Can a "coalition of the willing" fix airline distribution?

There are no shortcuts for airlines on the path to modern retailing - the ability to sell products and services in the way carriers want, across different channels.

Airlines say they are now facing this stark realization, accepting it's a long path and that transformation is required across front- and back-end processes.

As part of a session on distribution at the World Aviation Festival in Amsterdam this week, senior executives from airlines including Lufthansa and Air France-KLM highlighted the steps needed.

Pieter Bootsma, deputy managing director, strategy, for Air France-KLM, says: "You need to build the IT infrastructure, develop the products on the shelf and display the products properly. All these steps need to be taken before you can really do airline retailing, so it's a long path but we know the path."

Airlines stress that now is the right time to address the challenge but believe it could take up to eight years to make real progress.

To put things into context, IATA's distribution standard NDC was first talked about almost a decade ago.

Tamur Goudarzi Pour, chief commercial office of Swiss International Air Lines, says: "This is the moment, we have to reform for the next five to eight years. There were several attempts before, and they failed, but this is the moment now where we have to, collectively as the industry, with the coalition of the willing."

Mindset change

The idea of a "coalition of the willing" is a departure from previous stances where airlines acted in isolation for commercial reasons, and there was conflict with technology providers.

Bootsma, who was until recently chief revenue officer at Air France-KLM, says: "It's really crucial that we work together. This is an industry transformation, and you cannot do that as an airline alone. You cannot do it as airlines together, because you also need trade partners to work with you, the aggregators, the former GDSs to work with you. This is really industry change and that can only happen if you really collectively buy into it."

The sentiment was echoed by David Gunnarsson, CEO of Dohop , who says: "What we've seen is that the crisis has led to a mindset shift from doing things the old way to having the ability and the will, the 'coalition of the willing,' and maybe being forced into it due to constraints that weren't there before. Trying to deliver the same things with higher yield, lower costs and lower complexity is something I've seen as a driver within the airlines we are working with and that's a significant change."

Panelists also laid out the challenges they currently face, including trying to replace decades-old technology and getting buy-in and investment from management and other stakeholders.

Bootsma says: "The unfortunate situation with a crisis is that the investment levels are brought down. You can use the time to think ahead and make a clear plan with the steps you want to take, but to do the work has become even more difficult than before because of a lack of investment and a lack of staff."

He adds that while the pandemic has accelerated digitalization with a significant growth in direct online sales, technology for the indirect channel is "on pause."

"We need to make sure we convince our leaders that it's time to reinvest in technology."

Winter is coming

This do-or-die moment for the industry was also discussed with a question mark over whether all carriers will even make it through the coming winter.

Goudarzi Pour says: "If you have a near-death experience, what's a better wake-up call? Then, the question is who comes out of this crisis and how? Winter is still in front of us with high fuel prices. Maybe not every airline is going to make it through, so there is definitely also a separation for those that can move along on this path of modern retailing and some others that cannot."

He adds a note of urgency, saying the industry needs to act quickly and acknowledge that the current core systems are broken.

"It's not just we continue forever with the old system. This system is end of life cycle, it's '60s technology and there is no other way than to act now."

The panel was also asked about the position of the global distribution systems in the "coalition of the willing."

Goudarzi Pour says that three out of four Lufthansa Group tickets are sold in what he describes as the NDC-driven "new world" and that the GDS companies have also changed course.

"We have just signed modern, forward-looking contracts with the last of the three major GDSs. I think the same could be said of the order system, the PSS. We have had discussions with Sabre and Amadeus, and what I can see clearly now is that they are working on the next modern world of PSS," he says.

"There are some things we require from this such as modularity, independence and a way forward that is not a monopolistic structure, but I can clearly see that they've got the message."

Breaking free

But the move to modern retailing via offer and order technology and away from having a passenger name record is complex, and old distribution models will exist alongside newer ones for some time.

"We have to reform into a world which is PNR free so we can continue to develop the bottlenecks, but we need to start from scratch, to build up an alternative world, modularly, step by step where we separate offer, order, service and delivery and then replace them step by step," Goudarzi Pour says.

Bootsma adds that currently there is a gap between what an airline is offering and what its back-end systems can handle.

"That's where One Order, or an order management system, is of vital importance. For all the initiatives we are taking in, offer management and the beauty we are promising our customers, we have to fix the back office too, and that's another investment that is more difficult to justify internally in the airline," he says.

"If you see internally that with offer management you can bring costs down and increase revenue with better, personalized offers, you kind of assume you're able to handle it. Once you say I also need to invest in an order management system because I can't handle what I promised before, it's a difficult situation."