American Airlines has hit the headlines in the past year for driving through a new approach to distribution only to dial it back in June.
The move, which was essentially about driving more business to online channels, provoked a huge backlash from the corporate travel community with travel management companies saying they would move share from American.
In a LinkedIn event, Vasu Raja, the carrier’s former chief commercial officer who left the airline in June, discussed airline distribution market dynamics and innovation with another former AA executive, Cory Garner.
The rules of engagement included that American’s financial results, strategies are forecasts were not up for discussion.
Throughout the discussion, what was interesting, refreshing even, was that Raja didn’t talk about new distribution capability (NDC) or its evolution, he spoke about the customer, how to attract the most profitable ones and make them more profitable.
Raja said that since the pandemic, airlines have been making an increasing amount of revenue from other sources, whether you call it ancillary, premium or frequent flyer.
“It’s a greater percentage of overall revenue and that continues. It’s really quite a stark thing because if you look at an industry level and tally up the money that comes from those different things, it’s a material, if not the vast majority of all the earnings that exist.”
He went on to describe this “non-ticket revenue as frequent flyer” and questioned why more servicing and selling isn’t done on the internet.
American shared during its full-year 2023 results back in January that 80% of bookings currently come from internet-based channels, and 65% of those come via its own web and mobile channels.
“Customers want offers, they may want an agent performing mileage redemption for them, but that’s not made possible through the technology that’s there today," he said. "A ton of companies very publicly pay economic incentives to keep the entirety of travel distribution in a legacy technology base.”
None of this is “revolutionary,” Raja added, but airlines and other travel providers, who know they’re growing revenue from frequent flyers, could create “more cool products and services” and use the internet to sell them via direct channels as well as NDC.
And, NDC is the way to go about it, he said, adding that he shies away from using the term because it “mystifies and complicates something that doesn’t need to be,” going back to what he previously said about knowing who your customers are.
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Quizzed on the future of innovation in travel distribution, Raja talked about the “search intensive process for customers” calling “out of tune with other ways to buy products.”
“We’re in a world where we could artificially create avatars, but if you want to change an airplane ticket, we may have to go call a reservation desk. It’s a real inefficiency that customers bear.”
Raja was upbeat about potential solutions, however, saying that there is technology on the market and it’s “arguably not that expensive.”
“In the grand scheme of all the technology changes that this industry has faced, it’s an industry that created a distribution network before the internet, it’s arguably not that much. So if you have real customer benefit, a real inefficiency and the available technology to solve the problem, the innovation is coming. The only question that faces everyone here is will the innovation come from one of the existing players, or will it come from an outside party? Whatever happens it’s going to be good for the customer.”
He went on to say that there are three problems to solve in travel more widely - the “infinite search problem” with the huge volume of options consumers have and how to help them filter through that. Second is the order fulfillment or last-mile delivery problem and how travel companies deliver different trips to different customers.
Legacy technology is the final problem, according to Raja. He believes solutions exist in other industries, citing LinkedIn and how it has addressed the people search problem, that can be applied to travel.
“And I certainly hope that they do because it's going to be great for customers, great for a lot of people along the way. And I think most of the people here are probably insiders in travel, and it's an open question to them, if they choose to initiate innovation or be party to it.”