The post-pandemic mantra has been that the airline industry must work together to modernize its technology and selling processes.
And, there seems to be an acknowledgement that the inability of airlines to sell products and services in a digital world should not be tackled by individual carriers.
Speaking during last month’s World Aviation Festival, Willie Walsh, director general of the International Air Transport Association (IATA) agreed that it is an “industry level issue.”
“Our systems are very complex, most are very old, and transitioning from where we are to where we need to get to is going to be very complex and very expensive, particularly if done on an individual airline basis. I think transitioning as an industry is the way to do it,” he says.
During a further session at WAF, Lufthansa and Air France-KLM executives also highlighted the need for a “coalition of the willing” to make progress collectively.
Walsh, who was formerly CEO of British Airways-parent IAG, is optimistic about the industry’s ability to transform itself but highlights that it is risky.
“I know every airline CEO worries about playing around with its legacy systems, because they’re so interconnected and in many cases we don’t understand fully how they work,” he says.
“We’re decommissioning parts of the system all the time, slowly, and at the same time trying to move forward.”
Asked about IATA’s role in the digital transformation of the industry, Walsh says the organization is looking at solutions.
“If each individual airline tries to do it they will err. That’s what has happened, we have seen a lot of airlines try to make this jump, spent a lot of money and have failed to do so. I think there is scope for IATA and we are working on this.”
He cites IATA’s New Distribution Capability as an example, calling it an “industry initiative through IATA.”
“It has succeeded but nowhere near where it could have got to principally because the transition costs money,” Walsh says.
“Once you get there your costs are significantly reduced but airlines are always looking at how can we reduce our costs. Nobody likes to look at how they’re going to spend more money to eventually get to a solution.”
Commercially, however, carriers will likely always tread their own path. In the past while some have opted for distribution surcharges, others have looked to incentivize retailers for bookings via newer channels such as NDC.
Commercial complexity
In recent months, carriers including American Airlines and Lufthansa and SAS have come out with their latest distribution initiatives.
Lufthansa Group said in July that beginning in September it would change its distribution cost - the levy imposed on bookings made via the global distribution systems - according to whether the booking was made in Amadeus, Sabre or Travelport.
For bookings made via its carrier websites or NDC connections there is no surcharge.
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SAS says it is introducing a tiered commission on sales in Denmark, Norway and Sweden from next March but will also recoup distribution costs, likely to be greater than the commission, related to GDS bookings.
More recently, American Airlines announced it has signed deals with all three GDSs, saying the agreements would provide it with “content flexibility” enabling it to provide its products and services to agents and corporate customers via NDC connections.
At WAF, Alan Joyce, CEO of Qantas, says that while NDC put the framework in place, not everything is in the airline’s control.
“NDC, as an example, we have the GDSs we have to work with and the travel agencies and they need to make significant investments too,” he says.
“There is massive movement of the entire chain, and that doesn’t happen overnight and some people are faster than others. You want to bring everybody with you, but that is also a logjam in you making major progress in something that’s well-defined like NDC - and you can imagine the complexity in some of the other systems.”
Risky business
IATA’s Walsh was also asked about whether it could be a “big bang” solution or needed to be in incremental steps because of the risks.
“Personally, as an ex-CEO, I’d say do it incrementally. As IATA I’d say, ‘Guys you’re mad, take this and take a jump.’ But, I know if I tried to convince the board of IATA to do it, it’s too big a risk, but we will get there. There is fantastic technology available to us, it’s a question of adopting it at the right time and the right speed,” he says.
On how transformational the move to digital could be if the backbone legacy technology issues were resolved, Joyce says, “I think it’s one of the biggest transformations every airline would have on its list for the next while. Where we are at the moment is we’re just coming out of operational challenges across the board. During COVID we moved a lot of systems - we didn’t modify them - to the cloud. We’ve had technical issues with that, that has caused us big delays at times where the systems haven’t quite worked.
“So, coming out of it, we’re all going to be cautious as CEOs. We don’t want to add pressure on the operational side of the business, we don’t want to take risks on the commercial side. You don’t want to be in a position where your website, your distribution is switched off for a period of time - that’s millions of dollars,” he says.
“And then, particularly now, you’re going to have to make sure that any moves are done with cybersecurity and protection in mind and minimize the risks. Airlines are good at identifying and managing risk. We’ll get there, but we just have to be cautious that we don’t do this too fast, create unintended consequences that put the industry back a step.”
On whether airlines should outsource development to third-party technology companies or keep it as a core competency, Marjan Rintel, CEO of KLM, believes it might not be possible to outsource.
“If you look at airlines’ operational processes and legacy systems, they are all connected, so it’s not so easy to say whether it’s possible to outsource. I don’t think so, I think it’s in the core of your processes and core of your customer service,” she says.
“We agreed, within KLM at least, for the next five to 10 years to really get rid of legacy systems and accelerate what needs to be done.”
Working together might be the mantra, but the reality has been different up to now. In the past, airlines have taken different approaches to initiatives such as NDC, often for commercial reasons. The big question is whether that can change going forward.