Global View

I am writing from Cannes, France where I gave a speech this morning on emerging technology trends that impact airline e-commerce. I represented PhoCusWright at the conference and I was able to draw on some great stats and trends from a number of PhoCusWright research pieces. This speech was for the Amadeus' airline e-commerce conference. Last week I was in Los Cabos, Mexico giving another speech for the Amadeus' LATM corporate travel leaders symposium. Tomorrow through Monday I am taking some time off and my wife who traveled with me to Southern France and I will explore the French Riviera.

I wanted to write briefly about the global perspective I have gained over the last 12 months. My work in Kuwait had me traveling to the Middle East once a month for the last year. Often I stopped in Europe on the return trip to either attend a conference or meet with a client. I have worked in Europe with different travel IT and software companies many who deal with airline customers. The Kuwaiti engagement tapped my corporate travel technology and leisure distribution experience.

There are a couple of points which all markets have in common:
1) Every segment of the travel value chain worldwide is under pressure from low cost competition. Whether its LCCs for the airlines, alternative or direct distribution for the GDS, or online competition for the TMCs, every sector needs to drive greater efficiency to lower costs.
2) Mobile technology is beginning to emerge as a major new battleground where traditional suppliers and distributors are being challenged by innovation from new market entries.
3) Airline Fare Families and the airline focus on ancillary revenue is here to stay. This is good news for the airlines who are really suffering. Fare families creates a more logical relationship between services and price.
4) Local Carries are a global phenomenon that is driving consumers in emerging markets online
5) Corporate travel trends are the same globally, the differences are around the level of maturity in the market. Latin America is a particular challenge as major airlines have pulled inventory out of the GDS in markets such as Brazil.
6) The global economy is beginning to rebound with travel increasing, but premium travel is still not near the levels from 2007.

I feel blessed that I have the opportunity to travel to such diverse places in the world and help a variety of customers market, build or purchase travel technology.

Full Content

Dennis Schaal, technology editor for Travel Weekly has written some very insightful articles regarding the lack of full content in the GDS (despite the full content agreement signed in 2005) and more recently the termination of the agreement between Farelogix and Sabre. (links requires a subscription). This is a complex problem that is both an issue of technology and business strategy. From the travel agent perspective full content is essential particularly given the transparency of fares triggered by the Web. With the economic conditions worsening suppliers will continue to put downward pressure on segment fees and implement all possible opportunities for ancillary revenue. The GDS are working hard to add capabilities to accommodate new airline add-0n fees as well as continuing to move key processes off the mainframe on to more modern technology. The question is whether these initiatives are moving fast enough and whether 3rd party providers such as Farelogix are a viable alternative. Unlike the other so called "GNEs" (GDS New Entrants), Farelogix never positioned itself as a replacement for the GDS but instead as a new aggregation layer needed in a multi-source world. In that role they have been successful working with major airlines such as American and Emirates. Though understandable from a competitive viewpoint, Sabre's termination of the Farelogix is a bit short sighted. Now that Travelport has embraced a multi-source front-end (developed by G2 Switchworks) the concept of multi-source content will be permanently ingrained as a competitive advantage. I have no doubt the management of Sabre is well aware of this and that their current solution with Agentware (private labeled as NetCheck) is most likely a temporary fix to meet this multi-source reality. Unfortunately with economic pressure on corporate accounts the use of alternative LCCs will likely increase and legacy carriers will continue to implement strategies to drive business directly to their Website. Web-based tools such as Agentware have become a common way for agents to sell inventory not in the GDS, but end up causing additional steps that decrease productivity. The travel industry needs to continue to push the GDS to provide more flexible integrated tools. Projects such as Farelogix's open source POS Hawkeye should be embraced by the industry so we can move beyond issues of bypass and instead have all agents be able to embrace an integrated multi-source point of sale.

Agent POS International Innovation

My loyal blog readers will recall my frequent posts over the last few years regarding an independent travel agent point of sale (POS) application. An interesting discovery that has been a result of product analysis I am doing for a large Middle Eastern TMC is the fact there is clear trend with many European and Middle Eastern 3rd party software providers to combine various elements of the agent's workflow processes in a multi-facet platform that includes a booking engine, a Web based agent POS, a customer profile database (often referred to as a CRM system), a workflow engine, a mid office and accounting system. I believe that a reason this integrated platform is emerging outside the US has to do the with need for international agents to deal with more complexity at the point of sale and the requirement to generate an invoice from a mid-office accounting program due to the large number of accounts still on credit. The fact that so many travel agencies in different parts of the world still offer credit to corporate accounts and in some cases leisure clients is not a surprise to anyone who understands the global travel market. What is surprising is how 3rd party providers such as Dolphin Dynamics, Tech Tuners and ProCon Solutions have embraced a more holistic approach to the agency needs by providing a solution that supports both corporate and leisure sales.

In his article for PhoCusWright entitled Travel Agency Technology, my colleague Bob Offutt described this platform as the agency of the future:






Now let's compare this with a diagram from a presentation yesterday from TECH TUNERS a Dubai based 3rd party developer and distributor of Sabre's TRAMS accounting system:



















In fact my my diagram from the 2003 PhoCusWright / Travel Tech Consulting report on Dynamic Packaging also describes a similar architecture.

The interesting aspect of this platform evolution is where it is happening and why. In the US the GDS still dominate the agent POS with the exception of mega-TMC initiatives or 3rd party products such as G2 Switchworks POS (now owned by Travelport). There is a clear distinction between corporate POS (e.g. TRX's Agent Desktop) and leisure POS (e.g. Revelex's PowerAgent.) Outside the US due to a need to integrate multiple sources, currencies and accounts on credit, traditional back office functions have shifted to the mid-office. The issues associated with this complex booking process exists for both the corporate and leisure agency. Of course the leisure agency also needs the ability to store net rates a solution that is also offered by many of these non-US third party vendors.

Clearly there is a global trend to provide a more function rich point of sale application for the travel agent. Is there an opportunity to bring this solution to the second and third tier TMCs and leisure agents in the US?

Recent research by my colleague Douglas Quimby of PhoCusWright highlighted the dominance of the GDS platform in the US in his study the "Travel Agency Distribution Landscape" PhoCusWright tracked agency usage of alternative POS technology.
This slide shows that with the exception of the very large TMCs the majority of agencies in the US still use native GDS as their POS.
Clearly an opportunity exists to capitalize on the growing need for a multi-source and integrated application that combines multiple agent processes in a Web based solution.

GNEs and GDS bypass

I just returned from a two week business trip to the Middle East working with a client in Kuwait. I've fallen behind again in my blog entries and I will try to rectify that over the next few days.

First up, a discussion of a recent article in Flight Magazine about demise of the so called "GNEs" (GDS New Entrants or "Genies"). This article bemoans the lack of success of these alternative distribution initiatives citing the sale of the G2Swithworks' agent POS to Travelport and the refocus of ITA Software to create a new CRS for Air Canada, as the end of an industry push towards alternative distribution. This article missed a fundamental issue in regards to the GNEs, the source of their difficulties has to due with poor market positioning. To set the record straight, the term GNE was coined by Derek Lewitton while he was Director of Distribution Strategy and Planning at United Airlines. It was 2005 the GDSs and the airlines were in heated discussions regarding new agreements. The prior few years had seen a reduction in segment fee charges by the GDSs related to the airlines willingness to provide total contact (including Web only fares). Derek organized a meeting with large corporate customers and TMCs introducing these new companies (ITA software, G2 Switchworks, Farelogix) labeling them GNEs. Also in attendance were TRX and Cliqbook. The travel and general press latched on to this labeling and throughout the year there were a flood of articles stating how these GNEs would use modern technology to bypass the traditional mainframe based GDSs. The root of the problem was not in these new companies' technology, but rather the positioning of these firms as replacements for the GDS. This was an absurd notion from the start. The power of the GDS lies in the 100,000 of travel agency desktops deployed as well as the engine behind online travel agencies (OTAs) such as Expedia. No single company, no matter how well funded can displace the dominance of the GDSs in the market overnight. In fact, one of the black holes that drained lots of cash and development time at G2 Switchworks was the development of a neutral agent POS. Meeting the complex requirements of the travel agent is not an easy task as many prior attempts (e.g. TRX's SELEX) have yielded limited results. Ironically it was this very application that was desperately needed by Travelport who operate three different mainframes (e.g. Apollo, Galileo and Worldspan). Since 2005 I have been involved with a number of initiatives in both the corporate and leisure space which involved a direct connection into an airline's CRS bypassing the GDS. The reality is that bypass is an evolutionary not revolutionary process. In fact the GDSs themselves are working to migrate their remaining legacy mainframe technologies to more distributed server based computing. The bottom line is that traditional GDS bypass will continue to happen especially as airlines unbundle their services to maximize ancillary revenue. ITA Software's re-engineering of the Air Canada CRS attacks the issue at the source as most airlines operate their CRS as a partition of the GDS with the same limitations that exist with mainframe GDS technology. The most striking limitation is the coupling of the passenger information with the transaction symptomatic of a 1960s IT design created to maximize throughput during an era of very limited bandwidth. With the need for airlines to become more customer centric, this coupling prevents dynamic pricing based on customer value, a basic tenant of CRM. The evolution away from this legacy environment will continue as the GDSs evolve and alternative distribution continues to gain steam on an individual project basis. This is all happening away from the scrutiny of the travel press, until the next round of GDS / airline negotiations. This topic is far from dead just not quite as public as it was in 2005.

Travelport and G2Switchworks

On Friday April 4, 2008 Travelport announced that they were acquiring from G2 Switchworks "certain software assets and intellectual property to be used in the development of a future Travelport agent desktop solution." Given all the hype of GDS verses GNE over the last four years, what does this deal mean to alternative distribution?

There are a number of ways to look at this announcement.

• The need for a multi-source desktop- G2Swithworks recognized from the start that to be successful as an alternative distribution platform they would need to provide travel agent call centers with a new multi-source desktop that could mirror the multi-source nature of self-booking applications and sites. Over the last four years G2 has worked hard to develop this platform. Despite this effort, though travel management firms (TMCs) particularly the second and third tier TMCs, have tested the G2 platform, few have actually signed up to run their entire agency using the desktop application. One reality is that despite the drop in financial assistance from the GDS to the TMCs, this type of monetary compensation for larger TMCs still exists. With economics playing a role in keeping the GDS as the platform for the TMC, G2 found that having a better more intuitive application was not enough to develop the necessary beachhead customers to be successful.
  
• A recognition that current solutions do not provide the right platform for TMCs going forward - On the Travelport side, with the acquisition of Worldspan last year, Travelport not only had agents on their Focalpoint/Viewpoint desktop but also inherited the Worldspan's GO! point of sale solution (POS). The announcement to acquire the G2 POS is confirming that neither of these long standing agent desktop applications can truly support the multi-source and workflow needs of today's modern TMC agents. A simple but often overlooked aspect of the G2 platform is the housing a more robust traveler profile outside the GDS. This is a critical requirements for any truly multi-source platform. An GDS-independent profile should allow the airlines to target specific customers with dynamic offers representing their value as a customer, a clear part of the unbundling effort.
  
• Eliminating a potential competitor: By acquiring G2, Travelport may simply be eliminating a potential competitive platform that would put pressure on the GDS/Airline negotiations when they are set to expire in 2010/2011. In addition, the Travelport action may be designed to prevent Sabre from acquiring the G2 platform. A bit of history of the GDS might put this into a different perspective. Back in the early 1980s at that time Apollo (the domestic GDS that is now part of the Galileo brand) licensed a travel agent back office system from an independent firm called ADS. The goal was to expand Apollo's offerings to travel agencies by becoming the chief provider of back office accounting software. After this announcement, Sabre, Apollo's chief competitor, bought the ADS company and incorporated it into their agency solution essentially trumping the licensing deal. This scenario was repeated in the late 1990s after Galileo licensed the GetThere corporate booking solution, Sabre turned around and acquired the company. With both G2 and Sabre now both owned by the Texas Pacific Group perhaps Travelport perhaps was simply heading off another potential competitive effort that would have again allowed Sabre the upper hand in a new platform initiative.

The G2 approach further reinforces the concept of a shift of aggregation to the TMC from the GDS. Today even with content agreements with the major airlines, no GDS has total content as some low cost carrier (LCCs) and Web only content still exists.

So what does this mean for the big picture of alternative distribution? I have repeatedly stated my belief that the GDS are not going away. The role of competition often is to accelerate development outside the constraints large companies. With perhaps the exception of Apple, few companies innovate due to the dysfunctional nature of large corporations. Time and time again, particularly here in the Silicon Valley, small start-up create innovative applications disrupting the market. When the disruptor is acquired, the larger organization can benefit from the start-ups innovation. I see the G2 acquisition by Travelport as an important evolutionary step in travel distribution, providing the market a much needed robust multi-source platform for TMC agents.

Farelogix and ITA software: An update on GNEs

A news release late last month announced a new relationship between Farelogix and ITA Software. First a bit of disclosure, Farelogix has been a Travel Tech Consulting Inc. (TTCI) client and I have known the founder of ITA Software since 1997 when I participated in a presentation at Sun Microsystems (another TTCI client) where Jeremy Wertheimer first presented the ITA faring solution as part of a visit by a major TMC. Many in the corporate travel world may falsely believe that the concept of a GNE (GDS New Entrant a term coined by a former UA executive back in 2005) is old news and is no longer relevant based on the 5 year agreements signed last year between the major airlines and GDS. How are the GNEs continuing to survive and why have the three original GNEs embraced each other? It is important to note that G2Swithworks the other major GNE who received lots of press in 2005 already has a relationship with ITA Software as well as sharing a funding relationship with Texas Pacific Group who now also owns Sabre). In 2006, ITA shifted their focus away from GDS bypass to building a next generation CRS (Central Reservation System) for their "beachhead client" Air Canada. Farelogix has successfully continued to sign direct connection agreements with major airlines and was selected to provide the plumbing for BCD Travel's Renaissance Project. There are four major trends that continue to provide opportunity for these so-called GNEs

1. Unbundling of Air Pricing- The move by the airlines to provide a menu approach to pricing that charges different fares for different levels of services (e.g. a different price if you don't check bags or change your ticket) is being implemented or considered by all the major airlines. Whether the traditional mainframe-based platform of the GDS can accommodate this new pricing strategy is still an open question.
   
2. Leverage to Negotiate lower GDS Fees - Another key issue keeping the GNE activity alive is whether GDS fees can be further reduced beyond current agreements. The fixed costs in operating a GDS may limit how low their fees can go in the next round of negotiations. Even though we are about 3-4 years away from the renegotiation, airlines continue to support alternative distribution as a way to provide leverage for future negotiations.
   
3. Flexibility to Control Distribution - In 2006, Farelogix released its Distribution Manager software which enables " TMCs to effectively control the sourcing for each supplier's inventory through preferred booking sources, while maintaining contractual commitments to the various Global Distribution Systems (GDS) and direct supplier relationships." This control over distribution may be used by the TMC or corporation to gain further leverage in airline negotiations
   
4. Shifting the Aggregation point to the TMC - The reality of travel distribution is that content continues to remain fragmented. For example, corporate buyers continue to push hotel reservations through the GDS (either through self-booking or call center activity) but a good portion of hotels are still booked via the telephone. In Europe, where travel inventory has always been fragmented, a need to integrate boutique hotels, rail, ferry and other components into a super PNR is still required. BTN highlighted this in a recent article regarding HRG and BCD super PNR efforts.
   

So back to the issue at hand, why a partnership with ITA and Farelogix? The answer is simple, ITA has proven over the past 8-9 years to have the best 3rd party shopping and faring application. Farelogix has taken a more agnostic approach to faring offering SITA faring application, accessing the GDS faring models or now with this agreement offing ITA Software as an alternative.
Please don't misinterpret my comments here as I am NOT voicing the old hackney message that "The GDS are dinosaurs and are history" These companies still are at the heart of travel distribution both online and off. The ongoing viability of GNEs due to the factors above will continue to push the market to provide a more flexible distribution solution that ultimately allows suppliers to better segment their clients and target their best customers with special offers (a basic tenant of CRM). As the ultimate purchases of business travel, the corporate buying community needs to pay attention to this trends to insure that total supply is offered and that the corporation in conjunction with their TMC controls the distribution choices allowing additional leverage in supplier negotiations.

Agent POS platform

Yesterday, I had the opportunity to talk with Steven Bloom from SkyGate a Danish travel technology company. SkyGate has developed an agency POS platform called NewPort. The conversation and demonstration provided further evidence that the need for an enhanced point of sale platform for travel agents is a universal requirement throughout the global. For European travel agents, there has always been a requirement to deliver so called "backroom functionality" to the desktop due to the multi-source nature of European travel inventory and the need to drive invoices from the agent desktop. NewPort uses both cryptic formats and Web-based CRM techniques to deliver a platform that is easier to implement while significantly enhancing the call center reservation process. SkyGate has created a limited set of cryptic commands that are seamlessly integrated into an Amadeus booking window. This includes an innovative command which checks to see if two one-way fares are cheaper than a roundtrip fare. The NewPort off GDS profile system synchronizes with both the GDS profile as well as Self-booking tools such as iFAO's Cytric. The POS system was designed with the corporate travel agent in mind with the goal of both simplifying the transaction and enhancing the CRM aspect of the call by allowing the agent to reference prior trip activity as part of the reservation conversation. This may sound somewhat basic, but due to nature of traditional GDS only POS systems rarely will a corporate agent use past history as a way to enhance the reservation process (e.g. "Mr. Jones I see that for your last trip to London you stayed at the Park Plaza Victoria, shall I confirm you at the same hotel for this trip?). It my belief that all travel agents both leisure and corporate need a more open, robust point of sale tool that not only incorporates GDS information but seamlessly blends Web content and CRM capabilities into the reservation flow. SkyGate's NewPort product addresses this need in a practical and innovative way.

Service Oriented Architectures

A lot has been written over the last three years about the topic of a service oriented architectures (SOA). The concept refers to a more flexible way to create software using Web services. Rather than creating tightly coupled code that bounds specific functionality within the application, software written using SOA principles creates loosely coupled components that can easily be removed or altered without impacting the entire application. "SOA turns monolithic inflexible applications into hundreds, even thousands of small flexible applications" Gartner research estimates that by 2008, more than 60% of enterprises will use SOA as a “guiding principle” when creating mission-critical applications and processes.”

Understanding the underlying architecture of software has always been a difficult task for a variety of buyers in the travel value chain. Whether it is a corporate travel manager evaluating self-booking software or a leisure travel agency looking at reservation technology, the need to evaluate the underlying software architecture has never been greater.

Often vendors confuse the issue by stressing their use of Web services. Utilizing Web services to connect to disparate sources of content has become the norm in the last 3-4 years. Just because an application uses Web services for connectivity does not mean the software has been written using a SOA approach. As an example, a major hotel chain still uses a mainframe running TPF (an old operating system created by IBM for the GDS) as their central reservation platform. The company has created a Web services layer to aid in the communication with property based system and external channel distributors. This is obviously a good use of Web services but does not reflect a service-oriented architecture. If this chain wanted to do a complete revision of their rate structure, the antiquated mainframe approach would lead to a nightmare of programming tasks. If this application was built using SOA, an overall rate revision would be done with less pain, implemented faster and would not disrupt other modules of the reservation process. Unfortunately for this supplier, SOA theories were not around in the 1970's when the core reservation system was built.