them relevant to their customers.
I honestly can’t think of any travel agency owner or GDS executive that would agree to operate their business under terms outlined by BTC for the airlines to adopt: a one-size-fits-all, commodity-based selling approach to distribution. As an industry we are better than this…or at least we had better be!
Lastly, we have the matter of Pricing Transparency. Here, BTC and other proponents of the status quo are demanding that airlines make every possible optional or ancillary service known to the TMC or consumer, up front, in all channels.
Here’s an idea: how about travel agencies start disclosing to their corporate and leisure clients the amount of financial incentive they get per booking from the GDS and the amount of airline overrides. Silly, ridiculous, one would say… of course it is. Airlines are a competitive entity just like travel agencies and GDS. GDS pay different levels of financial incentive to agencies based on their production, loyalty, etc.
Agencies charge varying levels of service fees to their customers based on the same thing. Why can’t airlines do the same for their customers? We as an industry can’t be that hypocritical, can we?
Looking ahead, I have no doubt that we have reached a point where the airline product, and the channels that sell it, are changing for the better. Travelers have unprecedented levels of control and choice that can improve the trip experience and for corporations, bolster travel programs. New self-service and mobile entrants are changing the competitive landscape for post-booking reservation servicing and ancillary product opportunities.
There will always be fear mongering when change is imminent. But let’s not let the fear of change cloud our vision of the future or even worse, distract us from opportunity. After all, remember the days when many of us were debating (and even dismissing) the relevancy of the then emerging dot.com distribution channel?
Before we knew it, half of those billion tickets went around the established distribution model. The time to move is now!
NB: This guest post is written by Jim Davidson, president and CEO of Farelogix.