Adapting to an Evolving Distribution Landscape

Adapting to an
Evolving Distribution Landscape

A panel of leaders from airlines, agencies and technology companies discussed new distribution strategy at the height of a technology shift.

In an engaging TravelConnect session on airline distribution strategy, Holly Hegeman, founder and publisher of PlaneBusiness Banter, moderated a panel of technology and distribution experts. The panel featured Andrew Watterson, executive vice president and chief revenue officer for Southwest Airlines; Amos Khim, managing director of sales strategy, analytics and programs for United Airlines; Jim Davidson, president and chief executive officer of Farelogix, Inc; and Paul Butcher, director of technology and air strategy for Expedia, Inc.

During their conversation on the evolving distribution landscape, the panel exchanged dialogue with Hegeman and answered a variety of questions from the audience.

Shifting Technology

Many airlines are working to enhance their distribution strategies in order to provide richer content and create more customized offers. Davidson spoke to the role of technology in facilitating direct connections between airlines and agencies. "I think where this is going, you're going to see a number of one-on-one relationships," Davidson said. "The challenge with GDSs is that [the GDS is] a system that was designed for a many-to-many relationship… where all the pieces were created and managed by the GDSs. In the world of NDC, where the airlines actually create and ticket the offer, it's designed to be a one-on-one relationship. Those two technologies don't work that well together, so somebody is going to have to do some heavy lifting. It's an uphill battle."

"My recommendation is to get more involved in pushing technology providers," Davidson continued. "The technology in place today far exceeds our wildest dreams about what we can do today when we talk about planning travel. [Airlines] are investing heavily in this stuff. The travel agency has to invest at least some time and energy into deciding and influencing where this needs to go."

Butcher urged organizations throughout the industry to prepare for changes in distribution. "There's a ton of cost involved," he said. "No matter the size of your organization, you need to think about how you're actually going to adapt to change, and it's going to be very expensive. You're going to want to use whatever mechanisms you can to try and reduce that spend."

"The industry is changing so fast," Butcher continued. "I think everyone is trying to figure out what steps they're going to take. I think it's going to be a pretty interesting two to three years. You're going to see a lot of change. Be prepared for it. It's going to happen."

Product Differentiation and Customer Value

Both airline representatives on the panel reinforced the value of choosing a distribution model that fits their own strategies and customer bases. Watterson noted that Southwest's current business model of focusing primarily on direct sales is working well. Khim conveyed the need for United to keep pricing competitive in a landscape that includes low-cost and ultra low-cost carriers. His hope is that United will soon be able to make product-differentiating content more readily available to customers, helping them make easier, more informed buying decisions.

When asked his opinion on basic economy offerings, Khim said, "Customers still generally cross-shop. Expedia sells [multiple] products side-by-side and it's really tough for someone to… find the United product further down the screen if we're uncompetitive. And that $20 difference actually can get you a seat assignment and the exchangeability, for example. I think the need for having [basic economy] is just a byproduct of the nature of the competitive industry that we sit in. It's a nature of needing to have a price point that's competitive with what my competition set is. I have to be able to compete aggressively with that. I hope that by changing the distribution model, people won't just be sorting by price, and that we can actually get away from that so we can have a little bit of that premium. But until that day comes, we will continue to be going head-to-head with our major competitors on price."

In addition to enabling better product differentiation, NDC also allows airlines and the organizations in their distribution chains to better educate travelers about when and where certain products are available. As an example, Khim referenced United's Polaris and business-class offering.

"We stand on a balancing act because we don't have the product everywhere, and it's not on all the planes yet," Khim said of Polaris. "So we try some of those standard avenues on how to differentiate it. But we do depend on that last touch point, when the customer is making the decision, to see that information. And through NDC, we present all of the content; the pictures will be there if you want. But ultimately, we're dependent on that last mile for customers to visually see it for what it is."

Butcher agreed that customers benefit from a clearer view of the product they're purchasing. "It is really hard to get an answer to the customer on what's the true value of what they're shopping for," he said. "And we spend a ton of money trying to go through and get content to be able to do that aggregation and normalization. It's really hard... And I think that's part of the role of the travel agent, is to be that trusted source to be able to bring that transparency and value for the customer."

Davidson echoed his desire to see more value-based content. "If we can get to a world where the airlines are actually disseminating content in a value-based environment, everybody would be making money. More money than we're making today. Travel agencies would make more money; OTAs would make more money, because there's more content people want to buy out there, and if we do it right, they're willing to actually open their wallet."

Watterson was confident that Southwest Airlines will continue with its current sales model for the time being. "For the core of our business, the direct model that we've evolved to works extraordinarily well, so we see no need to move off of that."

"I think it's a common misperception that we haven't changed over 46 years," Watterson continued. "Our distribution has changed over time in reaction to the environment in which we find ourselves. So it may appear like we have a religious fervor for our distribution strategy. Our fervor is for our customers and our people, and the distribution strategies support them. We have a diversified portfolio of distribution channels; we just choose to over-index in what works best for us, because if business trends differently, we will modify it to the environment we find ourselves in."

The Future of Distribution

To close out the session, Hegeman posed a question to the panel: What will be the one thing that will change in the next five years, from an IT perspective, that will make your life easier in terms of distribution?"

"I think if you're not working on artificial intelligence, machine learning, predictive analytics today, you won't be here five years from now," Butcher said. "That is the future."

Davidson expects a distribution tipping point to come within the next couple of years. "Whether it's NDC or content proliferation, I do think there's a tipping point. I think there's a lot of early exploration and people kind of playing with it. Then I think it goes mainstream, and then I notice our industry goes really fast. And we've got to be within that tipping point within the next couple of years."

Khim predicts a much more automated buying process for the customer. "You can easily see that the entire shopping experience becomes far more automated, and almost unconsciously done for a lot of basic trips. I could see that some new upstart that could take all that data out there and really put it all together, linking all the disparate things — just booking your trip, booking the family vacation, without you even making that decision. Someone's going to have that 'Aha!' moment and make it so convenient for you, you're never going to think again about booking every single flight."

"I think we will collectively crack the mobile channel," Watterson said. Although airline apps have become sophisticated, Watterson notes that booking doesn't take place on these apps. "They're apps to help you with your service and your journey. They're not e-commerce apps that say 'I'm going to distribute to you, I'm going to sell to you.' Websites, we cracked [in the early days of the] internet. We have not been early to mobile."

Butcher closed out the conversation by further addressing the mobile channel, highlighting that mobile adoption will largely be driven by Asia-Pacific market, citing that 70 percent of bookings within the region are already being done in a mobile environment.

The future of airline distribution will no longer be a one-size-fits-all model and, more often than not, one size will not fit all for even an individual airline. The future is direct, through airline portals, via the GDSs, aggregators and likely a model that hasn't yet been developed. Each airline will need to align their distribution strategies to fit with key business objectives.

Regardless, the future will be one of choice, transparency and flexibility for airlines, their distribution partners and ultimately travelers.

ARC is implementing its own flexible settlement solutions to enable airlines' divergent distribution strategies. Visit our new distribution page to learn more.

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About the author

Megan Leader is a senior brand and content strategist for ARC. She writes about air travel data, trends and destinations for readers throughout the travel industry. An avid traveler, Megan loves to explore art, design and food culture in cities around the world.