Airline Channel Management

A lot has been written (including in this Blog) on the fragmentation of inventory and the emergence of alternate distribution platforms. One underlying theme that has not been discussed is the need for airlines to execute effective channel management strategies. There are a number of software solutions that allow hotels to manage different buckets of inventory through different channels, why doesn't this apply to airlines? The primary problem lies in the nature of the legacy airline reservation systems (CRS not GDS). It is difficult to deliver unique pricing to a particular channel if the infrastructure platform (e.g. the ability to store unique fares) is not in place. It is my belief that 2006 will see increased efforts by airlines to more effectively execute a multi-faceted channel pricing strategy, primarily designed to drive more business through specific channels. If the airlines can every combine dynamic pricing with customer value, the market will permanently change allowing the best customers to receive preferential pricing. This represents the ultimate in channel and customer relationship marketing.

Adventure Travel

Back in October I had the pleasure of speaking at the first Adventure Travel World Summit in Seattle. This was a super event that brought together for the first time a variety of outdoor and multi-cultural providers. The content was top notch and the attendees represented the leaders in this segment. A recent study by Cendant stated that " (the next generation of consumers) will challenge traditional vacations as they seek, on average, up to four very different experiences a year. A passion for 'doing' rather than 'having' will double the number of consumers flying by 2020. " This passion for doing reflects both adventure type of travel as well as multi-cultural trips. We all need to keep our eye on this segment.

Sub Market Online Travel Growth

2006 promises to see a significant growth for online travel sites that are targeted to specific sub-markets. Based on some current projects it is clear to me that online travel growth will come in terms of vertical market specific sites. These sites will either focus on specific market segments such as large ethnic markets or types of travel such as long haul travel to emerging markets. Sites like this have been in existence for some time. The interesting spin on these types of new companies is their ability to implement next generation platforms as their foundation infrastructure. These new platforms will capture inventory from a variety of sources (multiple GDS, Web search tools, direct connects) and combine it with unique content to deliver niche solutions for specific types of travel. As these sites emerge in 2006 and become more prominent, the traditional OTAs (Expedia, Travelocity, Orbitz) will likely try to create segmented versions of their products for specific markets in order to tap this sub-market approach. More specifics on this subject in 2006.

Grass Root Content

Content is king again, but I believe the concept of content is being turned upside down by the growth of traveler generated content. For years travel sites have believed that content was best delivered online using traditional offline technologies such as guide books. The reality of the Net is starting to change the nature of content. Two key technologies are driving this trend: blogging and camera phones. Weblogs are not a new phenomenon, but the idea that Blogs could influence the traveler's online purchasing behavior is still somewhat untapped. This can be both positive and negative. A recent negative corporate travel Blog rant from a senior engineer at a prominent computer company sent the corporate travel department scrambling for a new type of damage control. Specialty blogs on everything from snow boarding to adventure travel can influence a reader's choice of destination and travel supplier. Camera phones are now ubiquitous and as the quality has improved so has the amount of digital content on travel that is being put on the Net daily. Sites such as Flickr and Buzznet allow travelers to instantly post their digital photos and annotate their content to be shared with others on the net. Blog search engines such as Technorati not only allow search of Blogs, but now include shots form both these digital sources. This is just the beginning of the explosion of consumer driven travel content, stay tuned lot's more to come.

Forced packaging

As you probably know late last year I authored a research study on the subject of dynamic packaging. Most of the industry agrees that packaging is a major trend and that the technology behind dynamic packaging is improving. While purchasing an airline ticket at a major online site I was bewildered by the number of unnecessary screens offering packaging. This was a trip to Vegas (perhaps one of the top packaging destinations) which had some narrow flight times. For 3-4 consecutive screens, I was unable to simply complete my purchase without scrolling down to the end of the page while being bombarded by package offers. A better solution would be a simple button on the first summary screen with packaging offer, not three additional screens! Dynamic packaging should not be push packaging as by its nature often these packages don't always meet a traveler's requirements.

Online verses Offline travel reservations

I wanted to clarify my position on online verses offline travel. In a recent Travel Weekly article I was quoted: "People are going online to shop. Travel is no different. That's where the marketplace is going, and anyone who believes that things will originate with a phone call is completely out to lunch."I do stand by this statement, though it was taken a bit out of context. As clarification: My belief is that offline support will continue to be a critical part of the online transaction. During a recent engagement with a large resort company, it was estimated that 80% of the consumers who telephone the call center have been online. This is no different across all segments (hospitality, corporate travel, vacation planning). The Web should not be viewed as another channel, but the ultimate channel for consumer interfacing. The misconception that all travel will be automated with no human involvement, over estimates the ability of software to emulate the human mind. In reality, complex travel purchases whether it is a tour, cruise or multi-city international business trip, will likely require human assistance for some time. The key is where the human action comes into play and how it is integrated with the online reservation process. One need only to look at he growth of call centers for giants such as Expedia and Travelocity to see that offline support is still critical for online transactions. My friend and colleague, Philip Wolf, CEO of PhoCusWright has been talking for some time about the transformation of call centers to customer care centers. It is this integration between offline and online reservations that will make this transformation possible.

The Future of the GDS

I wanted to take an opportunity to clear the air on my opinion of the "future of the GDS". In various articles I have been quoted as being critical on the pace of innovation of the GDS and their challenges in respect to moving to a new lower cost distribution model. I wanted to state that it is my belief that in the long term the GDS will continue to be a major force in travel distribution, despite the growth of so called GNE (GDS New Alternatives). The GDS market has been oligopoly and as such has not experienced significant technological competition, until recently. I have never questioned that each of the GDS companies are moving to more open systems. The issue is the pace of market changes and the speed by which each of these companies move their core transaction engine off the TPF mainframes and truly embrace a new open infrastructure.
The other key issue is the continued fragmentation of inventory sources, a phenomenon that conflicts with the traditional GDS single source model. Travel distributors (travel agents, TMCs, tour operators) need to gain independence from the GDS at the point of sale. Relying on GDS POS technology limits the distributors ability to access multiple sources of inventory and integrate external and internal sources of content in a seamless manner. The major TMCs (Amex, CWT , WorldTravel BTI), travel agencies (LibGO) and online wholesalers (Expedia) all have recognized the need for this POS independence and have implemented technology that access multiple sources of inventory simultaneously. The GDS are still an important part of this equation, just not the single source.

A New Methodology for Procurement

Over the years I have been involved with a number of major procurements. This ranges from selecting a new reservation platform for an escorted tour operator to a major end-to-end acquisition for the U.S. Federal government travel. While at Sun Microsystems in the early 1990s I received my certification in purchasing from the Institute for Supply Management.
Over the years I have been amazed on how the traditional RFP process can be bogged down with overly complex RFPs with open ended questions which yield volumes of marketing spin, rather than true vendor capabilities. I believe there is a better way.
I am currently working with a major resort on an acquisition of a new central reservation system. After reviewing their 900+ RFP (created by another consultant a few years ago), I decided a more effective acquisition strategy was needed. The path we've followed, required my client to narrow down a list of (25) Mandatory Requirements. I then conducted interviews with a number of suppliers using the Mandatory Requirements as a guideline. If the supplier did not meet any of the requirements, they were eliminated. The selection team then used Web conferencing technology to view demos from the qualified vendors, and rated each based on their software application's functionality. A scorecard was used to translate each team member's qualitative evaluation into a quantitative rating, thus forcing a ranking of the remaining suppliers. Our next step will be to further narrow down the selection to a 3-4 short list of vendors. Each vendor will then be invited back for a multi-hour live demonstration controlled by test scripts which force the vendor to show their product's key functionality. The end result of this procurement process is a deeper understanding of a narrow set of qualified vendor's capabilities. This shortens the acquisition process and yields a better result for the client.

Podcast

If you are not aware of the new phenomenon of "podcasting" here is an example I've created:
traveltechnology.com/Podcast_1_06_06_05.mp3

Enjoy!

Meta-search and Dynamic Packaging

Recently both Sidestep and Kayak announced capabilities to search multiple sites for packaging comparisons. How do these technologies work with the trend towards dynamic packaging? The Sidestep beta vacation search engine allows the consumer to filter the responses by price ranges and quality of properties (# of stars) and provides an integrated display of vacation package options. The Kayak vacation search requires you select a specific site to search and therefore it not currently a meta-search vacation engine. Neither of these sites offers a way to compare dynamic packaging. There are many technological challenges in trying to offer a meta-search based on dynamic verses static packages. Foremost is the differences across sites on booking flow of various dynamic packaging engines. The initial offerings from Sidestep and Kayak involve agreement from the vacation packagers (mostly static package providers). It is my belief that a true dynamic packaging meta-search capability could be created across sites, but would need to enlist the cooperation of Expedia, Travelocity and Orbitz. Agreement from these sites may be an issue as each has taken a stance that meta-search commoditize their products. Keep tuned to this channel for further developments as meta-search and dynamic packaging converge.

Meta-search and Business Travel

A lot of focus has recently been given to the meta-search engines such as Sidestep, Farechase, Kayak and Mobissimo. In fact the recent PhoCusWright Travdex conference was heavily focused on the topic of meta-search. Little attention has been given to the application of Web search technology to the business travel market. In fact there was no mention of meta-search at the recent ACTE conference. What impact will meta-search have on the business travel market? How does meta-search fit in with corporate self-booking technology. It is my belief that a segment of leisure consumers will embrace meta-search and therefore the impact of this technology will be felt on the corporate market. Travelers will use meta-search to compare prices against corporate self-booking tools and if they find better prices, this will cause some static. In a way self-booking tools that access multiple sources and use independent faring technology, such as Outtask's Cliqbook are acting as meta-search engines. The difference will be on the number and types of sources queried. The bottom line success of meta-search or multi-search corporate self-booking depends on the tool's ability to access full content (SWA, direct to supplier, multiple GDS) and provide the leisure and corporate traveler comparative shopping that is comprehensive enough that they look no further.

Business Intelligence

Having spent the last six weeks creating a BI strategy for the federal government I thought it would be an opportune time to vent a bit about the continued slow state of progress on a truly integrated travel BI solution. By definition, business intelligence (BI) is designed to provide insight into data that would normally not be apparent by generating reports. I am glad to report that there are new BI dashboards emerging in the market from major players (CWT, TRX, Hi-Mark) and smaller ones as well (Tri-Pen). The problem is the slow pace of integration across data sources and the overall continued challenges of integrating or comparing data sources. I am optimistic that a new focus on BI will emerge in the corporate travel arena which will spur competition and deliver greater value to customers. Corporate travel managers need to embrace these emerging dashboards and not view their intuitive nature as a "competitive threat". Systems that automatically identify lack of compliance, opportunity for additional negotiated agreements and recommendations in altering travel policy (rather than generating a report) are essential tools for travel management in the new era of fare simplification and the resulting drop in airline discount levels.

Resurfacing after a long absence

Over the last 8 weeks I have been swamped with two large projects and my Weblog activity took a back seat to a heavy travel schedule (on the road 80% of the time) and long 70 hour weeks. Well enough about my excuses for not writing more frequently, here are a few thoughts on some of the latest happenings in the world of travel related technology:
1) The continued focus and disputes around the GNEs - with the lead supplier advocate leaving UA to join ITA, many are quick to dismiss the whole issue of the GNEs as negotiation tactics for the next round of DCA contracts rather than a serious alternatives to the GDS. I've moderated two panels over the last few weeks (Corporate Travel World in NYC and ACTE in Vancouver) on the subject. The battle lines have been drawn and the marketing spin machines are in full gear. The GDS are painting the issue as purely economic while the GNEs talk about new technology. My take is that they are both right. The primary issue is economic, while the underlying technology is able to deliver increased functionality at a lower cost. I still believe the GNEs are for real and will have an impact.
2) Meta-Search - fad or major shift in the online travel model? I tend to fall in the middle here. I do believe the meta search engines have a role to play and will add value to the consumer who normally shops multiple sites. The key to their success is content. Without total (or perceived total) content, meta-search will have a limited impact. Most interesting to watch in this space is Kayak who have (1) licensed the ITA software engine recognizing the need to lesson the burden on the infrastructure for fare quoting (2) introduced a developer network to allow specific micro-vertical apps to be created on top of the Kayak search technology. Interesting stuff...
Well that's it for now, but I will do my best to be more conscientious about writing at least a weekly blog entry...

Implementing CRM in Travel

Over the last 3-5 years a great deal has been written about CRM and related technology. In fact to some extent the term CRM has simply become another buzz word that lacks a consistent definition. Are opt-in email campaigns that target specific pre-defined preferences an example of CRM? How about the concept of "my trip" folders for online travel reservations. Both of these are customer facing activities, but in reality, CRM is much more than database marketing or personalized Web capabilities. Successful CRM means delivering differentiated service to a company's best customers. The recent flap about AA removing pillows from their flights has been used by some pundits as a poor example of CRM practice. In reality it is not about general amenities such as pillows, but specific services given to recognize the value of good customers. This concept does raise some interesting social issues. Do suppliers ever want to show preferential treatment to one class of travelers vs another? I believe the answer is yes, but not to the detriment of the other consumer. In fact this has already been happening for some time as better customers get the upgrades, and first selection of meal selections (at least in FC) on most airlines. The overriding goal of CRM initiatives must be treating good customers consistently at every touch point. As airlines embrace new low cost, next generation distribution platforms, an opportunity arises in using new technology to better target a suppliers' best customers. Travelers need to be rewarded not only for their patronage, but the overall value (including how they booked their reservation) they bring the supplier. Rewarding travelers with tangible amenities for direct bookings is one important way to apply CRM techniques to drive lower distribution costs.

Live From the Masters - The True Cost of Distribution

A great panel...Tim Claydon -Jet Blue, Al Lenza- NWA, Dean Sivley -Cendant, John Stow- Sabre, Jeremy Wertheimer-ITA Software,

NWA- Al chided Sam about the $7.50 charge, he said that he would " like to have a bill for his NWA segments at that rate". He commented on $4 , or $5 as the cost.
Cendant - Costs should evolve (following on Sam Katz's themes)
Jet Blue - Out of the GDS completely - not willing to pay GDS pricing
Sabre - $9 range for DCA, Can't focus on simple transactions. If the simple transaction model works, we'll do it. I am worried about integrating it back into the system. Sabre will increase fees if all their left with is complex transactions
ITA- the cost of doing an incremental cost of doing an additional segment is minimal. The ITA software does complex itineraries.
Sabre - changing prices - international airlines is different than SWA. - The key is value based priced
NWA - 2/3 rds of network is competitive with LCCs and thus high GDS fees don't let us compete. The problem is more than price. Disputes like the one with Sabre and diputes are likely to come out. The value of G2 and ITA is an ability to avoid that.
Cendant - echoed value pricing. He rejected Alex's view of another layer
The discussion then shifted to a discussion of service and charge card fees.
NWA - our charge card fees were higher than our GDS fees
ITA - In the old world - the credit card was limited. In the new world direct settlement is needed.

Live from the Masters - Sam Katz

"Owning the Value Chain" - having the most value to you. Sam began by emphasizing the global aspect of travel echoing Trip's initial comments. He mentioned that one focus must be on the stability of provider (an obvious reference to the GNE startups) Goal is to take best practice from all Cendant entities. Strategy for Travelport / Orbitz, travelport serves more than 500 companies , Orbitz for Business . (so far this is stategy has not changed). The focus is on content (stressed importance of merchant hotels). Sam said "this is a economic discussion". Point to point $7.50 - $10.00. 40-60% of that is revenue share. The GDs retains $3 to $4 is kept for distribution. Unclear issues range of content, reporting, integration... Schedule based searching verses leisure type of searching not consistent in new GNE models. Cendant believes that they are best positioned to get LCCs.

My take is that Sam's had a clear message. The financial incentives are going away. The GDS will lower fees to compete by eliminating the financial assistance.

Live from the Masters Conference in DC- G2 Switchworks

First up Alex Zoghlin..."Myth Vs. Reality" What exactly is the "new" distribution model?"Alex began with Sam Gilliland quote saying the GNEs are a solution looking for a market, comparing it to H.M. Warner Bros. comment regarding talkies. He went on to compare quotes from Worldspan and Amex with comments about the birth of telephone or other "new" technology at the time. Alex believes that the "fracturalization" of supply is increasing not decreasing (I agree!). You need to what you need to do today and what is needed tomorrow. Tools today don't have all access to content. G2's "Super PNR" provides a single customer record to consolidate disparate content. Alex doesn't believe that there is a one stop solution. One monolithic company as a solution no longer works. Partnerships with TRX, universal client (green screen terminal) The key is to move to "touchless' transactions.
John Stowe from Sabre - countered saying that the "universal translator" is old technology. Alex then quoted lots of functionality that doesn't exist. John then said Getthere has automated refunds and exchanges. Cheryl Weldon form Worldspan chimed in characterizing G2 as another layer another component with additional costs. "Thank you for telling me what I offer". This has nothing to do with technology. The idea of a queue rejecting an e-ticket is foreign to G2.

Comments: This was a great start to the conference. Fireworks between G2, Sabre and Worldspan. Interesting positioning by Worldspan characterizing G2 as another layer that adds cost. Alex was light on specifics but gave the audience the impression there was a lot more functionality coming...

Strategic sourcing and travel distribution

In travel procurement terms, "Strategic Sourcing" has traditionally been defined as the standard bidding process for airline, car, hotel and travel agency services. With the dramatic changes emerging in travel distribution technology, strategic sourcing can take on new meaning. These changes reflect the urgent need of traditional airlines (AA,UA, DL) to lower distribution costs and the emergence of lower cost distribution technology. It is yet unclear if the old Alfred Kahn quote "Airline yield management means: you yield to my management" will still prevail in respect to airline influence over corporate purchasing behavior. The opportunity does exist to use this emerging technology to control sourcing by dictating how inventory is distributed. Will this new leverage be recognized? I believe this will only happen if C-Level executives take ownership over their travel procurement costs and act in innovative ways. This may prove to be problematic as travel expenses are generally not viewed as a strategic decision point by C-Level executives. Of course sourcing strategies will need to take into account the need for major airline to reduce their costs as many are in a survival mode. Which entity uses the new distribution technology as leverage will be interesting to watch...

NY Times Coverage

I was interviewed last week by Bob Tedeschi from the NY Times. The article appeared in today's issue and can be found here
http://www.nytimes.com/2005/01/31/technology/31ecom.html

It is significant that a general media publication such as the NY Times has recognized the changes in travel distribution as a news worthy. 2005 seems to be shaping up as a year of radical re-structuring in the travel industry.

Finding a Middle Ground

The noise around alternate distribution is getting louder. The United Airlines meeting last week has triggered a new urgency to look at new distribution alternatives, but many TMCs face significant challenges in this march toward GDS bypass. There are a number of issues this trend has surfaced:
(1) One crucial question is whether these new platforms from ITA Software, G2Switchworks and Farelogix can provide the same productivity achieved through current GDS script enabled "green screens". TMCs cannot afford to add new costs to their operations by embracing point and click interfaces that traditional agents may reject. I have been involved with many travel agent point of sale (POS) projects over the years and I have found that customization is generally required to meet specific agency requirements.
(2) Even with the $5 payment offered by UA and others, the loss of GDS revenue to TMCs could significantly impact their bottom line.
A more realistic view is a gradual adoption of these tools, targeting specific corporate accounts and agents.
One point not raised by the UA meeting is the need for TMCs to embrace multi-source content that includes multi-GDS connectivity. The impact of deregulation is just beginning to be felt and even those agencies that reject UA's offer will need to insure that their agents are accessing total content. Given current market uncertainties, the ability for a TMC to access all four GDSs may become a real business need in the very near term.

The Changing Face of Travel Distribution

This week, United Airlines is holding a summit entitled "Letting the GNE Out of the Bottle." (GNE is entities acronym for GDS New Entrants). Corporate buyers, TMCs and solution providers have been invited to UA's headquarters to discuss alternative distribution. This meeting demonstrates how serious the major carriers are about lowering distribution costs. ITA software and G2Switchworks are among the vendors presenting their distribution vision. By the nature of the attendees it is clear that UA recognizes that both the corporate buyer and their TMC must participate in an alternate GDS platform. For those corporations that have embraced self-booking, this move to alternate distribution will be easier as tools such as Outtask's Cliqbook are hooked into the new pipes provided by G2, ITA and others. The key issue that remains is support of non GDS bookings. Here the recurrent theme of a "super PNR" has relevance. For TMCs who continue to support their corporations using GDS "green screen" technology, embracing an alernative distribution platform will be challenging. Given the dire economic realtities of the major U.S. carriers this meeting signals a major trend that will have momentum in 2005.

Ten Predictions for 2005

Given the new year and turbulent changes already announced in 2005 (e.g. Delta's fare simplification), I thought it would be a good time to publish my top ten 10 predictions for 2005 in the world of travel technology:
1) GDS bypass becomes a viable option - Multiple travel conferences this year have alternate GDS players front and center. I believe that 2005 will see the first sign of real GDS bypass with at least one major carrier moving to an alternate GDS platform
2) Dynamic Packaging functionality improves and grows - As I reported in my published report on Dynamic Packaging (see traveltechnology.com for more details) Dynamic Packaging interfaces are at an infancy. Look to 2005 for increased use of personalization and other CRM techniques to enhance the customer value of dynamic packages. Customers will also be able to redeem miles as part of dynamic packaging product in 2005
3) Wireless travel applications become a reality - With the consolidation of the telecom sector and the growth of 3G networks, travel applications will be promoted by suppliers as a way to provide a "virtual concierge" for their best clients. These apps will likely be take the form of branded content published to the frequent traveler based on their location and permission (opt-in)
4) Online Travel Agencies (OTAs) will continue to expand globally through acquisition of regional agencies. This will include Expedia Corporate Travel buying key assets in Europe
5) Fare restructuring leads to the elimination of many corporate discount programs. The traditional carriers will look long and hard at all corporate agreements and cancel those that have not performed and where corporate volume is not sufficient to warrant a discount. Corporate buyers must embrace systems that allow them to control how their purchases are distributed (different GDS, alternate GDS, direct connect) to regain leverage with air suppliers
6) Second tier travel management firms (TMCs) will continue to find it hard to compete against the mega-agencies and ITMCs. Unless these TMCs embrace new technology platforms their long term survival is in jeopardy
7) The buzz around meta-Web search will begin to fizzle. There are two critical problems with meta-search. (1) the inability for the supplier reservations systems to withstand the hits from major portals such as Yahoo! or AOL. (2) The business relationships may not be in place to capture total content (e.g. low cost carriers (LCCs) such as Southwest). Without total content and the ability to manage capacity, meta search version 1.0 may prove to be more hype than substance. I do believe that meta-search does have value but must be done using a different architecture that reduces the strain on the supplier reservation systems.
8) Online travel takes off in Europe. The growth of online travel in Europe will be significant impacting all sectors of the industry including corporate travel.
9) The corporate travel industry will see further movement towards an integrated online solution rather than a stand alone booking tool. Independent corporate tool providers will partner with fulfillment services to provide an integrated solution to the corporate market and compete with the ITMCs
10) Weblogs will start to have an impact on the travel industry. Currently, the industry depends on news via media outlets (BTN, Travel Weekly) or research firms (PhoCusWright, Forrester). These organizations will continue to provide essential market sizing and analysis, but Weblogs will begin to play a role in how information is disseminated throughout the industry

Be careful what you ask for.....

The recent fare simplification initiated by Delta Airlines and matched by American and others signals a new chapter in corporate travel management. For years carriers have complained about the ineffectiveness of many corporate discount programs. Trade organizations such as ACTE and NBTA have endorsed the concept of fare simplification. Now that we are seeing the first signs of widespread changes in fare stuctures, many corporate travel managers may find their negotiating leverage evaporating. It is essential that corporate travel managers recognize the new game in town: controlling supplier distribution channels. Technology is emerging that will support a corporation's ability to dictate a specific channel for their travel purchasing (e.g. GDS, GDS alternatives, Direct Links, etc...). Managers must keep abreast of these new technologies in order to regain leverage with airline suppliers.