The Future of Airline Distribution, 2016 - 2021 By Henry H. Harteveldt, Atmosphere Research Group CONTENTS 3 INTRODUCTION 5 RESEARCH METHODOLOGY 7 EXECUTIVE SUMMARY 9 HOW SHOULD AIRLINES PREPARE TO SERVE THE AIRLINE TRAVELER OF 2021? 26 TECHNOLOGY INNOVATION AND THE EVOLVING TECHNOLOGY LANDSCAPE 29 AIRLINE DISTRIBUTION IN 2021 70 CONCLUSION 72 ENDNOTES © 2016 International Air Transport Association. All rights reserved. 2 INTRODUCTION Introduction from Atmosphere Research Atmosphere Research Group is honored to have Airlines that want to become true retailers are once again been selected by IATA to prepare this well-positioned to do so. Carriers have an abun- report on the future of airline distribution. We dance of technologies, including cloud comput- believe that the five-year timeframe this report ing, artificial intelligence, and mobility, that they covers – 2016 to 2021 – will see the successful can use to help them bring their products to mar- introduction of true retailing among the world’s ket in more meaningful ways. IATA’s NDC, One airlines and their distribution partners. Order, and NGISS initiatives are being brought to market to help airlines be more successful busi- This report reflects Atmosphere Research’s in- nesses. As each airline independently contem- dependent and objective analysis based on our plates its distribution strategies and tactics, we extensive industry and consumer research (for hope this report will serve as a helpful resource. more information about how the research was conducted, please refer to the “Research Method- ology” section). © 2016 International Air Transport Association. All rights reserved. 3 Future of Distribution Report 2016-2021 Introduction from IATA In 2012 IATA commissioned Atmosphere Research Game changes are prompted by consumer needs, to conduct a survey on the Future of Airline Dis- or by the ability to offer new solutions. Also, the tribution. The report was widely distributed and payment landscape will evolve very significantly commented on across the industry. Four years on, with the rise of new payment instruments provided IATA thought it was time to publish a new report, by new players as well as the changes in payment which takes another look at the near future. IATA is architecture. keen to understand what could shape or influence airline distribution, and to share those findings This report aims to play back industry views on with the industry. Although the future has become distribution trends based on interviews with many less and less predictable, some key trends can players across the value chain. It also entails two certainly be identified. IATA initiatives (NDC and One Order) as they are mentioned by interviewees as structural game The pace of innovation and change is accelerating, changers. prompted by worldwide access to Internet and the rapid development of mobile, amongst many The views gathered in this report are not IATA’s others factors. And all this is strongly impacting views but those expressed by industry experts airline distribution, opening opportunities for new and we welcome any feedback or comments that models, new players etc. Concepts or wordings will help us better anticipate future needs of the such as open API, XML, big data, JSON are now industry and its airline members. widely used well beyond the developer’s sphere; and Hackathons are proving that agile solutions Whether you work for an airline, a distributor or an can be built in a period of 40 hours, competing IT provider, we hope you will enjoy the reading! with a 40-year old technology. Yanik Hoyles, Director NDC Program © 2016 International Air Transport Association. All rights reserved. 4 RESEARCH METHODOLOGY The analysis in this report is based on extensive • Conducted 21 telephone interviews with independent research conducted by Atmosphere airline executives and managers. Research. We: After the online study was completed, Atmos- phere Research conducted telephone inter- • Fielded on online study with 49 airline views with airline managers and executives participants. at 21 network airlines and LCCs around the In collaboration with IATA, Atmosphere world. The phone interviews, which were con- Research developed a 24-question, English- ducted in April, May, June, and early Septem- language online study. The study was fielded ber 2016, generally lasted between 40 and 50 in March and April 2016, and targeted airline minutes. In keeping with research best prac- distribution professionals at both network tices, the airline participants were promised airlines and LCCs worldwide. Participants confidentiality and anonymity. who took the study were promised complete anonymity; no personally identifiable • Interviewed 17 technology vendors and in- information was collected or kept. dustry consultants. Between April and September, 2016, Atmos- The majority of participants (42%) hold Director/ phere Research interviewed or was briefed by Managing Director roles, 34% are Vice Presidents 17 technology firms, including both general or SVPs, 22% Supervisors or Managers, and technology vendors and airline-focused pro- 2% “C-level” roles. Sixty-three percent work in viders, and consultants to obtain their per- Distribution, 17% in Digital Commerce, 10% in spectives. Two of the 17 firms required their Marketing, and 10% in Executive roles. Ninety- interviews be considered anonymous and “off one percent work at carriers whose 2015 gross the record,” not for attribution. The compa- passenger revenues were US$1 billion or more. nies that we interviewed or were briefed by for Seventy-one percent work for network carriers, this report, and are allowed to name, are: 27% work for LCCs/ULCCs, and two percent at regional airlines. The audience was geographically o Air Black Box o Lufthansa Systems diverse: 34% work for European-based airlines, o Amadeus o OpenJaw 22% for Asia-Pacific airlines, 20% for airlines in o Concur o Sabre North America, and 12% each at airlines based in o Datalex o SAP Hybris Latin America and in India/Middle East/Africa. o Edgar Dunn o Travelport o Farelogix o Triporati A majority, 63%, of participants work for carriers o IBS Software o Wayblazer that belong to one of the three major airline o Infosys alliances (Oneworld, SkyTeam, Star Alliance). A substantial number, 44%, work for airlines that have a joint venture with at least one other carrier. © 2016 International Air Transport Association. All rights reserved. 5 Future of Distribution Report 2016-2021 • Leveraged Atmosphere Research’s global • Disclaimer traveler research. Throughout this report you will see data from IATA funded this report and provided administra- Atmosphere Research extensive research tive and editorial feedback and support during its studies of airline travelers. Research sources development. The views and opinions expressed include both the seven-country Q3 2015 study in this document are those of Atmosphere Re- of airline passengers that Atmosphere Re- search based on its research and analysis, and search conducted on behalf of IATA as well as do not necessarily reflect the views of IATA or its data from Atmosphere Research’s proprietary member airlines. traveler research. Data sources are cited in the Endnotes section of this report. As is typical of a report like this, extensive desk research was also conducted. Citations for all third-party data and information can be found in the Endnotes section. © 2016 International Air Transport Association. All rights reserved. 6 EXECUTIVE SUMMARY The future of airline distribution is, to a great de- shopping experiences that tap into traveler’s gree, the commercial future of the airline industry “second wallet”, the wallet that controls itself. Airlines want to be dramatically more ef- discretionary purchases. Passengers will also fective in how they sell, so that travelers find the be entering a “post-mobile” world, a world in value they seek and airlines can be more success- which mobile is not viewed as “a” channel but ful businesses. We believe that, by 2021, airline “the” channel. distribution will evolve from its current passive, rigid, and technology-centric state to a more flex- • The need to incorporate and interact with ible, dynamic, and passenger-centric environment scores of new technologies. which we call Active Distribution. By 2021, Active Distribution will require sys- tems that are either based on, or compliant Between 2016 and 2021, the airline distribution with, numerous new technologies. Mobile community and their colleagues in closely-related alone will introduce the need for distribution roles such as Marketing, Sales, Product, Pricing/ systems to interact with speech and voice Revenue Management, and IT should anticipate recognition software – both of which contrib- a multitude of changes among their passengers, ute to the emerging conversational commerce the technology landscape, and within the airline trend –haptics, and more. Artificial intelli- commercial environment. These include: gence, which also encompasses numerous technologies and processes, will play a central • Serving a dramatically different base of role in enabling the dynamic pricing and per- passengers. sonalization that airlines will need to become By 2021, airlines will serve a more authentic and effective retailers. Distribution geographically diverse base of passengers. systems will need to interface with virtual This includes so-called “Emerging Markets reality software to help airlines effectively and Developing Economies” (EMDE), such as merchandise