Airline Solutions. beyond. Moving. standards. How Low Cost Carriers can achieve world-wide reach

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1 Airline Solutions beyond Moving standards How Low Cost Carriers can achieve world-wide reach A review on LCCs, distribution and IT, commissioned by Travelport

2 Moving beyond standards Foreword & executive summary Derek Sharp, Managing Director Global Distribution Sales and Services Contents Travelport is pleased to present our perspective on key trends impacting Low Cost Carriers (LCCs) in the industry today and how the interaction, even tension, between LCCs distribution ambitions and the IT systems that form the backbone of delivery will impact the business going forward. At Travelport, we view our products and services as a bridge between airlines, agencies and other IT providers. We believe that, in order to be effective in the future, distribution partners like Travelport must be capable of working across all airline business models while, at the same time, helping travel agency customers personalize the business of travel. This last point is critical because travel agents will have to be able to access the broadest possible scope of content from within their workflow to deliver the level of service their corporate and leisure travelers are demanding. Travelport is committed to maximizing the retailing and marketing capabilities of our technology so that consumers and agencies will be able to benefit from the full retail experience our airlines customers are offering especially LCCs. Our products and services will help these customers more fully appreciate an airline s unique brand and get the same level of information on key features and benefits related to their products as they would through any other contemporary retail channel. From an IT perspective, our goal is to free up our airline customers from any restrictive technologies, processes or legacy protocols. We understand that open platforms, big data, fast changing developer skills and programming languages demand a partnership model with the flexibility to do business across all platforms. That s what Travelport s Merchandising Platform is all about leveraging technology to drive value throughout the travel supply chain. We believe this strategy sets us apart from our competitors in the travel industry and positions us to help our LCC customers distance themselves from their competition as well. Derek Sharp 02. Foreword & executive summary 03. Introduction: LCCs, FSCs, hybrids similar & different Global growth set to continue LCC leaders 06. Distribution LCCs, APIs & industry standards Points of reference Ringing the changes Profits in the bag 10. IT & Passenger Service Systems Ancillaries develop Growing share Rewarding schemes 13. Travelport s position 14. Conclusion

3 Introduction LCCs, FSCs, hybrids similar & different LCCs can access the global reach of the agency community without sacrificing their airline.com model. Low-cost carriers (LCCs) are now part of the airline industry mainstream. Texas-based Southwest is widely acknowledged as the original LCC, taking to the skies in Today, the theory and practice of LCCs is a major influence on all carriers around the globe. The LCCs approach to IT, distribution and passenger service systems is at the core of their revenue model. Defining an LCC is an inexact science. The Centre for Aviation (CAPA) lists ten classic characteristics of the low-cost model: high seating density; high aircraft utilisation; single aircraft type; low fares; single class configuration; point-to-point services; no (free) frills; short- to medium-haul routes; second-tier airports; rapid turnaround times. This is by no means comprehensive, and the characteristics above could also apply to full-service carriers. But from a technology providers perspective, CAPA has missed out the most important characteristic the traditional distribution model for LCCs is based around its airline.com. The term hybrid has entered the aviation lexicon, and is used to describe airlines which operate with both LCC and fullservice carrier (FSC) principles. While the airline.com model works well for leisure and domestic business, third-party distribution is needed if LCCs want to adopt aspects of the full service model better suited to higher yield corporate customers and tap into the global reach of the agency community. Conversely, there are FSCs which are borrowing aspects of the LCC model to compete head-on with their LCC rivals for price-sensitive leisure traffic on domestic or point-to-point routes. Corporate travelers from Small and Medium Enterprises (SMEs), who may not have a travel policy in place, are also attracted to FSCs who can distribute in a LCC way. Travelport is working with a new definition of hybrid, preferring to see the crossover specifically in terms of distribution rather than overall product offering we all know that FSCs are as cost conscious as LCCs, while LCCs are also interested in providing a service. Travelport s notion of a hybrid carrier is one which can supply some of their content through an Application Programming Interface (API) and some of their content through industry standards. A hybrid carrier, according to this definition, can take advantage of traditional GDS distribution by using industry standards for interlining or more static long haul fares. The API facilitates not only dynamic revenue management, necessary to make fast changes to products and routes in a more competitive space, but also merchandising. And with the ability to merchandise comes the ability to retail to sell your seats in a way which hits the right note with the tech-savvy, highly informed and increasingly demanding traveller of today. But standards can also be used for ancillary services too. More details will follow, but this understanding of the new hybrid gives Travelport a distinct advantage. By incorporating airline APIs and standards into a single display, LCCs can access the global reach of the agency community without sacrificing their airline.com model. LCCs can also sell their fare families and ancillary products, on their own terms, in a flexible and straightforward way. Ian Heywood, Vice President, Airline Strategy, Travelport, says: There is a proliferation of airline models. From the ultra low-cost to the full service, there are hundreds in between. This proves the inherent need for flexibility, choice and enhanced retailing capabilities combined with seamless connection into all distribution channels. 03

4 Moving beyond standards Global growth set to continue. LCCs, as defined by CAPA, now account for more than one in four seats on a global basis. This proportion has been rising steadily since CAPA started to analyse the sector in 2001 when LCCs accounted for around one in eight seats. 1 Europe and North America are relatively mature LCC regions. Growth here will continue, but the biggest changes are likely to come in emerging markets. CAPA believes that Southeast Asia will grow strongly during 2013, following on from 2012 when five new carriers took to the skies. 2 LCCs accounted for 52% of the seats in Southeast Asia, a big hike from 2011 when the proportion was only 32%. The strongest LCC countries are the Philippines, Indonesia and Thailand with penetration rates of 63%, 51% and 48% respectively. Indonesia is by far the most populous country in the region and has emerged as one of the most dynamic and biggest growth regions in the world. Indonesia s domestic business, some 70 million passengers, is now the world s fifth largest after US, China, Brazil and Japan. CAPA expects the airline industry in Indonesia to grow by 20% pa, driven by consolidation, an expanding middle class and its archipelago geography. Passenger numbers will hit 100 million passengers in 2015 and 180 million passengers in The Philippines will lead the international growth, with CAPA tipping two long-haul LCCS to launch in Elsewhere, OAG said that LCCs in the Middle East have grown at an average annual rate of 52% in the last decade, compared to traditional carriers which have grown at an average rate of 7% annually. Despite the dominance of full service carriers in the region, LCCs now account for 20% of all flights within the Middle East. 3 And the growth of the LCCs is set to continue. CAPA has identified nine LCCs which took to the skies in the first nine months of 2012, with a further 16 going live by the end of Travelport has combined CAPA, IATA and OAG data to conclude that by 2015, LCCs will account for around one in three seats on a global basis. Indonesia s domestic business, some 70 million passengers, is now the world s fifth largest after US, China, Brazil and Japan

5 easyjet is the clearest example of an LCC which has adapted its model to become a hybrid carrier, both in terms of its overall vision and its distribution strategy. LCC leaders The three biggest LCCs are Southwest, Ryanair and easyjet. They are the only LCCs which made it into in the top 30 world airlines measured by Available Seat Kilometers (ASKs) in December 2012, registering 3.3bn, 1.5bn and 1.1bn ASKs respectively. Ryanair and easyjet still made the top 30 despite a reduction in capacity for the winter season. 4 Southwest, Ryanair and easyjet illustrate the different business models of the airlines which fall under the LCC umbrella. Southwest has a multi-channel distribution strategy, selling via its airline.com, call centres and travel agents, allowing it to attract business and leisure travellers alike. It has always had frequent flyer and loyalty programmes and is one of the most forward-thinking carriers in terms of ancillary revenues. Charging passengers for no-shows is its latest innovation. In 2011 Southwest completed its acquisition of Air Tran in order to add near-international flights to its offer. It is currently in the process of an operational and IT integration. 5 Ryanair has remained loyal to its LCC roots. It maintains strict operational, distribution and marketing cost control. It will carry nearly 80m passengers this year, virtually all of whom will book direct with the airline. com, powered by Navitaire s New Skies reservation system. Third-party distribution is not part of its model, and the airline has taken legal action in a number of European countries against companies selling its seats without authorization. At the time of writing, Ryanair is trying to increase its stake in Aer Lingus, the Irish full service carrier. While many of Ryanair s reported plans and proposals need to be taken with a pinch of salt such as plans for making passengers pay to use the toilet or a desire to operate standing-room only flights its comments around lowcost long-haul flights should be taken more seriously. easyjet is the clearest example of an LCC which has adapted its model to become a hybrid carrier, both in terms of its overall vision and its distribution strategy. It started life selling through a call centre before setting up its airline.com in But recently, it has opened up its inventory via an API, and now has relationships in place with all GDSs and some major travel management companies It has managed to achieve the best of both worlds by allowing third-party distribution while guaranteeing that the third-party will never be cheaper than buying direct keeping its airline.com as its core distribution channel. Andrew Hodges, easyjet s Director of Sales, Distribution and Business, explains: We know we ve got a great network for the business traveller, and have the opportunity to attract even more higheryielding customers by working with the managed travel trade through the channel of their choice, whilst retaining control over our brand, pricing and position. In fact, easyjet operates more of Europe s top 100 routes than any other carrier. There is no indication that easyjet is looking at longhaul low-cost, although some of its routes are more medium haul than short-haul. Hodges also confirmed that interlining and codeshare are not part of its plans. There are other airlines which, while not having the same scale in terms of ASKs, are showing their ambition by growing significantly this year. CAPA identified APAC-based carriers Lion Air and Jetstar as having entered the LCC Top Ten for December 2012, growing their ASKs yearon-year by 35% and 17% respectively

6 Moving beyond standards Distribution Many LCCs have realized that to maximize revenues they need to put their content in front of as many customers as possible and to be present in all channels. Content is not just seats, it is the flightrelated ancillaries, and this often requires a close connection between the PSS and the distribution channel to work, commercially and operationally. Ryanair, determinedly focused on direct bookings as mentioned, has a long-standing commercial arrangement with Navitaire and is its largest customer. As Navitaire grows and develops its own business and partnerships, Ryanair will be in prime position to alter its model should it wish to do so. The Airline IT Trends Survey 2012, jointly produced by SITA and Airline Business 7, provides a comprehensive breakdown of how airlines sell their seats, based on responses from 200 airlines. Just under half (45%) of total sales, weighted to passenger numbers, are made via global distribution systems and travel agents, including online agents. The balance is booked through airline direct channels. The most important airline direct channels are the airline s own web site (23%), call centers (11%) and alliance/bilateral agreements (9%). But for the 20 LCCs who contributed to the survey, only 14% of passengers book through the GDS, despite the fact that GDS distribution can provide a global reach for participating carriers and can attract higher-margin business. The onus is on the GDSs to ensure they enable LCCs to communicate brand values rather than a commoditized product, match the sophistication of the airline direct channels and ensure that any API is integrated and aggregated into the agency booking flow and sits alongside all airline models. Agents need to be able to access LCC content in a consolidated and integrated working environment. 7 The Airline IT Trends Survey 2012, co-sponsored by Airline Business and SITA

7 LCCs, APIs & industry standards Airlines need to distribute and deliver content through multiple channels, but this is a lot easier said than done. LCCs need to keep the airline.com at the heart of their distribution strategy, but also need to access the agent community to widen their reach and attract higher-yielding customers, particularly corporate travellers. Traditional airlines tend to use industry standards for fares and add-on content (often referred to as ancillaries), while LCCs use APIs to serve their own airline.com. While the GDSs can deal with the standards, accessing content via an API is more challenging. The complications are many: to begin with, not all airlines have an API, and the APIs that do exist are individual to the carrier. Some APIs are feature-rich and enable all functions such as modify/amend, the ability to hold a booking without payment, or support forms of payment other than credit card. However other airlines APIs only offer shop, price, book and retrieve and not all of their available optional services such as paid baggage are supported. Interline connections are not currently available in any airline s API and for large airlines that participate in alliances and other partnerships that is a sizable limitation. Codeshare is usually supported. Agents need to be able to access LCC content in a consolidated and integrated working environment. Fragmentation means they must abandon their usual workflows to access the APIs hosted outside the GDS, while airlines miss out on bookings because of the disruption to the workflow. Bespoke API relationships between airlines and agents do exist. Kulula is a South African LCC which carries around 2.5m passengers a year. It has a strong airline.com, different APIs for three third party distribution partners, and uses industry standards to distribute and merchandise through the GDS. Brian Kitchin, Executive Manager for Sales and Distribution 8, explains: We want the Kulula brand to be visible globally, and to do that we needed distribution beyond the airline.com. We have recently signed an interlining agreement with BA which has been a great success in the first six months, and we are planning more codeshare and interlining agreements with other carriers. Codesharing and interlining are part of its growth plans, as are ancillary revenues. Kulula decided that industry standards could deliver this more effectively than developing an API. There is a slight sacrifice of control and increase in costs by moving onto the GDS but the increase in yield we are achieving more than compensates, Kitchin says. Kitchin explains another reason why Kulula has opened up its product to agents via industry standards: Credit card use and internet penetration is low in some regions of Africa. Agents can take payment for our flights in cash or other alternative methods and process the sale through the GDS. It is a clear example of how Industry Standards can address and help specific local needs. Travelport is integrating APIs from LCCs so that LCC content sits alongside traditional GDS content in a way that makes them accessible and bookable by Travelportconnected agents. It understands that the retail needs of airlines must be answered and that airlines need technology providers who design solutions that are business model agnostic. The critical issue is that airlines should be able to adapt their distribution strategy without having to change their PSS. 8 Brian Kitchin is Executive Manager of Sales and Distribution for Comair Ltd. Comair Ltd comprises Comair which operates the British Airways brand under a franchise agreement in southern Africa and Kulula. BA owns a minority stake in the Comair operations while Kulula is 100% owned by Comair Ltd. 07

8 Moving beyond standards IATA has recently brought distribution, merchandising and retailing to the fore with its plans to launch a New Distribution Capability (NDC). 9 IATA wants to create a set of standards which will give airlines total control over the distribution, pricing and merchandising of their product using open XML standards which third-party distributors can connect to via an API. The NDC initiative is still a work in progress. Travelport is part of the discussions, along with other technology providers. However, Travelport is one step ahead of IATA, and its competitors, in that its approach to APIs is already enabling more and richer content from airlines to be displayed across agency points of sale, turning the indirect channel into a retail environment comparable with the airline.com. Points of reference easyjet is the clearest example of a low-cost carrier which has used distribution to drive business transformation. In order to attract cost-sensitive but high margin European corporate travellers, it has distribution agreements in place with all three GDSs and travel management companies. In 2011, 18% of its passengers were business travellers. Its target for 2015 is to lift this proportion to between 20% and 24%, realising incremental margin of 100m pa. 10 Travelport has integrated into easyjet s API allowing the airline to sell all of its product features, fares and a-la-carte options, seamlessly and efficiently via Travelport agents. It is the most comprehensive of easyjet s relationship with the GDSs. Andrew Hodges says: We re excited that Travelport is launching a new platform which presents airlines inventory to agents with a consistent look and feel, irrespective of the way in which airlines choose to connect with the GDS. This means that agent booking flows are consistent across airlines (which is good for their productivity), and ensures that easyjet s product and prices can easily be compared with our competitors. Elsewhere, Travelport has also worked closely with Air Canada to enable support for all of their products through both our traditional GDS channel and its API. Other LCCs which have recently embraced GDS distribution include Transavia, a member of the Air France/KLM Group, which flies more than 5million passengers a year from bases in Netherlands and France. It has started working with Travelport in specific countries to extend its global reach. Delta is embracing Travelport s hybrid approach, distributing fares through Industry Standards and seating ancillaries, as announced in June 2012, through an API. KLM s Economy Comfort seating essentially the same product as Delta since the two carriers work in tandem through a joint venture uses industry standards. An Industry Standard seat ancillary is combined with Travelport s own graphical seat map overlay which gives agents the same point and click function for booking seats that appears on the airline.com. Travelport is the first GDS to give airlines the flexibility to choose between API and Industry Standards and then sell the ancillaries in a common workflow Investor Day Presentation Jan 2012 PG71:

9 Travelport is the first GDS to give airlines the flexibility to choose between API and Industry Standards and then sell the ancillaries in a common workflow. Spanish-based Vueling now has more international traffic than domestic, and 12% of its revenues come from passengers transferring between Vueling flights. The recent migration to Navitaire s enhanced New Skies passenger service system will help secure further revenue potential across the business and support Vueling s strategic direction. Ringing the changes An airline s own web site is currently the dominant distribution channel for LCCs, accounting for 56% of bookings. By 2015, the airline s own site will remain top, although the proportion will fall to 44%. The slack is taken up by a big shift towards mobile web/ apps booking, with LCC bookings through this channel rocketing from 2% currently to a projected 17%. 11 Many LCCs are currently offering travellers itinerary management functions on their phone, even if bookings are still a few years off. Mobile check-in, updates for gate changes, weather at the destination are getting travellers familiar with using their smartphone as part of the travel experience. In November 2012 Air Berlin announced the one millionth check-in using its app for the iphone. 12 Earlier this year, Atmosphere Research asked travellers if they would consider booking flights from their smartphone during the next twelve months. Around half of the Brazilian and Chinese respondents expressed an interest, slightly ahead of the Americans. UK travellers were the least enthusiastic, although a significant number 40% - would still consider buying a ticket using their phone. 13 In some ways, the industry is ready. The Airline IT Trends Survey 2012 study found that 88% of LCCs are already able to take bookings through smartphones. Some LCCs in emerging markets already recognise this. South Africa-based Mango offers a near-complete portfolio of products and services through a mobile-enabled web site, with device-specific apps following shortly. Users can book and pay for flights, choose seating and purchase ancillary products. Profits in the bag Ancillary revenues exist as a profit centre for emerging and mature airlines alike. The Ideaworks Ancillary Revenues Yearbook 2012 identifies United Continental ( 4.2bn in 2011), Delta ( 2bn) and American ( 1.7bn) as earning the highest amount from ancillaries. The big three LCCs Southwest, easyjet and Ryanair come in with 950m, 890m and 886 respectively. East European airline WizzAir has started a trial where passengers are charged 10 for carry-on bags over a certain size. WizzAir argued that it wanted to avoid departure delays caused by having to put oversized cabin bags in the hold. Those who pay for a bigger bag are boarded after priority boarders. Goods bought at the airport - an important source of revenue for its airport partners are allowed onboard free. A few months into the trial, no delays as a result of the need to offload an excess of large cabin bags have been reported. One in ten passengers booking has paid the 10 fee. The airline is considering introducing the charge on more routes. It is following the lead of US carrier Spirit, which in 2010 started to charge passengers for carry-on bags unable to fit under seats. IdeaWorks detailed analysis 14 of this found that despite consumer group pressure in the US, passenger numbers didn t suffer. In fact, during the first twelve months of charging, it carried 24.5% more, and is generating incremental revenues of $50pa. 11 The Airline IT Trends Survey 2012, co-sponsored by Airline Business and SITA Atmosphere s US Online Traveller Survey, Q4 2011; UK Online Traveller Survey, Q2 2012; China Online Traveller Survey, Q2 2012; Brazil Online Traveller Survey, Q

10 Moving beyond standards IT & Passenger Service Systems The distinction between distribution and passenger service systems (PSS) is increasingly blurred, not only for LCCs but also for full service and network carriers. Hybrid airlines which could be an LCC adopting network carrier principles or a network carrier thinking like an LCC are also grappling with this dynamic. Travel Technology Research (T2RL) has analyzed the PSS market for a number of years. The Market For Airline Passenger Service Systems 2012 says: The PSS is at the heart of any passenger airline s commercial operations. It is by far the largest item in the airline s budget for software applications and the world market for these systems is currently now worth around $2bn annually. The Airline IT Trends 2012 Survey confirms this. Airlines spend 23% of their current IT budgets on PSS systems. But they also spend the same amount on distribution, meaning that PSS and distribution take up nearly half the industry s entire IT budget and are viewed with equal importance. Five components make up the PSS, according to T2RL - reservations; inventory; departure control (check-in and load control); fare quote: and the internet booking engine. Even T2RL admits that real-world descriptions are immensely complex. Ancillaries develop Many of airline functions which traditionally have been seen as a PSS issue now need to have a distribution angle too. IdeaWorks identifies nine sources of revenue which fall under its a la carte definition. Most of these including priority check-in, baggage, assigned seats and catering could easily fall under the PSS as defined by T2RL. 15 Priority boarding is a clear example of what can go wrong if the PSS and distribution systems are out of synch. There is no value to the traveller if too many priority boarding slots are sold. Carriers need to ensure that the configuration of the aircraft operating the flight provides the exit seats sold. Airlines spend 23% of their current IT budgets on PSS systems. 15 The Ideaworks Ancillary Revenues Yearbook 2012

11 Business intelligence is another potential source of revenuecritical information for airlines. easyjet s fare is dynamically priced and synchronized to its web prices through its API, while Kulula is using industry standards. Importantly, there will be no difference in the work-flow between either fare for Travelport agents. It is also worth noting that Travelport can also cope with two different PSS systems. easyjet has its own bespoke system while Kulula recently signed up with one of the PSS market leaders after finding that its own proprietary system fell short of requirements as the airline grew. Business intelligence is another potential source of revenue-critical information for airlines, with data from distribution and PSS channels equally important. Atmosphere Research identified 18 different touchpoints between the airline and the passenger, from marketing responses to loyalty schemes and kiosks. Big data presents retailing opportunities to travel firms able to leverage it, it said. Looking ahead, Airline IT Trends Survey 2012 found out that business intelligence and consolidating data is the biggest future IT challenge for the industry. Growing share The increasing number of commercial relationships between LCCs, and between LCCs and network carriers, shows how the LCC model is maturing as LCCs look to enhance their reach and revenues. Interline agreements are more common than codeshares, with LCCs under-represented in the global alliances. None of the world s biggest 25 LCCs by ASK, as defined by CAPA, are full members of any alliance. The Airline IT Trends Survey 2012 finds that alliance and bilateral partners account for 17% of LCC passengers, compared with 9% across the entire airline industry. Interlining requires that airlines have an IT infrastructure and will ensure that the operational side of the relationship runs as smoothly as the distribution. When successful, these relationships can generate incremental revenues and additional loyalty for the LCCs. LCCs code sharing and partnering is a global phenomenon. In 2012, US based JetBlue, which carries over 26m a year, announced interlining agreements with Air Maroc, Cathay Pacific and Air China. The latter could develop into a fully-fledged codeshare arrangement. Virgin Australia has codeshares with other Virgin Group carriers, Singapore Airlines and Delta, among others. In its results for 2012, it told investors that interline and codeshare revenue grew by 158% on FY Rewarding schemes Frequent flyer programs (FFPs) and loyalty schemes have developed, with LCCs and network carriers seeing different ways to monetize the schemes. IdeaWorks 17 says that Qantas earn the most ancillary revenue per passenger thanks mainly to its FFP. Some FFPs are so successful that their owner airlines are looking to sell the schemes. Air Berlin has filed documents confirming that it is in talks to sell its TopBonus scheme to its codeshare and alliance partner and 29.2% stakeholder Etihad. Brazilian carrier Gol has been working on its Smiles program and is planning to spin it off as an independent business unit. 18 Gol has enhanced redemption through a new online platform The Ideaworks Ancillary Revenues Yearbook

12 Moving beyond standards Four concerns which apply to all airlines, whatever their model: competitiveness, agility, profitability, and the demanding and empowered consumer.

13 Travelport s position Travelport is not alone in looking to attract more business from the LCC community. It already works with 15 of the top 25 LCCs in a variety of ways, and is ideally placed to use this cumulative and global knowledge of the sector to target more clients moving forward. It also works with the majority of the world s FSCs, and has done for more than 40 years. As previously mentioned, the distinctions between the business models are increasingly blurred. For every full-service carrier adopting some LCC principles, there is an LCC looking at what the full-service carriers are doing. Many full-service carriers are launching standalone LCC business units. Mergers and acquisitions complicate matters further. Travelport believes there are four concerns which apply to all airlines, whatever their model: competitiveness, agility, profitability, and the demanding and empowered consumer. It also believes that IT and distribution systems can provide the answers. Its portfolio consists of standalone tools and solutions for airlines and distributors, and one exciting development is its relationship with Navitaire, owner and operator of the New Skies reservation systems. 19 According to T2RL 20, Navitaire has a share in excess of 46% in the LCC sector and around 31% in the hybrid airline space. Around 11% of all airline passengers in the world are boarded by airlines using Navitaire and it accounts for nearly a quarter (23%) of all airline internet bookings. Its passenger service systems are used by 50 airlines globally. The deal between Travelport and Navitaire recognizes and reflects the crossover between LCC and network carriers and the inter-relationship between IT and distribution systems. In simple terms, Navitaire integrates key applications within its New Skies reservations system with Travelport s distribution solutions. It can offer existing New Skies customers access to industry networks, global reach, retention of a customer-centric approach and access to business-critical data flows, while never losing focus on cost control and return on investment. Those LCCs who want to consider interlining, codeshares or partnerships or who want to access the wider world with the same success as in their local regions can do so without the complexities and costs that may have deterred them from the GDS model in the past. Travelport continues to be active in the LCC and hybrid sector, independent of its relationship with Navitaire. It continues to attract new business while retaining clients in a highly competitive arena. It has focused its airline business around the distribution and IT crossover. Recognizing how important it is for airlines to be able to connect with its global distribution capabilities, should it wish to do so, is built into Travelports development decisions. Another exciting development is the consolidation of three separate product lines under the Travelport Merchandising Platform branding. Aggregated shopping, ancillary services and rich content and branding will all be integrated into this initiative. It will transform the way airlines deliver their products and the way that these products are displayed to travel consultants while ensuring that airlines remain in control of their brand, product and pricing.the project is well under way, with major carriers starting with easyjet and Jet2 scheduled to start integrating content during It is also capable of working with airlines other IT and distribution partners if an airline identifies a Travelport solution which can add value to its existing set-up T2RL: The Market For Airlines Passenger Service Systems

14 Moving beyond standards Conclusion Any airline executive reading this white paper does not need to be told how tough business is at the moment. The fall-out from the economic crash of 2008 is still being felt, with many major economies talking about a lost decade. Emerging markets have fared better, but the situation remains precarious. However, IATA s prediction for the airline industry s performance has become less gloomy during the year. It now expects global airlines to make $4.1 billion in 2012, up $1.1 billion from the $3.0 billion forecast in June. 21 In the medium-term, IATA also expects a big jump in passenger numbers, expecting airlines to welcome some 3.6 billion passengers in 2016, 830 million more than in Emerging markets will drive the growth routes within or connected to China will account for 193 million of the 830 million new passengers, with Asia-Pacific adding around 380 million passengers over the forecast period. 22 So while times might be tough, signs are that more people will travel. Travelport believes that agents have an appetite, driven by a demand from their customers, to sell LCC content in a way which can suit both the agent and the airline. The content must be distributed in a way that gives airline operational control by not compromising its PSS system. When asked, nearly nine in ten travel agents said that they wanted to offer customers baggage allowances. A similar proportion wants to sell assigned seating. Agency managers recognize that having more content to sell enhances customer loyalty. 23 Airlines in turn can generate loyalty among agents by providing the content, with agents then becoming brand champions for the airline. Remember that Travelport has more than 67,000 agencies in 160 countries, giving its partner airlines access to a truly global audience. LCCs are under-represented in the GDS channel for historic, commercial and cultural reasons. Travelport s aim is to move beyond standards to deliver, aggregate and merchandise content in a business-friendly way for agents. It believes that this approach heralds a paradigm shift in the relationship between airlines and their technology partners. With more than 40 years experience, Travelport understands that while many dynamics are constantly changing, one thing remains constant the need for airlines to have a distribution and IT partner in place which understands their needs Internal Travelport research: 2012 interviews with 652 agency owners and managers globally

15 Agents have an appetite, driven by a demand from their customers, to sell LCC content in a way which can suit both the agent and the airline. The content must be distributed in a way that gives airline operational control by not compromising its PSS system.

16 travelport.com