There have been no shortage of gloomy headlines for the airline industry since the turn of the year.
Warren Buffet’s quote to Berkshire Hathaway investors in May (“the world changed for airlines”), when pulling out of its $4 billion+ equity positions in the U.S. airline industry, sounded like a prophecy of what lied ahead.
Travel will eventually come back and aircraft will crowd the skies again, but the shape of the airline industry might look profoundly different and the rest of the ecosystem will have to evolve with it.
Airline distribution was already going through a seismic shift before the crisis broke, yet the pandemic has turned all the underlying market dynamics upside down. Out of the current turmoil, four powerful forces are emerging that will shape the distribution landscape for decades to come.
1. It’s the customer service, stupid!
During the last decade, every travel player dreamed of becoming “The Amazon Of Travel” by beefing up their online shopping experience.
But while the tech giant invested billions in expanding its logistic footprint to offer customers a seamless end-to-end experience, airlines and intermediaries got stuck in the last century for the post-booking customer experience.
Outdated technology solutions combined with decades-old industry processes around ticketing, delivery and accounting, made servicing passengers after they had booked a flight a painfully complex and inefficient experience.
IATA’s One Order initiative, aiming to modernize the back office technology and workflows, has yet to get traction at scale and its New Distribution Capability (NDC) rollout remains a patchwork of inconsistent and half-baked integrations on the post-booking service side.
When the COVID-19 pandemic hit the industry in the face, airlines and intermediaries collapsed under the tsunami of cancellations and rebookings, leaving hundreds of thousands of travellers stranded and waiting to be refunded.
Only airlines and intermediaries that are capable of automating their back-office technology stack, expand self-service functionalities for customers and streamline processes around cancellations, changes and refunds, will be able to thrive in a post-pandemic world.
In this new reality, loyalty programs will evolve from simple reward schemes to customer-centric technology solutions assisting travellers through the entire customer journey with relevant and contextual services.
Successful intermediaries will work hand-in-hand with airlines and tech vendors to bring their order management and CRM infrastructure up to speed to this world.
Others might take a more radical path, sourcing airfares, ancillaries and insurance services from a wide array of sources and bundling them into a new travel product with its own rules and conditions, effectively taking ownership over the end-to-end customer experience.
2. To NDC or not to NDC
Led by IATA’s so-called “Leaderboard Airlines” (mostly larger western hemisphere network carriers) the NDC technology standard had gained some momentum before the crisis.
COVID-19 has further polarized a two-speed adoption of the NDC standard across the industry. Some carriers like Lufthansa are using the crisis to accelerate their NDC expansion, while others like Delta have paused their efforts.
Many second-tier airlines, currently struggling to keep the lights on, have shelved NDC rollout plans for better times.
The coexistence between the traditional GDS and NDC channels will be a reality for many years down the road. This will make life for intermediaries especially hard, since back-office workflows will need to be flexible to cope with different technology standards that are running in parallel.
Aggregators that are successful in harmonizing and automatizing the end-to-end booking flows across different technologies, offering a flexible and cost-efficient solution for intermediaries, will become serious challengers to the legacy GDSs in the decade to come.
3. The hyper-connected customer
The crisis fast-forwarded our world into a digital future, with tech giants sitting in the front row harnessing this shift.
While the airline industry walks through the valley of the shadow of death, Google keeps relentlessly expanding its footprint during the crisis by enriching its travel ecosystem with new features, such as a recent “free cancellation filter” on Google Flights.
In a world of increasingly hyper-connected consumers, the airline industry will be forced to accelerate its speed of digital transformation.
One way or another, all players will have no choice but to dance to the beat of the tech giants to stay relevant.
Airlines and intermediaries will increasingly compete in the same digital touchpoints with the final customer to gain his heart and pockets.
Online travel agencies might have an edge over airlines thanks to better customer insights, while airlines will play to their strengths by owning the service, hence controlling the customer experience.
Whoever manages to engage in the most impactful way with travellers across the end-to-end customer journey will come out as the winners in this new order.
4. The end of corporate travel as we know it
One of the paradigm shifts triggered by the pandemic will be the replacement of face-to-face meetings by video calls.
According to a Fortune 500 CEO survey, over 50% of business leaders expect that corporate travel will never come back to pre-COVID-19 levels.
With business travel historically making up 60% to 70% of total industry sales, according to the trade group Airlines for America, the devastating impact on the airline balance sheets will have a ripple effect on the rest of the ecosystem.
Network carriers will need to fight harder to capture remaining business travellers while refocusing on the leisure market to fill their planes.
The gap between business and leisure fares will significantly shrink and traditional corporate travel perks such as business lounge access or cabin upgrades will be more aggressively offered to leisure travellers through bundling and upsell opportunities.
Airlines, historically putting most of their distribution efforts in the intermediaries serving the corporate market, will have to rebalance investments, betting on OTAs that are capable to drive volumes and sell high yield services thanks to enhanced retail capabilities.
“If you're going through hell, keep going," Churchill told his countrymen in the darkest moments of the Second World War. The airline industry might seek inspiration in these words during this existential crisis.
Airlines and intermediaries who come out alive on the other side will need to navigate a brave new world, where selling flight tickets and servicing air passengers looks very different to the past.
More cooperation and less confrontation across the distribution ecosystem will not only be a winning formula for all parties but also allow the traveller to enjoy a better booking experience and flight.