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NDC: The paradigm must succeed, and why

NDC: the new distribution capability. The oft discussed and rarely understood new trend in airline distribution promises to present significant changes to how airlines address direct distribution. Much has been made of the issues of privacy, disintermediation, cartels, agendas, etc. After all, the airline distribution discussion has been a circular affair, with great leaps in distribution capabilities aligned with small steps in improved legacy distribution contract terms.

This view is simplistic, and rote.  What it misses is that NDC is not just a technology framework, it is a paradigm shift for distribution. Consider that the current benchmark, ’airline ecommerce’, is built on enabling technologies which are 10+ years old. The ecommerce department itself is typically treated as – excuse the deliberate pun – an ’ancillary’ organization within the airline.

The technology and the organization do not align the core disciplines of revenue integrity, brand alignment and distribution strategy. There is no comprehension of the customer or the journey. We are dealing with first generation query response web services layers built on top of legacy systems.

Our assertion is that airlines need to own proven new generation ecommerce platforms that drive real business value. NDC, albeit incomplete and not yet fully ready for market, represents a new way of looking at distribution – omni channel distribution.

Interested?  Read on.

First let’s consider our current enabling technologies for direct distribution.

Direct Distribution Pioneers – all tech, little business

The teams that initially took the airline product to the web were tech savvy opportunists. These guys focused on the technical challenges of serving up fares and good enough inventory to an online market place. Their focus was conversion first, revenue a distant second. The 80:20 rule pervaded and airlines essentially abandoned the learnings and experience of their revenue management teams in a rush to get online.

There are winners and losers here. The LCC tribes did very well, focusing on low price backed by low cost could actually generate demand. Whereas the brand carriers rushed to compete at the lowest levels of entry, diluting their value and brand, and committing the cardinal sin of cannibalizing their own revenue.

Today, direct distribution represents anywhere from 30% to 70% of a traditional carrier’s distribution mix.  Yet the traditional channels, although contracted, continue to yield greater margins and value. Now, for the first time in over 10 years we have seen these channels increase market share.

Is this an indication that price sensitive markets could be tapped out, considering that the leaders in low prices (the LCCs) have had to quickly revise their strategies to start targeting a more affluent, connected consumer in an omni-channel retail marketplace? Click here to watch Michael O’Leary speak to Bloomberg about the changing market.

Building the bridge to offer optimisation and profitable engagement

Airlines are successfully distributing their lowest-cost products at the smallest margins direct. This is no mistake, per above it’s by design. The tool sets that enable direct distribution did not offer fidelity or the learnings of revenue management.

We have observed and are invested in a distinct shift from such behaviour.

Datalex is leading an NDC pilot with Swiss International Air Lines, PROS and HP. This pilot is being driven directly by the Swiss revenue management team to drive offer optimization for more profitable customer engagement. Through NDC and with our customers, we are driven to progress distribution standards beyond the existing piecemeal messaging and enablement tools. NDC can be an enabling message set but must keep pace with those innovating beyond the standard.

Many airlines have progressed the concept of NDC, where availability is calculated, fare bundles are an intrinsic branded entity and the customer is known. This allows the airline to present specific market-tested fare combinations based on loyalty tier, past travel experiences and market demand. The airline and providers involved will help progress NDC and afford the airline the lexicon to understand the customer journey, and to drive the right offer at the right price at the right time.

 In summary:

It used to be ’distribution costs savings + increased direct distribution revenue/yield’. Now it’s ’profitable customer engagement as an omni-present travel retailer’.

 NDC thus far has enabled this discussion. It has brought to the fore the need to align internal business and technology systems to design products that will not only distribute simply, but will be targeted to specific audiences to drive revenue.

 NDC in itself is not the solution. As it stands, the message set is incomplete. The internal changes within the airline,  the adoption and ownership of the airlines new gen distribution technologies and a core understanding of what it means to be omni channel will differentiate the winners from the losers.

 The internet is how business is done. It’s time to evolve.

Gianni Cataldo
GM Americas, Datalex

Loyalty and Reward

As airlines continue to flex their retailing muscles we are seeing a clear demarcation between ‘us’ and ‘them’ carriers.  

In traditional retail, this looks like a retail/warehouse (Costco) club member versus a premium retail outlet (Saks) Prestige Shopper. The latter gets rewarded by better service, exclusive gifts, or maybe even a personal shopper. As the consumer spends more, their rewards grow. For a Costco member, the reward structure is simple: pay for membership and then get the best value. The hook is that as someone who has paid for membership, we can guarantee repeat business.

Both models work, both models engender loyal behavior, and importantly, both reflect the retailer’s brand aspirations. 

Now to airlines, which continue to evolve their direct retailing strategies.

Mainline carriers: Delta Air Lines was the first to market with a loyalty plan that we have no doubt will be echoed across all the mainline carriers worldwide. The program values are simple: we reward high value customers; low value customers will no longer be afforded the same rewards. It’s a simple principle which makes sense for Delta and makes sense for loyal high value Delta customers.

JetBlue, Southwest and others have been pretty successful in linking their rewards programs to dollar spend; probably a little less overtly than how Delta introduced their program, but all based on the same ideas – spend more, get more.

So next up – the low cost carriers and ultra LCCs: Their approach to loyalty is akin to Costco, and is influence in no small part by the need to work around full content agreements. Their approach: the ‘Fare Club’.  

By paying a ‘membership’ fee (approximately USD150-180), customers are rewarded with reduced fares and reduced prices on bags/seats. These programs are pretty democratic; your savings are immediate, and your condition of reward is upfront payment. The Fare Club concept drives excellent values for families and infrequent travelers. For a single membership fee a family of four can save up to USD80 on the fare and another USD100 on bags and seats. The scheme pays for itself on the second trip. 

The Fare Club does little to engender loyalty for the corporate frequent flyer; a few dollars saved on bags and fares on carriers with smaller route networks is not attractive. The benefit of differential treatment (high end loyalty) across all trips is what matters here.

In the same way that ancillary fees disrupted the industry and separated the value-driven flyer from the loyal flyer, will round two of the great direct airline retailing war be waged on loyalty and benefit. The lines have been drawn. Will these divergent approaches on loyalty drive market shift? 

For which population of travelers will the spend orientation of traditional loyalty drive a change in behavior to move to the ‘Costco’ model carriers?

Gianni Cataldo
GM Americas, Datalex

Make me an offer!

Most other retailers know they can easily increase profits by making an additional offer above the original purchase, which closely matches what a customer wants at any given moment. Airlines have made big moves, with some great success, to act more like retailers in recent years. But there is still a lot to be done. Offers remain relatively static especially when considering how dynamic the travel experience truly is!

For example, time-limited offers (think of snap chats disappearing messages) can be made to create urgency and these can be targeted at the customer based on their precise location (iBeacon or Gimbal), such as when they are approaching the airport, the boarding gate or when they disembark. This makes the offers both timely and relevant. In 2014 and beyond we will see mobile payments become significantly easier with one-click payment and the use of mobile wallets becoming the norm. This is already an everyday occurrence for millions of Starbucks customers who pay for their morning coffee in a similar way using their smartphones. Soon, airline customers will be able to tap one button on their smartphone to avail of and pay for a (push notification) offer on their mobile before it expires, perhaps 60 seconds later. There are almost limitless opportunities to engage with customers in this way.

Airlines have a distinct advantage over many other travel retailers – it’s their brand.  After all, the airline is most often the first point in my travel journey, and moreover when I am not skydiving out of planes I trust my airline to take me up 45,000 feet and down again safely, in comfort and on time. If they will listen and deliver precise and relevant offers throughout my journey, I will gladly click my travel spend through them over any other retailer! So, make me an offer!

Mark O’Brien
Travel Retail Insights, Datalex

It’s not just a seat!

A view from Datalex’s commercial director in Latin America.

IATA recently advised that ancillary revenues are a key driver of improved financial performance and that worldwide ancillary revenues have risen to an estimated $13 per passenger. They continue to add that without ancillaries, the industry would be making a loss from its core seat and cargo products.

Seats have been and still are one of the most relevant drivers behind that revenue opportunity, especially in the US and European markets where seat fees are at a relatively mature stage of development. In those markets airlines know, for example, that some customers are willing to pay to reserve seats ahead of flight check-in or to sit together. Therefore they are starting to introduce a variable pricing model which, with the right technology, will enable the airline to price seat assignments based on demand.

Legacy airlines in the LatAm region, unlike their counterparts, are starting to discover this untapped revenue. We can see some airlines starting to charge to select a seat for its proximity to the front of the aircraft especially. Some, but decidedly not many, for an aisle or window seat; and even fewer for extra legroom or amenities like in-seat power.

In any case, the particularities to exploit this revenue according to market, equipment, profile of customer and so on are not minor. Therefore a common approach or ‘one solution fits all’ do not seem to be the most appropriate way to optimize this opportunity. As airlines become expert retailers, they will need more than ever to merchandize their products and show value across direct and indirect channels. They will need to personalize their distribution to avoid being seen by customers as substitutable commodities.

 Alejandro Ormeno
Commercial Director Latin America, Datalex

Datalex recognised at World Travel Awards with industry elite

Among an audience of travel industry elite and leading travel suppliers, Datalex was named the World’s Leading Travel Merchandising Solution Provider and World’s Leading Travel Distribution Solution Provider at the recent World Travel Awards 2013 gala event.
The grand final gala ceremony took place in Doha, Qatar, and followed a number of competitive regional events at which Datalex also won the title of Leading Travel Merchandising Solution Provider in North America, Asia and Europe.

Read more…

Do you have Peppermint Tea?

The answer is usually no, as most airlines only serve standard tea and coffee. These days I only drink Peppermint Tea, so I have to do without a cup of tea on most flights. As I sat on a plane recently and watched the duty free trolley pass me and everyone else by, without selling anything, I thought to myself, I don’t want a cuddly bear, but I really would buy a cup of peppermint tea. A box of peppermint tea (other types of tea are available) must weigh less than a cuddly bear, wouldn’t it make sense to use the valuable galley space for something you could sell? easyJet serves peppermint tea and they do a great chocolate muffin that complements it very well, so it isn’t just me who wants more than the standard. Customers will pay extra for services that add value to their experience. Aer Lingus has also proven this through the success of their Gourmet Meals – inventory controlled on domestic and international flights. Knowing your customers enables you to deliver a service that meets their needs, drives incremental revenue and improves their loyalty and perception of the airline brand. I know it certainly has an impact on me.

 

Mike Naylor

Business Development Director

2013 IATA World Passenger Symposium: Welcome to Dublin

Céad Míle Fáilte (A hundred thousand welcomes) to Dublin, our global headquarters.

We are proud to sponsor the 2013 IATA World Passenger Symposium and look forward to meeting you at the event.

We’re also looking forward to presenting an NDC pilot in cooperation with HP, PROS and Swiss Airlines International. At last, proven providers collaborate to demonstrate  how to optimize pricing, merchandizing and reservations for air and ancillary products in a unified retail framework.

Speaking of ‘proven’, we’d be delighted to show you why the most innovative and progressive global airlines have chosen our retail platform and how we deliver a unified and optimized  passenger experience to over  500m travellers across the globe, driving  double digit revenue growth for our airline partners. Meet us at Booth 36 or alternatively contact info@datalex.com to schedule a private meeting.

Finally, dinner is on us!  Please join us for ‘craic agus ceol’  (fun and music) on Wednesday, October 30 at 19:30 as we sponsor the Gala Dinner !

Safe Travels to our Emerald Isle

Go n-éirí an bóthar leat (may the road rise to meet you)

Debating the Customer Experience – WLCA Congress 2013

The World Low Cost Airlines Congress held at the Sofitel LHR from the 16th  to 18 th  September was a mix of leading global carriers, traditional airlines with short haul subsidiaries and low cost airlines in the same room looking to understand what common features they could utilise from each model to make for a more prosperous airline.

Although Michael O’Leary had good sport with the fact that IAG, KLM and Norwegian (“low cost only for Norwegians”) were on a panel at a low cost carrier conference, both IAG and KLM have low cost subsidiaries and as Willie Walsh pointed out, “no-one should be too proud to learn something new”. In an era of consolidation, high speed rail competing for passengers and high fuel costs etc., this principle makes sense. All airlines should be looking for new opportunities that add value for their customers and their brand. Stephen Sackur (BBC correspondent) even suggested Willie Walsh should look into his crystal balls (I kid you not!) for a glimpse of what the future would look like for IAG.

 Managing costs is as important as new revenue streams, and traditional airlines are reviewing their businesses to compete with low cost airlines. Many of the traditional airlines such as IAG and Air France-KLM are reviewing all parts of their business to reduce costs such as trimming routes, renegotiating staff contracts, and buying newer fuel efficient planes and back office systems. Their low cost subsidiaries may get costs on a par with carriers such as Ryanair and easyJet, but providing a full service means that costs will inevitably be higher for other airlines in the group. Michael O’Leary’s view was that good customer service is low fares, on time flights and no lost bags. If you get passengers to carry their own bags on to the plane they won’t get lost; a high price for checked baggage does everyone a favour.

For others, customer service goes beyond this and key themes covered in many of the interactive sessions were; customer experience, customer profiling, personalisation and optimising cross-sell. Understanding that customers engage in different ways though their travel journey, at different touch points and use a variety of devices, so their experience should be seamless. Airlines can take a more personalised approach to customer interaction and don’t need to look into their crystal balls; they can leverage the technology that is already enabling airlines to engage customers and drive significant incremental revenue.

Mike Naylor
Business Development Director, Datalex

BlueSky Blog Interview: Datalex SVP Sales Dominic Clarke

We spoke to Dominic Clarke, SVP Sales for Datalex and he answered some of our burning questions about the airline industry and passenger experience. Dominic’s background is primarily airline, with 10 years at British Airways followed by 8 years working for technology providers to airlines. That included working in the internet booking engine space, PSS, mobile, and now travel retail with Datalex.

Datalex provides a leading retail platform for airlines. They power over 50 airlines globally, including some of the biggest and best innovators in this space including Delta Air Lines, Frontier, Aer Lingus and WestJet. Fundamentally, Datalex help airlines become better retailers, enabling them to dynamically offer tailored products and price to the customer at every touch point in their journey. By giving the airline a unified view of the customer, they allow them to control customer engagement and, in doing so, really drive revenue and service.

What are the biggest challenges for you as an aviation service provider to create a great passenger experience?

One of the biggest challenges we see is the mind-set of the airline. We would like airlines to think like retailers. For example, a few months ago we had the Datalex conference, and Simon Calver, who’s the CEO of Mothercare, came along to speak about customer knowledge and insight.

He made a very good point regarding the fact that airlines, in terms of retailing, actually have quite a great advantage. For example, they know in advance when the customer will come to their shop; they know who they are, who they’re travelling with, they know where they’re going. They have this wealth of customer data to leverage, which means that the opportunity is there to provide a really great customer experience.

Which areas should stakeholders be focusing on to improve customer engagement and loyalty?

We think airlines should focus on providing value through choice and self-service. To give you a simple example, it’s often assumed that passengers will choose the lowest available fare. From our work with fare bundles, we see that a good proportion of customers will actually buy up from the lowest fare, if they can see the value in the higher fare. We have a number of clients who see 30% of passengers actually buying up from the lowest fare to a higher fare.

Can you give me an example of something that they might pay more money for, something that might influence the value from the basic fares?

It depends how they bundle it; sometimes they’ll have a business bundle, which might incorporate the airfare plus priority boarding, fast-track through security. There’s quite an art to the perceived value of a bundle and what you bundle in.

Frontiers slogan is “The choice is yours,” so they’re all about the difference in choices and value between their different fare families and bundles. For us, the areas of engagement would be value through customer choice and self-service.

What do you see as the most important technologies that will impact passenger experience in the next five years?

We think it would have to be mobile; just by virtue of being a traveller, they have mobile devices with them throughout their journey. However, one of the key points we would emphasise is the importance of having the underlying capability to be able to segment the customer, and offer optimised products and services, based on where they are in the journey.

For example, if they’re on their way to the airport, are you going to offer a lounge pass? Are you going to give them information about check-in? If they’re at the airport are you going to give them a retail offer? If they’re in Paris on vacation, are you going to give them a destination-based offer?

Lots of airlines we see have quite a fragmented mobile offering, so it’s not consistent with other channels that they have and very difficult to manage. For us, the key point is the underlying capability to be consistent across channels.

Would you say the benefits outweigh the investment when it comes to systems and services that improve the experience?

Yes, without question we strongly believe that the benefits of the investment outweigh the costs. I would say that, being a technology vendor.

However, we are quite fortunate in that a lot of our clients will regularly publish or put their results and data in the public domain. To give you a recent example, last week WestJet announced their Q2 results. Datalex went live with WestJet in early 2013, to drive their new fare bundling strategy.

Last week they stated that this strategy was forecast to bring in incremental revenue of $50-$80 million per year. For Datalex and for our customers we strongly see the benefits outweighing the cost.

How should airports work with assorted stakeholders to enable a better passenger experience?

For us, we believe the airlines should focus on the airport experience and making that easier, and again through client value, choice and self-service. Some of our customers work with the airport car parking providers, and other examples include fast-track through security, priority boarding. Again it’s about the choice and the value.

One of the interesting things we see in terms of the focus of airlines, research has shown that a lot of airlines would primarily focus on selling ancillary services at the initial booking stage, reservation stage, when in fact there’s a big retail opportunity at the departure and arrival touch points, i.e. the airport.

How can we create a more personalised service and overall experience?

In our view, it would be through the capabilities of custom segmentation, offer optimisation, and true multichannel support. In that context Datalex, for example, have powerful persona shopper functionality. For example, me travelling with my family is different to me travelling on business; it’s different to me travelling with my friends a ski holiday, so same person but very different needs and personas.

Datalex can find the ability for an airline to present and tailor an offer, based on who the customer is, what channel they are shopping in, what they are doing in that channel in the moment, their history, their itinerary, and where they are in the journey. It’s that capability that can really create a great personalised service and increase revenue.

Meet Datalex at the Terrapinn World Low Cost Airlines Congress, 16-18 September, London 

The Divergence of Revenue Management

 The sophisticated practice of revenue management remains a key function within any airline organization. Revenue managers have applied data science to ‘big data’ to forecast demand and optimize price since the 1980s. However, over the past decade a dichotomy has presented itself between current revenue management techniques and merchandizing practices such as fare families and ancillary pricing.
Today, airlines are offering a large portfolio of products across any number of channels and touch points. This means the number of merchandizing decisions for an airline to manage for effective retailing has increased exponentially.
Innovations in airline retail offers can deliver upwards of 40% in gross revenues from high margin ancillary opportunities. This is largely across direct channels, which can represent approximately 40% of airline inventories. There is wide agreement across the travel industry that this is just the tip of the iceberg as far as revenues are concerned. And to break through to even higher revenues, industry stakeholders are redefining ancillary revenues as core revenues and look to remove distribution and management barriers for total value retail management.
Remarkably few airlines take a unified retail approach to dynamic pricing and optimization across an airline’s entire product portfolio today. This means significant revenues are being left on the table due to the lack of shopping and pricing optimization for airfare plus all ancillary products, fare families (bundles), subscription products, and other commodity-type items…

Click here to read on.

Brian Borg
Head of Airline Retail, Datalex

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