Four years ago, IATA’s report “The Future of Airline Distribution” painted a picture of where airline distribution was headed: …by 2021, airline distribution will evolve from its current passive, rigid, and technology-centric state to a more flexible, dynamic, and passenger-centric environment which we call Active Distribution…
We will need systems that will support calculating volumes of prices that may be several magnitudes larger than today. These prices will be dynamic, they won’t be based on ATPCO-filed fares.” Back then it was still the early days of NDC adoption. In this podcast episode, we chat with Sebastien Touraine from IATA about where we are today as an industry in terms of dynamic prices/offers and systems to support them.
You can listen to The View from 30,000 ft. on Apple Podcasts and Spotify. Or listen to the full audio version below.
In This Episode
[02:53]: Where we are currently as an industry in terms of dynamic offers and systems to support them
[05:17]: How the moving parts are coming together
[06:22]: Industry vision and customer expectations
[07:30]: IATA’s three strategy pillars
[10:11]: Three steps to build the roadmap of dynamic offer
[11:56]: The dynamic offer maturity model
[14:04]: Roadblocks around scalability
[17:12]: The impact of dynamic offers
[18:53]: Status of One Order capabilities
Aditi Mehta: Hello, and welcome to the PROS Travel Podcast, The View From 30,000 Feet; a podcast series featuring airline industry experts tackling the real issues around airline digital transformation. This is our second season. I highly recommend listening to the last season if you haven't yet. And we're focused on big and small changes around travel IT, data, products, and retailing. Now sit back, relax and enjoy the flight....
Stanislava Yordanova: Hello, everyone, and welcome to the Travel Podcast, The View From 30,000 Feet. I'm excited with today's episode, which is dedicated on the topic of dynamic offers and the road to customer-centric airline retailing. I'm joined by Sebastien Touraine, who is head of Dynamic Offers at IATA. And Sebastien, thank you for joining.
Sebastien Touraine: Hi, good afternoon. Good morning.
Stanislava Yordanova: Before we start with this topic that I'm sure everyone in the industry is excited to hear our thoughts on, can you just briefly introduce your role and responsibilities at IATA in driving industry change and adoption around dynamic offers?
Sebastien Touraine: So, I work in IATA in the transformation department. We look after some of the initiative at industry level that try to drive change for the industry. You may have heard about the electronic ticket 10 years ago, when the industry moving to 100% electronic tickets, through the IATA mandate. Later on, I've been involved in the past 10 years on the EMD project, the NDC vision at the beginning, then the one other project, and now I'm looking into the last piece of the airline industry retailing vision, which is dynamic offer. And my background is in airline [inaudible 00:01:54]. I've been working for Swiss mainly in Zurich for a couple of years in revenue management, network planning, and I'm addicted to the airline industry.
Stanislava Yordanova: Yeah, I guess we all are. So yeah, you mentioned quite a few topics around innovation, NDC dynamic offers. But let's do a reality check. So a few years ago there was a report that the International Air Transport Association issued around the future of airline distribution, and back then [inaudible 00:02:30] were towards really moving to more flexible, dynamic and passenger-centric environment that we would eventually call active distribution, where offers and prices will be dynamic. It's still the early days of NDC adoption. Where do you think we are today as an industry in terms of dynamic offers and systems to support them?
Sebastien Touraine: Yeah, first I would say that if we talk about dynamic pricing in general, so airlines have been doing dynamic pricing for more than 40 years since the management was created [inaudible 00:03:03]. It's just the level of dynamicity, you change your fares or your price. But yeah, different method that has changed over time.
Sebastien Touraine: But if we go back to the early days of new distribution capability IATA NDC project, it was a mix of revenue management people and distribution people coming together trying to change these ecosystems. And the vision was mainly driven by revenue management people and distribution people. At the end of the day now, a few years after the beginning of NDC, it became more like a distribution project, and the original vision of having a world without booking class fairs was actually not mature at this stage. So the report is a nice vision, of course it was a few years ago, but I think the maturity now is changing since I would say last year with some airlines such as Lufthansa Group, that is really going into this space of continuous pricing, offering some of the product through NDC without some of the constraints from the past.
Sebastien Touraine: So the world is actually changing, but this is all driven by some of the NDC change, and especially the workflow change that is coming from NDC where airlines are in control of responding to every shopping request and presenting price availability offers, as opposed to in today's world, pushing some fair somewhere, and pushing the availability somewhere else, and then the third party is consolidate that on their behalf.
Sebastien Touraine: So things are moving I think to... Reality check is basically yes, the industry was absolutely not mature a few other good to move beyond some of the legacy around the offer construction around RBD and fare filing. This is changing, but it's up to every single airline to decide where they want to go in that direction.
Stanislava Yordanova: Yeah, that's interesting. If we look at the broader environment around travel, how are different travel players moving in that direction? You mentioned a lot about airlines, but what about IT providers and travel agents, online travel agents, all the other participants in the travel ecosystem?
Sebastien Touraine: We probably realized at industry level that NDC was the big rock and roll at the beginning. It was a bit of a misunderstanding. Now I think everybody from IT providers to DSS, we are aligned on the vision, and I think it's great, because it must be a win, win, win at the end the day.
Sebastien Touraine: I think in general the IT vendors from airlines have been very supportive because they want to innovate in this space and help airline to create, let's say be more in control, create better product, create better ability just in capability to merchandise that product and things like this.
Sebastien Touraine: On the travel agency side, the adoption is still a challenge, but it's moving along, and at IATA we are very pleased just to facilitate this transformation.
Stanislava Yordanova: Okay. Let's bring in the consumer. And what is the vision for the industry? Where do we actually need to be for a healthy, competitive landscape, but also a profitable market, and really deliver on those customer expectations as an industry?
Sebastien Touraine: So at IATA we are helped obviously by the airline that are supporting us in driving and defining the vision. I think the customer is always at the center of our initiative, but from let's say a product differentiation standpoint, our vision for the industry is clearly to move into what we call offers and orders. And we are actually the only industry that are distributing our product through 26 booking class, through five fares, and we're the only industry to have specific things such as PNR, ticket, and EMV. So our vision is to move into the world of retailing with airlines presenting offers, and consumer accept these offers, and it's turned into an order. And it's pretty much like the retailing industry is moving this direction.
Stanislava Yordanova: Yeah, that's seems like a lot of simplification for the end consumer. And what are some of IATA's initiatives in this direction to support the industry and can you elaborate more on that?
Sebastien Touraine: So we mainly have let's say three main pillars of our strategy in IATA on helping airlines to better differentiate their product. The first one is obviously the foundation that has been built by new distribution capability. It's with the goal to have freedom of distribution for the airlines.
Sebastien Touraine: The second one is around having ability for airlines to be agile in the way they do retailing, and that's the vision I was mentioning about a world of offers and orders. And this is driven by some of the activities such as one order or dynamic offer, and now recently we are moving into a future world of interlining, and interlining with offers and orders, and some work will be done in the next couple of years on this subject.
Sebastien Touraine: The last area that we are trying to help the industry is to help the ecosystems of vendors, whether they are startup or the current incumbent. And for that we created since last year an acceleration program together with plug and play. It's called Accelerate@IATA, is trying to help some startups and newcomers in the industry just to grow and just to present some very interesting products for the airlines other than our members.
Stanislava Yordanova: Yeah, this is exciting. And it's also exciting that we just wrapped up IATA's first dynamic offer forum in Geneva. It was two very interesting and insightful days, and a key topic really in the discussion revolved around how to solve the adoption roadblocks and develop this transition plan at industry level. What do you think are the steps to get there, and how should the both airlines and providers work together to build that roadmap and accelerate the progress?
Sebastien Touraine: Yes. Indeed, it was great two days in IATA in Geneva for the first dynamic offer forum. It's a forum that had been established by the Distribution Advisory Council, which is the group of airline chief commercial officers that are advising IATA on the direction for the industry. We had a bit more than 80 delegates from around the world, and it was clearly just to show that IATA is taking a leading role in this space, with one things which is clearly said, that IATA has not nothing to do in doing product or services in this space of course, because this is not our area. But our role is clearly just to work more on advocacy, educate, collaborate to craft the industry and to enable the standards and tradition.
Sebastien Touraine: So if we look at what are the three steps to build the roadmap of dynamic offer, I think the first step is to have some clarity on regular three obstacle. In today's world, there is quite of constraint around the world for airlines to distribute their fairs and to fine their fairs to some of the government. So one of the actions from this forum is to have a clear assessment of there are some constraint and how we could solve some of these obstacle by advocating some of the government on that direction.
Sebastien Touraine: The second area where we think the industry have to move is to adopt, truly offers and order management solution. And that's quite critical, especially in the new workflow that is driven by NDC and one order. This is going to be the retail transformation for our industry.
Sebastien Touraine: And the last area which is critical is to define and drive the transition. I think everybody agree usually on the end goal, but the challenge is clearly how to get there, and we need to define different steps that airlines would be able to just move to go to this station.
Stanislava Yordanova: And there was a lot of discussion during the forum about dynamic offer maturity model as the framework to really help the industry defined the concepts of dynamic offers in retailing. What are the required capabilities for the offer and order management to enable, really offer optimization in that RBD less world?
Sebastien Touraine: Yeah, so if we simplify really, like dynamic offer is actually the combination of the ability for airlines to determine their price continuously, and the combination that with the ability to bundle dynamically any product on the spot based on the shopping request. So, at industry level what we did, we built some kind of framework metrics of which is called the dynamic of maturity model, that explained the different methodology and step to go to this area. Airlines must not go in every direction and maybe not at the top within which is much, much more dynamic for you to create every single request a new product with a special price. They may go in different direction, depending on maybe on the distribution channel, the market, and things like this.
Sebastien Touraine: But what is important, we wanted to have clarity on the values methodology to go there. If we look at today, it's mainly driven by static price points and the dynamic availability, which is done on the inventory side, and that creates the price and the product with their family. This is evolving more into some kind of adjusted pricing and some of the initiative driven by ATPCO that is helping airlines to drive that into today's workflow with GDS for some of the direct sales.
Sebastien Touraine: The last step, which is our division at industry level of dynamic offers, is this ability to combine any price points with any types of bundles product on the spot without constraint of fighting fares or the booking class, which is the traditional way of controlling your inventory.
Stanislava Yordanova: Yeah, it's clear that their big inspirations for dynamic offers, but we also discussed on the round tables some of the roadblocks and limitations that are related to scalability and that transition phase. Can you summarize more around that?
Sebastien Touraine: Yeah, we have different topics. One of them, obviously, with the scalability things. And I don't think we could call that as an issue. It's more like a conversation as we speak, because each vendors are showing that they are confident that they can cope with the complexity and the scalability issue. But it's more do we need to have guidelines or best practices at industry level to avoid a problem such as scalability.
Sebastien Touraine: Where it gets a bit more complicated and we had some good discussion is on the interlining and the new way of interlining, and let me try to recap what new way of interlinings means. The idea behind interlining these offers and orders is basically to have a conversation between airline's partners at types of shopping. So something, a dynamic between the airlines at times of shopping, so that when an airline provide to their partners an offers, this offer is captured by the other airline that can then sell that to the consumer. And in this process it will help airline to be in control of the exact amount they will receive at the end, as opposed to doing proration mechanism today. And that has some kind of requirement to have scalability on shopping between the different airline, and that needs to be assessed [inaudible 00:15:32].
Sebastien Touraine: So that was clearly one major topic. Another important topic was on the regulatory aspect around the requirement for some government to receive some five fares, minimum and maximum in some condition. Even if it's this requirement are diminishing around the world with air service agreement going into more and more open sky, we are assessing the risk and the roadblock for dynamic offer.
Sebastien Touraine: The last area of discussion we had, we spent quite some time is on tradition, and tradition is actually the biggest challenge which was seen was more mindsets change within the airlines and some of the stakeholder crowd, the value chain, about changing into this new world. And these two world will have to collaborate in the next couple of years and this is a bit of a challenge.v
Sebastien Touraine: One thing which was also discussed in this forum is the organization challenge. How airlines are going to get organized in the future, and that's also very interesting topic.
Stanislava Yordanova: Yeah, we also had a lot of discussion around that, because it seems that airlines are really driving changes when it comes to how their traditional organizations function, and bringing in new talent, and really redefining their departments internally. What are your observations on the impact of dynamic offers on the airline organization?
Sebastien Touraine: I think what we could say that having offer management systems will break the cycle, and break the cycle between full key divisional, full key department within the RM. The eCommerce and digital department, those who have been working sometime with the internet booking engine or the B2B application, revenue management and pricing obviously is another department that is involved in this offer management equation. The merchandising department, and finally the distribution people. These four types of department, eCommerce, revenue management, pricing, merchandising, and distribution will have to work more closely.
Sebastien Touraine: I believe, personally, that a retail type of organization will be required, and I look forward to having discussion across the industry on how this is going to happen. But clearly that requires some rethinking in this environment of offer and offer management, and will be some tests, some airlines are trying to build the new organization in more retail style organization. Some others [inaudible 00:18:27] department offer management now and some vendors also are also a department which is called offer management or order management. So quite some change [inaudible 00:18:36]
Stanislava Yordanova: Yeah. I also heard some of the airlines mentioned the concept of the super analyst. It will be interesting to see how the airline organization adjusts to those changes. How far ahead do you think is One Order?
Sebastien Touraine: So One Order, the key enabler I would say of having airlines being agile in the way they create the offers, because quite often we realize that the fulfillment aspect and delivery and accounting aspect was some kind of a bottleneck for creating new offers. So, I think there's a strong link between dynamic offer and One Order. And where are we today on One Order side? There have been providers that had been certified and airline has been also been showing their capability on One Order. What needs to be said is that One Order is clearly a major transformation for the industry. It touched the entire PSS equation. It touched also your digital internet booking engine, your NDC platform, but it's clearly an enabler for the transformation to move to offers and orders in the next couple of years.
Stanislava Yordanova: Yeah, so we'll see steps in that direction. We know it's not going to happen overnight. To end our discussion, which was very interesting around dynamic offers, I'm shifting the topic with something fun to ask you around, your most memorable travel experience?
Sebastien Touraine: It's difficult to say. There have been so many. But one that I can remember that I started my career as an intern with United Airlines back in 1999 I think, and I had free tickets to travel almost every weekend, I went from Chicago to Alaska for weekend for skiing. It was minus 25 degrees over there, and that's one of the memory I remember. But that's where you get addicted to the airline business.
Stanislava Yordanova: Yeah, I agree. And it's snowing in Geneva. I guess we have ski conditions as well.
Sebastien Touraine: Exactly, yeah.
Stanislava Yordanova: Well, thank you for this great conversation, Sebastien. It was really a pleasure talking to you and seeing how the industry is moving in the right direction. I think it's an exciting time to be in the airline space.
Aditi Mehta: Thanks for listening to the PROS Travel Podcast, The View From 30,000 Feet. Special thanks to our guests and our producer Genevieve Todd. We hope you've enjoyed this episode. If you have any feedback, a burning idea, or know of an industry expert we should feature, shoot us an email at email@example.com. That's A-M-E-H-T-A@pros.com. You're now free to move about the cabin.