A new era for airline retailing with offers
The success of online retailers is heavily driven by their adoption of state-of-the-art offer creation practices and technology that are directly linked to customer needs. While the travel industry is still catching up, the journey to evolving from static fare filings based on booking classes to a world of dynamic offers, orders, and customer-centricity has begun.
Dynamic offer creation delivers more value to customer needs, improving customer satisfaction, increasing conversion, and boosting airline revenues. A modern underlying architecture allows new partnerships to be quickly integrated and established to serve customer needs more holistically. This includes air and non-air services from third-party providers or partner airlines, such as through NDC Interlining.
Technology at play for dynamic offer creation
Making the transition to a modern retailing landscape requires upgrading the airline technology stack and rethinking long-established processes that hinder the step-change rather than enabling it. The main components to evolve to a world of dynamic offer creation include:
Dynamic product determination
For the system to decide what items to include in an offer, it needs to be able to interpret the real-time shopping request with contextual information about the customer and link those to the product inventory. Advanced machine learning capabilities help improve personalised recommendations.
This is where an airline's retailing strategy comes to life by determining how the items in the product inventory are to be offered, whether as standalones and/or as bundles. Combining Artifical Intelligence applications with highly-configurable business rules helps automate the process.
An offer also has a single associated price. Recent advancements in digital, algorithm-based business processes enable real-time and cost-efficient data analytics, such as customer willingness-to-pay (WTP) estimations. Continuous pricing helps avoid the price jumps of legacy fare-filing-based pricing and its limited price points to align more closely with a customer's WTP. The idea is that WTP estimations will determine the price of an offer rather than current technical limitations. Price optimisation should consider customer lifetime value (CLV) as well as the likelihood to purchase all products and not just seats (Total Offer Optimisation). This results in significant margin improvements for the airline.
Offer set optimisation
Determining the right number of offers to return for a customer shopping request is critical to preventing choice overload or paralysis-by-analysis. Essentially, it´s about making proposed offers relevant and easy to consume.
Feedback loop virtuous circle
Offer relevance can be improved over time as the artificial intelligence engine learns what offers a customer chooses and ignores. This automated feedback loop will result in greater relevance and conversion over time.
New industry data transmission standards, led by IATA's New Distribution Capability (NDC) initiative, will support enhanced product search and transparent responses between customers, airlines, and travel sellers. Embracing NDC in the offer and order management context will help the travel industry overcome the constraints of legacy technology and distribution processes to deliver personalised customer offers. This will support value-based comparisons and move the industry away from price-based shopping and commoditisation, which results in ever decreasing margins in the race to the bottom.
Is the technology available today to do this?
The success of constructing and pricing offers is dependent on the right technology being available to airlines, including real-time pricing engines, product recommendation engines based on AI/ML algorithms, centralised customer data lakes, and a test-and learn approach. This technology layer needs to consider all inputs and create relevant offers in real-time to boost the chances of conversion to customer orders.
The good news is that this technology is available today. Each airline needs to decide its retailing strategy and determine how - and how fast - to move towards this future state. Airlines can move as fast or as slow as they like. However, the key is to start the journey, take small steps, pick low hanging fruit and easy wins, learn and build from early wins and successes, and pivot on 'not so successful' endeavours.
Integration with partner systems will be an integral part of offer construction and industry standards are already in place to facilitate seamless interoperability in this regard.
Pulling the rabbit out of the hat
Although the technology exists to transition to a modern retailing landscape comprised of offers and orders, technology alone doesn´t hold the magic wand. Organisational and business changes and redesigns also need to be part of the magic spell. Organisational siloes, outdated processes, and antiquated mindsets must be revisited to become more transversal, efficient, and customer-centric as opposed to process or product-centric.
Considering the industry's reliance on legacy revenue management and distribution processes, the move towards modern retailing practices and their required organisational changes will be gradual. However, in order to embed new systems towards a new reality, ingraining staff into the transition is critical to ensuring that the new systems and processes embed within the airline culture. New competency development, such as digital retailing, will be required.
The benefits of airline retailing will warrant the investment in creating a customer-centric and offer-driven organisation. The new paradigm will allow airlines to differentiate their service offering by enabling value, instead of price, based comparisons that lead to increased revenues and margins.
Paul Byrne joined IBS Software in May 2021 as Vice President, iFly RETAIL, focusing on bringing to market the company's latest omnichannel airline retailing platform. Paul has over 25 years of experience in technical, product management, and business development roles. He has been actively involved with IATA in the NDC, ONE Order, and Dynamic Offers working groups. He was a non-executive Board Member on the Open Travel Alliance.