May 16, 2024


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I wonder if the airlines have enough gut to start all over by learning from other and investing in up-to-date system and hosting. The backside is the serious financial investing needed and in the aftermath of Covid-19 I worry if they can get that. These investments offer savings and much better selling opportunities in the hundreds of million usd annually.

The introduction of Global Distribution Systems (GDS) by American Airlines of was a gift to Travel Management Companies and other travel distributers when launched in the 1960es. Then it was a world controlled by governments and in fact monopolies and complex ticketing, rules, and safety.

In the 1980es governments around world introduced open sky legalization and set the airlines free to act and really compete. What happened was that the airlines stopped or limiting the commission structure for selling seats on their airplanes. At least on paper they tried to change their business and service plans by introducing cheaper fares and better service by introducing business class and loyalty programs.

They sold the existing GDS as they need funds to implement the changes and by doing that, they offered the wolf to watch the sheep. The original structure was based on a segment fee that should cover the huge cost to network, huge mainframes, and the people to serve the systems. Now they got good cashflow by selling, but in hindsight a prohibitive distribution cost in a world seeing technology cost drop or much more value year by year,

The airlines also were in a bind because the people understanding distribution and technology left too. Financially the financial investors had their money returned many times over and the travel industry decades behind other industries like retail, ground transportation (think Uber) and train (think silver rail). The introduction of Low-Cost Carrier (LCC) using cheaper distribution systems added to coffin.

Now after 50 years the situation has not changed. The industry celebrates a rigid system they call New Distribution Capability (NDC) and have for years pushed the GDS to change the pricing system and offer API solutions and lower cost. Now the airlines look at NDC as the wholly grail and together with the old systems shared Travel Management Companies (TMC) cling to the mainframe solutions they all know so well.

However, the players still have not invested in the right people and products. Now enter AI and even makes it more complex using ancient structures and are much more expensive to work with compared to distribution and selling entities like Amazon, AliExpress and even bus companies like Flixbus. The airlines still have dream of selling most of their inventory direct to the leisure -and corporate traveler, but are also faced with  supply chain disruptions, capacity constraints, unpredictable shifts in demand and too high cost of selling and distribution.

Just the other week the airlines was at a conference where they are discussing how to change from Edifact (the original data transfer system) read about: Eulogy for EDIFACT? (HERE).

I wonder if the airlines have enough gut to start all over by learning from other and investing in up-to-date system and hosting. The backside is the serious financial investing needed and in the aftermath of Covid-19
I worry if they can get that. These investments offer savings and much better selling opportunities in the hundreds of million usd annually.

I hope for the airlines facing multiple challenges from increasing aviation taxes, emissions trading costs, requirements to buy sustainable aviation fuel (SAF), airplane quality and closure of Russian airspace that they finally see the light and join the world around them.

One new way forward
The alliances created a structure we believe can work in today`s world. Most legacy airlines have or had one or more codeshare partners. They allocate pricing and receive allotment from each other. This is mostly shown in the GDS, where they all are present.
2 airlines (SAS & LH) had a large codeshare infrastructure. When a customer books a Lufthansa seat and price on a SAS flight in the LH environment, the data are sent to SAS and processed in their infrastructure. Normally SAS can show and sell up to 9 tickets at one time in their own inventory control system and codeshare partners only 4.
However, it has worked for decades.
Originally it was a tedious process with high-level executives negotiating to avoid cartel charges, but once the administration was set, the process with allocating seats, load fares, and receive your “own” booking for the rest of the process worked fine.
Create a virtual ghost airline distribution system.
Looking at one of the legacy airline Scandinavian Airlines System (SAS). They use mostly the GDS Amadeus for both distribution and data transfer systems to airports, various public bodies, and ticketing. The way forward is to create new pricing, capacity utilization, and distribution structure.
The best would probably be creating a connection builder, but if too complex a product should include:
• A mirrored copy of the airline inventory including flights, number of seats, and times.
• Be able to price the individual seat dynamically at the point of sale without any upfront filled fares.
• Include a large range of auxiliary services and products from luggage to food and gifts.
• Distributing structure making the airline free to structure selling including allotment, control home market, name change rules, reuse, corporate rates, excess capacity, etc.

It could also target the mobile world and be exclusively bookable via smartphones. This could include tickets being offered at the airport, upgrades done, early boarding, products onboard, usage of bonus points.

This means an airline like SAS simply design an airline called: SAS1 and treat this as an alliance partner. Space control offers SAS1 i.e. 50 seats (or 1-2 seats per row) and the new pricing system will price each seat with an individual price. This will mean middle seats will be cheaper than aisle and windows and row 1 more expensive than row 29. Booking 2 seats can be priced differently than 1 seat and if auxiliary products are bought yet another pricing. Everything based on the airline SAS1 inventory and pricing product.
Once the customer book a seat, all the reservation data are exported into SAS normal system and reported as any other codeshare partner`s data. Passenger data will end up at the airports and aircraft, accounting, financial records, and data into the yield and content management.

What are the advantages?
• Using next-gen. tools (i.e. Blockchain), bypassing the GDS will enable substantial savings.
• Bypass or avoid Intermediaries like BSP, ATPCO, and clearinghouses, or change the usage of these bodies.
• Select own distribution partners, conditions, and rules.
• Control the point of sale of online structure and user-friendliness.
• Better selection of communities and create special rules.
• Design industry and customer-specific corporate fares.

The one major obstacle is the fact that most airlines have signed exclusive agreements with Global Distribution Systems (GDS). Another is the fact that airlines, in general, do not have the right technology and specialist people.

Next step.
Find partners already knowing such systems like Travelsky from China, Hagon from Germany (specialists for distribution system for trains), or IT companies willing to support development. It could also be private IT companies Capital funds wishing to enter travel.
We know from Travelsky that a fee of 1€ for distributing and selling a seat is profitable and with a small lean organization behind a system, it can become a profitable business quite fast.

Project description
Create a booking (and perhaps payment) system flexible enough to be used by small as large airlines. The system should have the following functions:
A profile loading facility.
This includes entering new information if a first-time traveler. The data should be GDPR secure. Once entered, offer being a member of the airline loyalty program in case available. The system must offer to reenter with user and password. If an airline already has its designated CRM system, it should be integrated. 

Most large airplanes are made by Boing and Airbus with companies like Bombardier and Embraer making smaller aircraft. This means the system should be able to adjust to the precise version the individual airline uses.
The rules needed for the individual price should be simple and easy to understand by the consumer. Buying a seat should have the possibility for added sale of services or products like Wi-Fi, special food and drinks, the latest movies or even tax-free offers like the charter companies do. Auxiliary services like baggage, lounge access, and preboarding is a given.
Yield management must be possible, group offer, special segments i.e. handicap, injured people with a doctor, easily designed offering structure to sell last seat available.
Some airlines might choose to use the system for mobile sales only.
To utilize the flexibility special net fares for corporate travelers so being able to recognize special rules conditions. This could include flexibility, fast track, excess luggage, guaranteed seating per profile, preordered food, upgrade facilities, and much more.
Once the seat is sold
The seat with the number and sold price, luggage, and profile is transferred to the basic airline admin system and goes through the normal process with sent to airports, etc.
The data should go into the data warehouse where big data software will create the necessary information structure needed to maximize the load factor.

Ticketing system
I see 3 ways forward:
If not conflicting with the GDS contract an airline can choose to use the existing IATA/BSP ticketing structure. I still see that as quite expensive.
Using ticketing systems like Hahn Air or World Ticket. I believe them somewhat expensive too.
Take up a neutral ticketing system as they already exist in many forms from the train, theatre to events and adjust them to the airline world. I believe this is the most inexpensive way in the long run.
Financial systems
Systems like PayPal, credit cards, DIBS, should be available, but it could also be an opportunity to use new mobile payment products and transfer funds directly between customer account and airline account, thus minimizing the payment cost.
Marketing and packaging
With the planning and thinking on the whole food chain with a distribution system, I believe it also is an opportunity to rethink marketing and sales. In a world where any value coupon, spot advertising, and personalization are just bits, bundling targeted products (i.e. Starbucks at the airport), books to read, movies to watch, and items to buy and get delivered home or pick up on the way home brings a world of earning opportunities.

Tear off the patch and get started, there are technology players out there already helping airlines.

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