George J. Khairallah
CEO, JR Technologies
The business case for re-platforming is not self-evident. Massive capital investments have been made by airlines in their existing PSS. We might think that these investments were made simply to acquire and maintain a PSS but that is not the only cost. In the mid 1990s, when airlines wanted to leverage the internet to go direct to consumers they quickly realized that they do not have the infrastructure for it. They did not own the systems to return basic information like the price of an available seat, they did not have a clear view of who their passengers are. Although they had a good understanding of their market segments from an indirect distribution perspective, they did not have enough data to lead a successful direct distribution strategy. Today, the average airline operates between 200 and 600 software applications to compensate for the gaps and inadequacies of their PSS. The costs associated with building, acquiring, customizing, and maintaining these applications are not negligible.
The dependencies of the various airline divisions on the PSS and these peripheral applications make it extremely difficult to simplify core processes and eliminate functionality that the passenger no longer requires. The revenue management, marketing, and revenue accounting departments, to name but a few, rely on the same data, but require separate data feeds, separate data storage, separate interactions with third parties, and complex labyrinth-like flows for each division to access the information it needs to meet its objectives. As a result, for example, the airline knows the actual revenues of a given month 6 to 8 weeks after the end of the month. It knows the effectiveness of its marketing strategy 3 to 4 months after the fact.
Besides the costs related to the complexity inherent to the current setup, we have to consider other important issues. One of these is velocity, measured in terms of speed to market. Today, any change in airline product design takes 12 to 18 months to be available to consumers through the indirect channels. Changes in baggage policy, for instance, took years to be reflected in the distribution channels, and it required the involvement of government regulators to get the change implemented by the GDS. We have also to consider the cost of agility, measured in terms of the speed required to align distribution process flows to new business models. The lack of agility inhibits innovation and enforces commoditization.
The business case for re-platforming needs to account not only for the technology and human aspects, but also for the opportunity costs that are directly related to this lack of velocity and agility in the current airline distribution model. From this perspective, a write-off of investments made in PSS and peripheral applications is dwarfed when compared to the limitations that the current distribution technology models impose on an airline’s growth and its ability to adapt to new market conditions.
The core principle behind platforming, as discussed in this book, is to make available a real-time, customer focused, central source of truths to data consumers. Data consumers can be internal to the airline such as operations, revenue management, marketing, and accounting. They can also be external such as content aggregators, airports, operations teams, third party services providers, and the like. Most importantly, from a customer service perspective, information is made available in real-time to passengers and service providers involved in the delivery of services to the passenger throughout the journey.
The minimum components of such a platform need to include the ability of the airline to control its offers, record and manage orders and changes to orders, process payments, and track deliveries of services and products.
Offer management in this case is in direct relationship with product design which is traditionally a marketing function. Offer management orchestrates a number of items: the definition and description of services – including rich media -, the pricing of the offer, and the definition and description of third party add-on services that some consumers may require to facilitate or enhance their journey. A good offer management system reduces time to market to hours and days rather than months and years as is currently the case.
Order management records the orders with a focus on the service delivery. This requires record keeping not only of purchased items, but also their delivery status, their price, the taxes, and the details of the service delivery partners such as lounge providers, ground handlers and the like. All parties involved in delivering services throughout the journey must have access to the information needed for them to deliver the service, and they also need to update the order management system with the status of each delivery. The passenger in turn has real time access to same information.
Offer an order management systems need to be closely integrated and their data need to persist beyond the transaction to provide real time business intelligence such as offer-to-order conversion rates. Real-time business intelligence can facilitate rapid intervention by the revenue management and marketing teams as they get advance notice of buying patterns. The availability of such data will enhance the value of data lakes that machine learning engines rely on to predict and correct certain revenue trends.
Payment hubs, such as the IATA Financial gateway, facilitate interactions between the order management systems and the payers and the vendors involved in the journey. Like any payment hub this service needs to support a vast array of payment solutions beyond cards and cash. It needs to support dynamic currency conversion, fraud detection, and real- time settlement upon service delivery.
This in no way means that every airline needs to build all the systems and all the connections to all the vendors and service delivery partners, whether internal or external to the airline. This does mean however that each airline needs the capability to store, control, and communicate. What we call an “NDC Platform” is akin to what Microsoft or Apple calls an operating system. Microsoft and Apple do not need to develop all the connections and all the software. Thousands of third party applications exist today on the Apple and Microsoft Stores. What they need to do however is expose a standard that allows third parties to communicate with these operating systems, while retaining control of access rights and data storage.
By now the reader will surely ask: if the business case for re-platforming is valid and the technology and know-how are available, why is adoption of these new concepts so slow, practically even non-existent. The answer lies in the human factor. From within, airline management looks at current processes, PSS, hundreds of peripheral applications, retraining of employees, and is overwhelmed by the scope of such a change. From outside the airline, IT solution providers who are currently making billions of dollars stand to lose significant revenues because eliminating complexity results in leaner less expensive systems. As a result, the marketplace is ripe with mis-information, blurring the vision for a real digital transformation in the industry. Existing major players do not hesitate to abuse their dominant position in certain markets to stifle innovation and prevent change. Some promising new players are underfunded. Others may have the funding but are lacking in industry know how. They both hesitate to enter a highly competitive arena where current PSS/GDS providers have a decades-old hold on the industry.
Yet the light at the end of the tunnel is clearly visible. A number of airline groups have taken the travelers’ total mobility needs to heart and are investing heavily in new platforms. Our hope is that Nawal Taneja’s book, on re-platforming the airline business, will encourage more airlines to look beyond perceived limitations, and heed the voices of their customers.
Chania, Greece
George J. Khairallah
CEO, JR Technologies
The business case for re-platforming is not self-evident. Massive capital investments have been made by airlines in their existing PSS. We might think that these investments were made simply to acquire and maintain a PSS but that is not the only cost. In the mid 1990s, when airlines wanted to leverage the internet to go direct to consumers they quickly realized that they do not have the infrastructure for it. They did not own the systems to return basic information like the price of an available seat, they did not have a clear view of who their passengers are. Although they had a good understanding of their market segments from an indirect distribution perspective, they did not have enough data to lead a successful direct distribution strategy. Today, the average airline operates between 200 and 600 software applications to compensate for the gaps and inadequacies of their PSS. The costs associated with building, acquiring, customizing, and maintaining these applications are not negligible.
The dependencies of the various airline divisions on the PSS and these peripheral applications make it extremely difficult to simplify core processes and eliminate functionality that the passenger no longer requires. The revenue management, marketing, and revenue accounting departments, to name but a few, rely on the same data, but require separate data feeds, separate data storage, separate interactions with third parties, and complex labyrinth-like flows for each division to access the information it needs to meet its objectives. As a result, for example, the airline knows the actual revenues of a given month 6 to 8 weeks after the end of the month. It knows the effectiveness of its marketing strategy 3 to 4 months after the fact.
Besides the costs related to the complexity inherent to the current setup, we have to consider other important issues. One of these is velocity, measured in terms of speed to market. Today, any change in airline product design takes 12 to 18 months to be available to consumers through the indirect channels. Changes in baggage policy, for instance, took years to be reflected in the distribution channels, and it required the involvement of government regulators to get the change implemented by the GDS. We have also to consider the cost of agility, measured in terms of the speed required to align distribution process flows to new business models. The lack of agility inhibits innovation and enforces commoditization.
The business case for re-platforming needs to account not only for the technology and human aspects, but also for the opportunity costs that are directly related to this lack of velocity and agility in the current airline distribution model. From this perspective, a write-off of investments made in PSS and peripheral applications is dwarfed when compared to the limitations that the current distribution technology models impose on an airline’s growth and its ability to adapt to new market conditions.
The core principle behind platforming, as discussed in this book, is to make available a real-time, customer focused, central source of truths to data consumers. Data consumers can be internal to the airline such as operations, revenue management, marketing, and accounting. They can also be external such as content aggregators, airports, operations teams, third party services providers, and the like. Most importantly, from a customer service perspective, information is made available in real-time to passengers and service providers involved in the delivery of services to the passenger throughout the journey.
The minimum components of such a platform need to include the ability of the airline to control its offers, record and manage orders and changes to orders, process payments, and track deliveries of services and products.
Offer management in this case is in direct relationship with product design which is traditionally a marketing function. Offer management orchestrates a number of items: the definition and description of services – including rich media -, the pricing of the offer, and the definition and description of third party add-on services that some consumers may require to facilitate or enhance their journey. A good offer management system reduces time to market to hours and days rather than months and years as is currently the case.
Order management records the orders with a focus on the service delivery. This requires record keeping not only of purchased items, but also their delivery status, their price, the taxes, and the details of the service delivery partners such as lounge providers, ground handlers and the like. All parties involved in delivering services throughout the journey must have access to the information needed for them to deliver the service, and they also need to update the order management system with the status of each delivery. The passenger in turn has real time access to same information.
Offer an order management systems need to be closely integrated and their data need to persist beyond the transaction to provide real time business intelligence such as offer-to-order conversion rates. Real-time business intelligence can facilitate rapid intervention by the revenue management and marketing teams as they get advance notice of buying patterns. The availability of such data will enhance the value of data lakes that machine learning engines rely on to predict and correct certain revenue trends.
Payment hubs, such as the IATA Financial gateway, facilitate interactions between the order management systems and the payers and the vendors involved in the journey. Like any payment hub this service needs to support a vast array of payment solutions beyond cards and cash. It needs to support dynamic currency conversion, fraud detection, and real- time settlement upon service delivery.
This in no way means that every airline needs to build all the systems and all the connections to all the vendors and service delivery partners, whether internal or external to the airline. This does mean however that each airline needs the capability to store, control, and communicate. What we call an “NDC Platform” is akin to what Microsoft or Apple calls an operating system. Microsoft and Apple do not need to develop all the connections and all the software. Thousands of third party applications exist today on the Apple and Microsoft Stores. What they need to do however is expose a standard that allows third parties to communicate with these operating systems, while retaining control of access rights and data storage.
By now the reader will surely ask: if the business case for re-platforming is valid and the technology and know-how are available, why is adoption of these new concepts so slow, practically even non-existent. The answer lies in the human factor. From within, airline management looks at current processes, PSS, hundreds of peripheral applications, retraining of employees, and is overwhelmed by the scope of such a change. From outside the airline, IT solution providers who are currently making billions of dollars stand to lose significant revenues because eliminating complexity results in leaner less expensive systems. As a result, the marketplace is ripe with mis-information, blurring the vision for a real digital transformation in the industry. Existing major players do not hesitate to abuse their dominant position in certain markets to stifle innovation and prevent change. Some promising new players are underfunded. Others may have the funding but are lacking in industry know how. They both hesitate to enter a highly competitive arena where current PSS/GDS providers have a decades-old hold on the industry.
Yet the light at the end of the tunnel is clearly visible. A number of airline groups have taken the travelers’ total mobility needs to heart and are investing heavily in new platforms. Our hope is that Nawal Taneja’s book, on re-platforming the airline business, will encourage more airlines to look beyond perceived limitations, and heed the voices of their customers.
Chania, Greece