Recent studies, including a notable one by McKinsey, reveal a staggering opportunity in the airline industry – an estimated $40 billion in value, translating to about $7 per passenger – waiting to be unlocked through enhanced retailing strategies. This potential is not just a numerical figure; it represents a paradigm shift in how airlines approach product offerings and customer engagement.
Modernizing product and pricing capabilities
The key to tapping into this opportunity is to revolutionize the traditional approach to product design and pricing. Most airlines are still using tools and methodologies that were created in the pre-internet era. This legacy technology, designed for a vastly different market landscape, significantly hinders the ability to offer tailored, dynamic, and competitive products and services.
Current airline product and pricing models are ripe for a complete overhaul. To stay relevant and competitive, carriers must embrace new technologies and strategies that align with today’s digital-savvy consumer expectations and ever-evolving market dynamics.
Challenges facing today’s airlines
The first major challenge is the reliance on outdated technology. Airlines still using systems developed over 50 years ago struggle to handle complex tasks such as customer segmentation, unique product design, and dynamic pricing. Carriers using legacy Passenger Service Systems (PSS) can only offer individual fares and connect travelers to non-air partners to add additional components to their trip, or they must rely on Online Travel Agencies (OTAs) to do the bundling for them. This technological lag not only hinders efficiency but also limits the ability to offer the personalized experiences modern consumers expect. It’s a clunky experience for the customer and affects the airline’s bottom line.
Diverse and compelling content is the core of an engaging travel shopping experience. However, airlines face considerable hurdles in forging new partnerships and integrating new suppliers or resellers. Adding additional third-party partners can often take weeks or months with traditional retailing methods. This limitation restricts the depth and reach of their offerings. In an era where uniqueness is a significant draw for customers, airlines with little difference in products and experiences offered are at a substantial competitive disadvantage.
The third challenge is the absence of flexibility and agility in decision-making, primarily due to the layered and siloed nature of existing technology systems. Key commercial decisions, such as pricing and product offerings, are often made in isolation, without a unified and agile approach. This fragmentation leads to missed opportunities and a delayed response to market changes, leaving airlines a step behind in an increasingly dynamic retail landscape.
The solution to achieve modern retailing freedom
To revolutionize airline retail, a clean-sheet approach is essential. This means designing pricing and product strategies that are completely free from legacy constraints, like APTCO fare rules or Reservation Booking Designators (RBDs). For effective customer segmentation, product design, and dynamic pricing, airlines need systems built for today’s market demands. However, this transition must be strategically managed, considering the substantial investment and the challenges of shifting from old to new systems. Technology partners like FLYR who also provide revenue management solutions have a unique perspective on how airline revenue optimization functions should evolve to take into account offer and order.
The airline retail architecture requires a fundamental redesign in which partnerships and content integration are prioritized. This approach treats an airline’s flight schedule and third-party content with equal importance, to ensure a diverse and attractive product range. A unified platform that serves as a single source of truth for all products, prices, offers, and orders can significantly boost efficiency and enhance the customer experience. This concept has been successfully implemented and proven in other sectors, such as e-commerce.
The new architecture must also inherently support agility and rapid product experimentation, combining content from various suppliers to encourage innovation and quick adaptation to market changes and customer preferences. Examples from tech industry leaders like AirBnB, where agile methodologies have led to significant breakthroughs, can serve as a model for this strategy.
Hybrid operation with legacy systems
Recognizing that the airline industry operates currently within a mixed environment of modern and legacy systems, developing mechanisms that enable seamless interaction between these systems is crucial. Translation layers allow the modern retailing stack to communicate with legacy standards, ensuring consistency and control across various channels. Airlines, for example, use FLYR’s retailing and integration platform to create new fare choices at will and dynamically price and bundle offers to sell at revenue-optimal prices, regardless of channel. This hybrid approach helps airlines transition smoothly without disrupting existing operations and relationships.
It’s important to remember that this is just the beginning of a larger conversation. There are other key elements to a successful transformation, including leveraging data analytics, harnessing Artificial Intelligence for personalized customer experiences, ensuring that your offer and order solution is compatible with your legacy technology, and building a comprehensive transition plan.
To learn more about how FLYR can help enable your airline to smoothly transition from legacy systems to build a cutting-edge retailing platform for a comprehensive, enjoyable, personalized customer journey, visit https://flyr.com/airlines/offer-and-order/ or contact us at firstname.lastname@example.org.