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Airline Retailing Transformation: Commercial Implications

As airlines transition to offers and orders, profound changes will be needed from the commercial organization to support modern airline retailing. From infrastructure to commercial operations, revenue management, customer experience, and more. Zoom in on the massive implications the retail transformation entails in this fireside chat session with PROS President of Travel Surain Adyanthaya and Lufthansa Group Head of Order Transformation Dr. Jost Daft.

Full Transcript

Surain Adyanthaya: So, with that, we'll move on to a conversation. I would like to invite on stage, Jost.

Jost Daft: Good to see you.

Surain Adyanthaya: Thank you for joining us from Lufthansa Group. Let's have a seat. Could you just introduce yourself to the audience?


Jost Daft: Sure. First of all, thanks for having me. I'm Jost Daft, coming from Lufthansa Group, and currently having the responsibility for our transformation program moving to 100% offers and orders for all the group airlines that we have in our portfolio. And we have the opportunity to talk today a little bit about what our ideas and visions are about this transformation. And also, later today I will share a little bit of insights of what is our roadmap and what is actually the idea behind this transformation. Because, spoiler alert, this is not an easy transformation that we have to go through. And I want to share a little bit, our thoughts behind it.

Surain Adyanthaya: Thank you. Lufthansa Group is always very bold and willing to take on big challenges and lead the way. So, we're all very appreciative of that. But could you talk more about how you're adapting your infrastructure to accommodate offers and orders? You saw on screen the whole schema of legacy products. It's a lot of work to do.

Jost Daft: Yeah, definitely. We started quite a while ago and thought, how could we do this transformation? And we had a lot of different ideas how we can deal with this transformation. At some point we even thought about whether we should form a new airline, a completely new airline that could be a Greenfield approach, which would have no legacy package and have the future technology stack over there. We're doing a lot of interline business, so this was not an option, so just to form a new airline. So, we thought, okay, we need to build a new technology within the given construct that we have. And then, we thought about whether we should build something on top. So, we have our PSS, which is what we talk about basically. Let's talk about the elephant in the room. So, it's about replacing the PSS. And we thought about putting something on top, and we also realized on top is also not really working. So, we really decided to move into a completely new architecture, cut down the monolithic architecture that we have in place today, and build a completely new architecture, and build a completely new technology stack. And we can talk about what are the challenges in doing this transformation a little bit when you have to connect old and new worlds in parallel.

Jost Daft: But at least this is the approach on our side that we want to build a completely new technology stack, which is based around modularity. So, this is the most important point of this endeavor, so that we cut down the pieces and make them digestible.

Surain Adyanthaya: So, I think that's a great segue to the next question of how do you transition from past state to the future state? What strategies are you using to optimize this whole process of moving your commercial operations from legacy to new?

Jost Daft: So, there are tons of elements that you have to consider when doing this transformation. First of all, I think it's important to understand and also convince your management that this transformation will last five, 10 years minimum. So, it means you need to live with both worlds, old and new world, for quite a while in parallel. And whatever you do in the old world, you also need to consider in the new world, vice versa. So, you need to consider when we power up these new cool things that you are talking about, like AI, how can we optimize our offers? In the new world, with the new auto management system underneath, with new processes behind, it's more flexible. But as we have the old world still in place for quite a while, you always need to consider what do I have to do for backwards compatibility. And that's something that we look into very carefully. But I think the most important decision, and you talked about making bold decisions, I think one of the bold decisions for us was that we will accept for the transition period that old and new world will not always be 100% in sync. So, there might be situations where you would have more offers, better offers, only in the new technology stack and not in the old stack.

Jost Daft: In the past, this was always a long discussion, taking the example of NDC for example, so NDC got some new capabilities that we were not able to provide in our classical GDS channels. There was always a huge discussion whether we would allow this, whether we would allow that this big portion, what we still back in time had on GDS channel, should have different offers than the NDC channels. And that was a tough decision, and back in time we did not really decide that we would allow this. This time we decided we will accept that our new technology stack will come with new capabilities, that's why we are doing this one. So, we will accept that we do not always have to synchronize back into the old world. So this is a little bit the approach how we deal with connecting old and new world and optimizing the flow, and always making careful decisions because you don't want ruining the customer relationship, because the customer experience is something that you always need to take care of because you cannot explain to the customer: “Ah sorry, you made your booking in the old world, so therefore there is a capability that I cannot provide you there”. So, this is a very thin road that you have to go.

Surain Adyanthaya: Yeah, absolutely. And you bring up, I think in the airline world we deal with such complex processes and flying people from A to B and all of what that entails, but what about the customer? How is this going to impact the customer and benefit the customer?

Jost Daft: So, this is a little bit the question about why we are doing this at all. So I mean, at the end of a day it's about earning our margins, so there is a lot of cost topics beyond, there is a lot of, we talked about modularity as an important aspect to have more lean systems, more leaner processes in place. But at the end of the day, it's about the customer. So, we really said we need to define our processes from the customer perspective, so this entire transformation started basically. We know that we have very painful processes for our customers in place and this one needs to change. So, we have tons of examples, not only during COVID, but especially during COVID we have seen what are the limitations of our systems. We made all these re-bookings when customers could not reach our service centers because they were completely overloaded. We lost tickets basically, so we promised the customer you can rebook your ticket whenever you come back in 300 days, 400 days you can come back, and you can rebook your ticket. When we lost those tickets because it was hard coded in the system, that they are only 360 days stored in there. So, a lot of those examples we see there are pain points that we want to move away.

Jost Daft: And this is basically the notion of this entire transformation to really think the process is not from an airline perspective but from a customer perspective. I'll give you another example. It's very far away from basically from the offer optimization aspect but check-in is a very good example. So, no customer is paying us just one euro more because we have a nice fancy check-in process. There is no need from a customer perspective to have a check-in process. We as airlines believe for whatever reasons, maybe legal reasons, or there are some reasons, we need to have this process but now we want to rethink do we really need to have these kind of processes and check-in is just one example. There are other things that we are also rethinking and putting ourselves really into the shoes of the customer and thinking what is actually what we want to have and therefore customers at the end of the day, next to some other aspects, are the cornerstone of this transformation.

Surain Adyanthaya: So, what sort of innovative new technologies have you found that will make a difference, that will really transform the landscape?

Jost Daft: I would say there are way more people here in the room that are smarter and know better what is the new technology coming up. So, I'm really not the expert to know really what is the great technologies that are coming up. We looked a little bit into, for example, what is the blockchain case, what does this new technology mean when it comes to blockchain. I would say, my core message here is I want to leave this field to the people that are smarter than I am to think about the new technologies. I'm just providing the foundation. So, I'm enabling the breakthrough of new technologies because today we really see that whatever new thing, let it even be small pieces like continuous pricing, technically it was not rocket science. But if you see how long it took us to actually implement it, and I found it very nice, it's basically a decade ago that we started this. And Lufthansa has it in production now since half a decade, so since 19 we have it in production. I'm quite happy about it. But if you see the work around that we had to build to make it happen in the legacy world, so this is actually showing that we need to have a new backbone that fosters innovation. And then there will be the smart people around that come up with new ideas, let's be technology, but also let it be new business models, for example, that can build on this new backbone. And this is actually what this is about.

Surain Adyanthaya: I've seen a number of airlines now starting to explore order especially, offer and order. And you've been on this journey for some time now. Is there any advice? Is there any advice you can give to some of the pitfalls, things to watch out for in the process?

Jost Daft: Oh yeah. I would say for this kind of transformation, it's very, very important to have top management on board. So, it's crystal clear that there are a lot of ups, but also some downs. And you really need to have the top management on board to support the topic from the very beginning. So, this is one of the key advices that I can give everyone because this helps you through all the ups and downs, and provides also long-term commitment, because it's a transformation that will take quite a while. It's not the easiest thing you do in a few months or a few years. It will take a while. So, you need to have this top management commitment. And the other point, which is very important, I totally believe in partnerships in this transformation. So, no airline can really build it alone. So, you need to have partnerships on different levels, different dimensions. So, airlines partnering up in the industry, we have the airline consortium out there, and the roof of IATA. We have other industry bodies, like ATP co. So, their opportunity to partner with other airlines, but also talk to the IT providers, also opportunities to partner with your IT providers. Because this is exactly where you can create the value according to the specific need that you have in your airline. So really, these are the two advisors, top management, co-management, and really looking into partnerships.

Surain Adyanthaya: Great. Well, I look forward to your presentation and hearing more about all this. Thank you.

Jost Daft: Thank you.