WHITE PAPER. NDC Shopping Analytics Harnessing the power of existing data to understand customer context and optimise merchandising strategies

Transcription

1 WHITE PAPER NDC Shopping Analytics Harnessing the power of existing data to understand customer context and optimise merchandising strategies

2 Table of Contents Introduction 3 1. New Traveller/Airline Relationship IATA NDC Airline Distribution Landscape NDC Time is Now NDC Objectives 6 2. The customer journey from search to conversion The Customer Search Journey Traveller Types The Airline Offer The Fare The Airline Offer (Today and Changing) The Airline Offer Tomorrow s NDC enabled vision Watching Searches as well as Bookings Before the Booking The Search Airlines as Retailers PNRs Just the ticket for airlines to get to know their customers better PNR Data Analysis Search and Booking (PNR) Intelligence EMDs Giving impetus to the paperless unbundled flight ticket EMDs unleashing the power of unbundling What are EMDs bringing to the table? Benefits of EMDs International travel and Interlining Future IATA Improvement Initatives 22 Page 2

3 Introduction Airline distribution and retailing is at a crossroads, as the industry comes to terms with the Internet revolution that has disrupted most industries, none more so than retailing and how to reach and sell to customers. The twin pressures of continuous growth in demand for air travel and the need to find ways to be profitable is propelling the industry towards a decisive and much needed overhaul of its systems and processes in selling its services to customers. The tailwind is IATA s New Distribution Capability (NDC). It is based on an open XML communication standard, designed to give travel agents acting on behalf of travellers the same access to content, choice and price as available to travellers going direct to airline websites. Currently GDS- reliant travel agents only have access to limited flight information that essentially commoditises an airline products to schedule and price offerings. This is not good for airlines wanting to build brands or differentiate, and not good for the traveller who would benefit from better, more appropriate offers. This is the first in a series of four related articles that discuss how to get the most out of IATA s New Distribution Capability (NDC) enabled merchandising environment using shopping analytics derived from XML data streams. The four topics covered are: 1. Factors driving airlines to find new ways of developing the traveller-airline relationship. 2. The data that help airlines understand the customer journey from search to conversion. 3. How shopping analytics and the booking funnel work with the new merchandising platforms. 4. A closer look at ancillary merchandising and how EMDs help the process. Essentially NDC is a new technical standard for connecting airlines and their distribution partners (GDSs and Agents) and will help the industry evolve from simple flight distribution in the form of selling seats to sophisticated air travel retailing with the flexibility and customisation that this entails. After all how can airlines expect to maximise their return on investment in the enhancements they make to their planes and services i.e. flat seats in Business Class, inflight Wi-Fi, onboard entertainment, Economy Class seats with more leg room and more if travellers, especially those high value business travellers booking through third-party channels, don t know that these options are on offer? Page 3

4 1. New Traveller/Airline Relationship NDC can be described indeed as a brave but much needed initiative by the airlines to bring flight distribution into the 21st Century. Currently airlines file fares and schedules with third parties, while Global Distribution Services (GDSs) package offers based on third party databases (e.g. ATPCO and SITA) in response to agent requests on behalf of travellers. Around 60% of ticket sales are still sold in this way via agents where the airline is the last to know who has purchased the ticket, and pays the channel a hefty commission for the sale. Although considered pioneering in the 1970 s and adequate in the pre-internet era of the 1980 s this distribution method is no longer fit for purpose today, when compared to the rich content and choices that airlines can offer from their own websites. There they can bundle offers clearly stating what is included in each and provide their customers with the ability to create their own offers choosing meals, selecting and paying for preferred seating, paying for additional baggage and so on. The traditional EDIFACT based messaging medium that conveys airline products from the GDSs to the agents is now considered too basic. So IATA has standardised on a sophisticated XML message set that will address today s deficiencies NDC. 1.1 IATA NDC Airline Distribution Landscape NDC Content Aggregators Travel Agents Travellers Airline Offer Management System (GDS/New Entrants) (TMC/OTA/ Independent) (Business/ Leisure) NDC Content Aggregation Airline NDC Distribution Landscape Source: IATA Around 60% of the worlds billion tickets are still sold indirectly through the GDSs who levy booking fees equating to between 5 and 12% (depending on a number of factors such as domestic or international, etc), while own brand website selling is estimated to cost around 3%. Even if this is an under Page 4

5 estimation, it gives airline pressure groups like Take Travel Forward great ammunition to produce an infographic showing how GDSs (and the top 3 have 95% of the market) are collectively earning $7bn dollars per annum from the airline industry, with the message that ultimately it is the consumer that pays. Today GDSs and many travel agents are publicly embracing the new standard, but some remain concerned that the boat is being rocked too much and they may end up falling off. It is fair to say that they are investing in technology to give their airline partners some of what they want, but are not getting there fast enough. The well documented Lufthansa initiative to encourage direct website bookings and by- pass GDSs by adding a 16 surcharge or Distribution Cost Charge (DCC) for tickets booked using these intermediaries is just the latest shift in an NDC inspired travel distribution picture. The airline is being mindful not to alienate corporate travellers or their TMCs who can expect to see a dedicated space on the lh.com websites or APIs where they can book travel and still access their corporate discounts without being subjected to this cost. Although the benefits seem obvious, some airlines are concerned about the transition, in terms of impact on their existing business and potential costs associated with the new systems such as merchandising platforms and infrastructure that NDC ultimately requires. The longer term NDC vision has a number of components and bringing legacy systems (and not just those handling distribution) in line with modern air retailing is not going to happen overnight. NDC may be all about opening up the market and levelling the playing field between direct and indirect distribution, but it requires fundamental system, process and mindset shifts across whole organisations. Ultimately, NDC has the power to bring distinct benefits not only to distribution managers but also revenue managers and marketers. Airlines still need to balance wanting to reduce distribution costs, with ensuring that their offers (seats and ancillaries) are available to all customers and across all channels. Travel agents remain an important channel, particularly for complex itineraries, so airlines will need to invest in NDC options, as well as continuing to work with intermediaries. The interesting question is how long will that remain the case? 1.2 NDC Time is Now To increase adoption, IATA is encouraging pilot projects that help airlines and other stakeholders to gain experience with NDC. By the end of 2015, the number of companies involved is expected to reach 24. Online videos, workshops with solution providers, conferences and classroom training courses are all are all part of IATA s arsenal to help airlines get over their anxieties and take the plunge. But the plunge initially doesn t have to be that deep. It is possible for airlines to just encompass one area such as the Shopping Module and there are merchandising platforms such as NDC-Xpress offered by Farelogix that enable airlines to immediately begin generating new revenue streams from the sale of value-added services in the agency channel and conduct XML analysis for deeper customer insights. But we ll take a closer look at this option in the third article when we discuss analytics for merchandising platforms. Page 5

6 With 3 billion passengers spread across 35 million flights every year globally the time is indeed ripe for airlines to pull out all the stops to capitalise on the opportunity offered by NDC for more favourable airline-traveller relationships based on more personalised offers and seamless interaction. The ability to better understand what is being searched for and be able to identify a consumer in initial phase of the buying journey or from an airline perspective the sale process across different sales channels will allow airlines to dynamically construct and offer personalised products. Indeed as part of embracing NDC, airlines need to get better at looking at a holistic data that includes search traffic and conversion processes and not just rear-view sales by region reports. In other words it is important for airline executives responsible for the marketing, selling, distribution and yield management of their services to embrace what people are really looking for when searching as well as what they are actually buying. While airlines have granular visibility into booking transactions, the search world until now has been an opaque mystery. The traditional approach to selling seats and developing frequent flyer programs is being transformed into the merchandising of a customer experience based around pick and mix ancillaries. Ancillaries can cover not only the airline s own differentiating offers, but also hotels, cars and increasingly local attractions. Getting the right supporting systems in place including an intelligence platform to analyse the XML search and reply flow will help to get the most out of NDC-enabled merchandising opportunities. This useful data that is captured anyway as part of a transaction flow can be analysed to extract useful customer search/ buying behaviour insights. Using such insights can help an airline refine its merchandising approach and offers in response to market observations. 1.3 NDC Objectives In summary, the three principal airline objectives behind NDC are: > Reduce overall distribution costs by optimising and streamlining the process, > Obtain / own more customer data earlier in the search / sale process > Deliver product / pricing differentiation and transparency To achieve these objectives, NDC is laying the foundations for updating the pre-internet messaging standard (EDIFACT) used to deliver airline fare and schedule data to agents and intermediaries. By using XML it will be easier, faster and cheaper for airlines to provide customers information about fare alternatives, ancillary services, on-board amenities and graphics such as pictures or seat maps. XML shopping analytics that can slice through big data, loads of requests and returned offers can help airlines get the next level of intelligence to really get insight into what s happening at the beginning of their customer search and booking journeys. In the next chapter we will take a deeper dive into the type of data that NDC based request and reply streams can carry, the types of analyses that can be directed at the raw data and how insights can be used to optimise distribution, pricing or marketing practices. Page 6

7 2. The customer journey from search to conversion Everything for sale has a price. Low demand generally leads to low prices and high demand generally pushes prices up. When it comes to airline tickets, the price versus demand relationship can get quite complicated behind the scenes. Purchasers are often perplexed by the variation in prices than can occur between searching and buying. The pricing of this perishable product is driven by complex algorithms in pursuit of the highest price possible for every ticket balanced by likelihood of sale. This level of yield management is about to undergo a long overdue transformation as the industry moves from fare buckets to fare personalisation. The price for the seat is being increasingly unbundled from a whole suite of allied ancillary services that have their own individual prices and benefits. Airline customers are becoming empowered to choose those extras that they value or need the most. It means if you just take a cabin bag on board for a short trip, you can avoid hold bag charges that were previously embedded in the price for everyone. It also means airlines can get more sophisticated in their offerings to turn a journey into a personal experience. Ryanair, as an example, is one airlines that has consistently done well from ancillary sales which contribute over 20% of total revenues. The company recorded $1.64bn from ancillaries alone in The Low Cost Carriers (LCCs) have made buying ancillaries separately an acceptable practice and their success demonstrates that this is the sure route to sustained profitability. IATA s New Distribution Capability (NDC) is all about helping airlines to enrich their ancillary selling capability to third party distribution channels and aggregators in the same way that they already do on their own websites. NDC is the enabling standard based on extensible markup language (XML) rather than the legacy EDIFACT. It s the established method adopted by other players in the travel ecosystem to present to customers information about different fare alternatives, ancillary services available such as on-board amenities, baggage fees, upgrades etc. along with graphics such as pictures or seat maps. This article, the second of a four part series, puts into context the data needs for the emerging NDC model that will help airlines get back control of the selling process and better understand their customers wants and wishes. 2.1 The Customer Search Journey When selling an air ticket to travel from A to B either direct or via a hub, or when putting complex itineraries together there is the information the traveller offers up as part of his search and there is the complex fare structuring as part of the offer prior to the sale or conversion. The customer journey from search to conversion often comprises several steps, with much looking before booking. Page 7

8 Minimum data forthcoming from the consumer at the various stages of course covers the trip details, personal details and payment details. The first chunk is their travel intentions in terms of starting city, destination(s), required travel dates, preferred times of day, journey type (eg. single, return, openjaw), how many fellow travellers (e.g. family members). Personal details include name that is supplied at the time of booking (Passenger Name Record (PNR) creation), but will often later extend to full passport details prior to departure. Tickets, i.e. the e-ticket that is created out of the PNR, is and can of course are only issued when payment details have been successfully accepted. When single trip details are added to a historic travel picture using records of past flight purchases together with selected preferences, the airline can begin to build a powerful picture of their customer (regardless of loyalty club membership) in much the same way that retailers can build a profile of their customers. In other words when airlines can connect the customer with information that comes with an identity such as previous flying history (frequency, destinations), ancillary preferences such as seat or meal choices then offers and prices can become more personalised. Clearly not yet a reality, and obviously above and beyond the capabilities of search data alone, but definitely a longer-term airline ambition. Even in the stages before customer identification takes place, anonymous data can be used to segment customers (i.e. leisure / business) and then add other attributes such as destination popularity, family or group travelling, time and value of purchase, etc., into the mix. The key is take a re-iterative approach to analysing the search and booking data and using it to close the loop with continuous improvement. And this capability is part of shopping analytics today, and not dependent on the integration of the customer and frequent flyer databases referenced above. Today the price a traveller pays for an airline ticket is largely determined by when it is purchased coupled with other attributes such as time of day and destination. As NDC takes off, and it is currently being piloted in some shape or form by 24 leading airlines, the price the passenger pays or the ancillaries he is offered can become more personalised based on the information the traveller is prepared to share. To thrive in the NDC enabled merchandising world, airlines have the opportunity to focus beyond price, schedules and availability and actually use customer intent and shopping data to map their customer buying journeys using search context. This will help them discover opportunities to increase conversions and provide a better customer experience. Long term it will also help them keep the customer s needs and intentions at the centre of their product design, fare bundling and marketing decisions. In other words working with all customers and not just those affiliated with Loyalty Clubs to improve brand loyalty and repeat business. Plan Personalized Social Travel profile Purchase Upsell Cross-sell Upgrades Departure Notification Upsell Location Trip Activities Context driven Ratings and reviews Mobile Return Feedback Service Upsell Next trip Collect data Update travel profile Individual offering The Traveller s Journey Page 8

9 This is a must for airlines that want to transition from being flight-centric to being customer-centric. Such an approach means gathering relevant data across the customer journey and applying it for valuable customer relationship building and upsell opportunities. At the time of booking people are not always ready to commit to ancillaries, but nearer departure or even during the journey paying for extras may happily be entertained. It is also essential as competition among airlines gets more intense, especially on popular routes and to manage the empowered traveller who enjoys increasing access to product and price comparison data via metasearch engines. Being able to analyse XML-based search and booking data at a granular level can help airlines in this critical transition process. 2.2 Traveller Types There are basically two different types of travellers: the leisure traveller and the business traveller. They both want to fly between two or more destinations but their buying habits are likely to be very different and airlines use these differences to determine their fare structures. The leisure traveller is (generally) more flexible with dates and purchases in advance. They know that s when the cheaper seats are available. Of course time of day and seasonal factors also impact prices considerably. While there are many people who travel alone, leisure travellers often come in the shape of couples, families or groups of friends, teams, etc. More couples fly to Las Vegas than singles or families. Business travellers on the other hand tend to like to travel on a certain day and often at a certain time and are not so good at booking ahead. Traditionally they are willing to pay more for a ticket in order to make it to their meeting. Even in the LCC model, the closer the departure date, the more expensive the ticket becomes. Airlines have figured out that it is more lucrative to sell 20% of the remaining tickets at a much higher price, than 50% tickets at the earlier lower price. Once the airline has determined the number of seats on a plane, and the travel classes to be accommodated (i.e. First, Premium, Economy), then the booking classes kick into play, determined by those algorithms. Currently each booking class is basically a fare bucket governed by different rules and restrictions, including advance booking periods, cancellation restrictions, length of stay, sale promotions, etc. Airlines know that at any given time there will be a mixed bag of people looking for flights from destination A to destination B. There will be the business travellers and the emergency travellers (must travel to a sick relative or funeral for example) known to the airline revenue managers as buy at any price group. Then there are the flexible, price-conscious leisure travellers or business travellers with longer term travel or commuting plans known as the buy if the price is right group. The airlines dilemma is to strike the right balance for maximised profit in serving up fares to both groups. They do this by introducing price points for the various buckets as the plane fills up. But they also add restrictions to the cheaper fares and limit the quantity available. At the same time computers monitor availability and can close down or open up price points depending on bookings for that flight at any given time. This entire process is extremely dynamic as at any given time there are hundreds of thousands of shoppers looking for flights and making reservations and each reservation may have repercussions on the fares paid by subsequent travellers on the same flights. Page 9

10 2.3 The Airline Offer The Fare The airline industry s early adoption of yield management means that current practices in constructing fares are complex. We all know that when we sit on an aircraft nearly everyone on the plane will have paid a different price for the same journey, bought at different times and with different conditions or incentives. Even the people sitting in the same section of a flight are likely to have paid very different prices for their tickets. The reason: airlines seek to maximise the profits made by each flight as a whole rather than each seat or each customer. They and have created an ingenious system of bucket fares determining which price is applicable and when according to strict rules. They would rather not sell a few seats if need be in order to keep the prices high. 2.4 The Airline Offer (Today and Changing) The existing system still much in use, like the underlying system infrastructure, although innovative in the early years hasn t changed much in decades. Airlines lodge their fares with a third party such as ATPCO and their schedules with another third party such as OAG. Travel agents and Travel Management Companies (TMC) then place their customer air travel searches with the GDSs. These giant distribution platforms morphed out of earlier airline central reservation systems. The GDSs get the fare and schedule information from these databases (not updated in real-time) and then send a real-time request to the airline availability bucket system. Available seats in the various fare buckets are then sold. Essentially the GDS brings together the three critical information points fare, schedule and availability at a certain price packages the offer back to the agent accordingly. Although the airline maintains natural control of price versus availability, it has effectively outsourced to the GDS the packaging of the offer back to the agent, who in turn delivers it back to the client, who makes the decision whether to buy or not to buy. Industry Standard Interactive Exchange Pricing Engine Availability Engine Schedule: Itinerary Building Fares/Ancillary Management & Rules Airlines Requestor Authentication Dynamic Airline Shopping API Personalised Price Offered with Product Attributes Dynamic Airline Shopping API Customers Travel Agents Distributors Agregators Airline Retailing in Transition 1 At this point in the current system the airlines don t have any real influence over the sale process. The GDSs, originally set-up by the airlines then floated off, charge their airline partners hefty commission for every ticket sold. A fixed price per ticket sold, depending on type and distance,etc. The aggregate commission amounts paid out by the airlines to the GDSs, whose legacy architecture has Page 10

11 held airlines back in selling ancillaries to travel agents has led to many major airlines wanting to win back control of the airline offer as well as insight into the airline customer. Enter IATA s industry led initiative NDC designed to make it happen. There are also numerous example of legacy airlines trying to break the GDS stranglehold with 60% of tickets sold via that route. The Lufthansa DCC is just the latest example. 2.5 The Airline Offer Tomorrow s NDC enabled vision Airline set fare rules and restrictions tend to operate across the universe of sales channels, be it direct airline websites or online travel agencies and Global Distribution Systems (GDSs). However, airline websites are getting increasingly sophisticated in their fare bundles and ancillary offerings which are currently not reflected by OTAs or TMCs. This means that airlines struggle to offer versatile ancillaries or use upsell opportunities to their passengers that buy tickets via these routes. It also means they can t begin the process of personalising the offer since they only know the traveller s details at the time of booking. For example, if a traveller buys a ticket using an online travel agency (which many do, because of the price comparisons available), then they are served up with prices for the requested destination across a number of airlines flying that route (with or without stopovers and duration being clearly visible). Although baggage fees are explained, there is currently no provision for other ancillary information. In other words the ability to compare quality and price across offers from different airlines is not currently there and something NDC addresses to change. This makes it a price centric rather than value centric approach as the inherent differences included or excluded from those prices are not clearly visible. In a simplified example this means that a traveller can buy a Ryanair flight in preference to a legacy airline, only to find out after the purchase that seating, luggage and food and drink are all extras costing more than the slightly higher price originally on display from a legacy airline which still opts to include these in the quoted fare. Without putting the effort into searching individual airline web sites it is difficult today to compare the true value of different offers. NDC is the IATA led innovation (you could even call it disruption) that will overcome such third party channel discrepancies. Set out in DOT approved Resolution 787, NDC envisions that requests shall be sent using industry standard messages from the distribution channel provider (e.g. online travel agent) to the airline s dynamic shopping engine via an API. Airlines will determine what product offer to return in the response based on attributes that have been sent in the request. In future IATA airlines want offers to be provided directly by and owned by the airline. This spells a total reversal of how the third party channel is engaged today. Instead of pushing data out to third parties, airlines will receive data in the form of the actual requests that customers are making to the agents in much the same way as they do on their websites. Page 11

12 This IATA hopes will open the door to true dynamic and even personalised pricing, based on customer segmentation, or what the customer himself is willing to share about his status. The new NDC schemas impact across a number of existing systems as the diagram below shows: NDC Schemas based Web services NDC Merchandising & Personalisation Engine Customer Persona Rules Engine Offers Offer Responsible Airline Core Systems ORA PSS Loyalty and FFP EMD Ancillary Engine Interline Partner AirlinePSS The systems impacted by NDC Merchandising Source: IATA To leverage all potential advantages of NDC, airlines will have to improve their capacity of monitoring and handling important customer data and the criteria that these prospective customers use in their searches. The ability to differentiate products and services will come from the ability to analyse this data big data style. The next chapter will look specifically at the new NDC Shopping module and how shopping analytics and the booking funnel work with the new emerging merchandising platforms such as the one from Farelogix. The final part in this series takes a closer look at ancillary merchandising and how EMDs help the shopping and order process in an NDC enabled world. Page 12

13 3. Watching Searches as well as Bookings 3.1 Before the Booking The Search Up until now legacy carriers were stuck offering fully loaded services to passengers coming via the third party channel because unpacking the various elements of the service could not be unbundled in the selling process. Today, that is changing and technology (such as shopping analytics) is here that enables them to break the product apart and begin to sell it in separate chunks or bundle it together in differentiating offers not just on their own sites but via the lucrative agency channels. The seat on an aircraft today is no long a seat with the trimmings, but a seat offering personal choices to create value and experience. Understanding how customers view these choices first at the search level and then at the booking level can help airlines better understand their passengers and their markets in order to fine tune their products or even their partner offerings. In a search and booking process there is plenty of data around the new art of retailing is using that data. Understanding what the traveller is searching for opens up new opportunities. Traditionally, airlines have focused on the booking rather than the search. This is the sale which already has the revenue identified. The search, however, enables an airline to look at the potential lead or potential revenue opportunity if the search can be converted. For airlines most bookings or sales tend to appear out of nowhere, after the customer has already researched a variety of sites to get options and prices. This means airlines have lots of intelligence about actual bookings made but not very much about the searches made prior to the booking. If airlines want to take more control of the sales process and become more like sophisticated retailers, then the sales funnel leading to conversions and bookings should also be monitored and analysed, and ultimately acted upon. (Ok this is a quick plug to say Triometric has an analytics platform that can help here). Looking at the travel search funnel should include: > Starting point, (Origin airport) > Finishing point (Destination city) > Connection points (if any) > Date (sometimes passengers pick from a range rather than a set day) > Segmentation (leisure, business, hybrid) > Segmentation (single, couples, families, friends, etc) > Conversion rates (how many searches convert) Page 13

14 The overall search funnel is many times the booking volume itself, reflecting the high number of potential trips or different routes that are investigated before making a booking. This is the look to book rate that other sectors of the travel industry have learnt to keep a close eye on as it can reveal a lot about their performance. Searches give an indication of what is being looked for and can reveal some interesting insights. For example how far ahead do frequent flyers buy? How often do they fly the same route? Do many potential travellers investigate your flights and yet never book (at least on your airline)? What are the characteristics of these travel planners and the flights they are investigating? Ancillaries beyond bags and leg room will increasingly become part of the search options and differentiators between airlines. It is possible to imagine ancillary tick boxes as part of search criteria becoming normal, similar to the type of filtering that already takes place in hotel searches (e.g. hotels with pools or gyms or flights with WiFi or cool entertainment options). 3.2 Airlines as Retailers Merchandising is not just about presenting differentiated products, but also about matching those products with actionable intelligence about the customer, or the customer s segmentation. With the adoption of IATA s New Distribution Capability (NDC) based on XML standards, airlines have the opportunity to invest in systems that go beyond tracking bookings and historic loyalty and track customers according to search and buying behaviour. This degree of analytics needs to be extended beyond the direct channel that they own but reach out into the indirect ones, through which the majority of bookings are still made. Airlines today are striving to become travel retailers and NDC is designed to help them on that path. Retailers of goods routinely strive to improve the sales conversion rate with offers of free shipping or two-for-one sales. Airlines can emulate this approach with offers of free bags or lounge passes to help turn a lead into a sale. More personalised offers are also possible with frequent flyers, including special fares and special mileage credits. As airlines engage with their customers earlier in the booking process, there is an opportunity for the airlines to improve their merchandising by monitoring their leads funnel. Distribution Managers Yield Managers and Marketers need to exploit the rich data now available to develop and refine targeted initiatives at various points in the customer s travel planning process. 4. PNRs Just the ticket for airlines to get to know their customers better Most travellers think in terms of reservations, tickets, boarding passes but what makes this possible is in fact the Passenger Name Record (PNR) that gets created at the time of booking. It is not an understatement to say that PNR s are the lifeblood of air travel, because they hold the complete details of a passenger s booking, including itinerary, contact details, payment details, special requests, flying history, etc. PNRs along with shopping searches are pieces of the puzzle for airlines to get to know their customers better. Page 14

15 In IATA s NDC-enabled world, when buying airline tickets (and associated travel products), what the traveller is looking for (often via an agent) gets translated into offers by the airline and if acceptable into purchases by the consumer. At this point, a reservation is secured and the PNR is created either by the travel agent, or by the airline directly. In simple terms, the OfferID deals with the product the airline is selling, while the PNR combines the purchase with all the details of who the offer being is being sold to. This record is and remains the all-important record that holds all the relevant data for the passenger and the trip, including any amendments along the way. Historically, the GDSs were the creators and keepers of PNR data on behalf of airlines but in a bid to regain control of the sale of their inventory, airlines will increasingly be the owners of this treasure trove. For PNRs are indeed nuggets of gold in forming that sustainable relationship with the end customer the person sitting in the seat on the selected flight. The PNR is the primary data bucket created and retained by the airlines. It s been around in the airline world a very long time and NDC is not changing the way it is created, or the kind of information it stores, at least not yet. Ultimately for NDC to succeed in offering the consumer more price comparison and greater personalisation of offers, fare updating and packaging needs to become more dynamic and flexible than the current practice of feeding industry fare databases with price updates. No airline can fly everywhere, so NDC has to be built around the hub and spoke business models that have been created. Think alliances and code-sharing and of course interlining. To facilitate GDSs being able to continue to service agents (and their customers), especially with complex itineraries, they will also retain a copy of the PNR, which will be synchronised with that of the airline. The crucial point behind NDC is that airlines will now have access to this customer data at the time of the offer stage, and will therefore be in a better position to use customer context and data to make more relevant and targeted offers to the passenger than they were able to before, opening the door to a whole range of personalisation and personalised pricing in the future. 4.1 PNR Data Analysis Since the PNR is a crucial data bucket it stands to reason that the PNR is a rich source of analytics which can help airline marketing, sales, revenue and distribution departments identify efficiencies and opportunities. The data ammunition for analysis includes: > Passenger identification name, frequent flyer ID, etc > Travel itinerary flight number, date, leg/sector, origin & destination, etc > Flight booking details including, special handling requests, etc > Non-flight booking details if applicable such as car rental, hotel, Page 15

16 > Ticketing details fare basis, taxes & surcharges > Sales related information travel agency, booking channel & form of payment. Other information, such as a timestamp and the agency s Pseudo-City Code (PCC), are automatically added. PCCs are useful in identifying a particular travel agent office, and not just their head office. Very useful indeed in understanding the respective contributions from different sales channels. Additional information such as passport details, nationality and date of birth are information requests often mandated by Governments for security reasons. Known separately as Advanced Passenger Information (an unfortunate usurping of the acronym API), this also becomes an integral part of the PNR. Not only does the PNR capture all the reservation details but crucially it also feeds other important airline functions such as revenue management and the airline s Departure Control System (DCS). It is also the source for keeping the airline s frequent flyer records up to date, if the traveller is a member. 4.2 Search and Booking (PNR) Intelligence With all this mandatory information available in today s e-ticketing world, airlines have considerable access to passenger demographics and travelling profiles, which can give them huge insights into their customers and markets > Passengers leisure, business, loyalty, family, groups, etc. > Itinerary Origin & Destination and Connection points plus dates and times > Sales / Booking Value by agent / channels to determine third party distribution performance > Special requests and ancillaries (both flight related and travel related such as hotels and cars) Some typical analytical business questions that can be addressed by real-time search and booking analysis: What is the conversion rate of the numbers that are looking for the routes you serve and the number of passengers that make the purchase? 1. What is the associated revenue of these bookings and an assessment of the potential losses not being converted into bookings? Perhaps also split down by flight, by sector, by date, by class, by discount level? 2. What is the number of searches and corresponding bookings made by frequent flyer members by flight, date, class, upgrades, etc versus the casual flyer with no recorded flying history with the ariline? Can insights be used to incentivise the casual flyer to become more loyal? Page 16

17 3. What are the top 5 or 10 Origin and Destinations (O/D) being searched for, and converted? Such insight is useful for future route planning, code sharing and interlining arrangements. 4. Which ancillaries are popular attributes of searches that can be used to make offers more relevant or price attractive? These Q&As are just a flavour. Airlines already have a history of analysing actual bookings to manage their revenues. The missing piece for airlines is analysing search traffic to be able to respond more intelligently to those searches. Search analysis will certainly help the marketers and distributers make their products more relevant and NDC will enable them to take more control of what is displayed. Airlines already enjoy lower Look to Book ratios than the hotel industry, and search data can help marketing departments in their A/B testing to work out which approaches or offers bring it even lower. To take advantage of NDC data standards and processes, airlines have the opportunity to use analytics get a level playing field across all distribution channels. Being in a position to analyse in detail search request data as well as reply data in the shape of offers and bookings gives airlines operating in the NDC enabled world a rich layer of critical information that helps the airline in its tactical & strategic goals. Ranging from passenger insight to understanding market dynamics the benefits of this analysis can be extensive and profitable. 5. EMDs Giving impetus to the paperless unbundled flight ticket In this series of chapters on NDC Shopping Analytics we have taken a closer look at the: i) Emerging Traveller / Airline customer relationship, ii) iii) iv) Customer journey to conversion Value of analysing searches as well as bookings Role that PNR analytics can play in customer personalisation. We conclude this series with a brief look at Electronic Miscellaneous Documents (EMDs) and how they are helping to unleash the full potential of ancillary sales. Paper tickets and miscellaneous documents: > Are more costly to produce and administer (lower productivity) > Create headaches for passengers and airlines when lost or stolen > Opens up revenue leakage for services provided but not collected E-tickets and now EMDs are designed to get rid of those inefficiencies. Page 17

18 Moving on from there, IATA s New Distribution Capability (NDC) initiative is all about helping airlines give travel agents and TMCs that use the GDSs access to the full range of unbundled tickets and ancillaries that they sell on their own websites. This of course means that the agencies and the airlines need to be able to process these selected ancillaries which may or may not be sold at the time as the flight. Enter EMDs. In my reading on EMDs, I am struck by the thought that EMDs, like the origination of the e-ticket before that, is another example of IATA being instrumental in dragging airlines (and their technology providers i.e. the GDSs) into the electronic (ie. paperless) age. Since the legacy systems of full service airlines were built to be journey focused and not customer focused, the facility to unbundle the seat from ancillaries within the systems generating e-tickets just isn t there. In contrast, LCCs were created with the mission to unbundle the core airline product into seat and extras as much as possible with often the extras making more money than the seat. LCCs have thrived unemcumbered by legacy systems or complex interline / codesharing arrangements. Today, all airlines want and need to be able to sell ancillaries to the passenger long before he arrives for his flight. Indeed the case for ancillaries being the salvation source of revenue for many airlines cannot be understated. You just have to look at the IdeaWorksCompany/CarTrawler analysis to get some real insights 2. Their most recent study showed that airline ancillary revenue exceeded $38 billion worldwide in 2014 up by 21%. Once the mechanisms and systems are in place enabling those airlines that want to sell unbundled services to be able to do so, this number will continue to rise dramatically I am sure. Airlines adopting the NDC model of distribution are able to create their own offers and they will have the opportunity to get immediate feedback on the update i.e. did the customer buy or not. This is also gives them the analytical opportunity to assess how their offers are being received and make improvements as they go along. This is a major change to how the airlines distribute today in the indirect channel with virtually no feedback on offers until someone actually buys something. Being able to analysing EMD data as part of this offer/purchase feedback loop vill prove invaluable to airline marketers in future product development. 5.1 EMDs unleashing the power of unbundling E-tickets were not designed with unbundling in mind and are not able to accommodate the extra information that is required when ancillaries such as bags, extra leg room or onflight meals, are unbundled from the seat fare. On their own e-tickets constrain airlines in selling ancillaries through the indirect channel. Recognising the constraint IATA introduced EMDs as the anwer. EMDs are basically the equivalent e-ticket issued for all those extras that a passenger buys. Each EMD has its own number, and multiple EMDs are needed per ticket if more than one ancillary service is purchased such as a checked bag or preferred seat assignment. EMDs will play a vital role in allowing travel agency and airline accounting systems to process ancillary revenue in a manner similar to e-tickets IATA recognised that the old practice of selling ancillaries using paper-based Miscellaneous Charges Order (MCO) documents was not only constraining but also inefficient and costly. From the travel agents perspective, it was becoming Page 18

19 increasingly cumbersome to sell these ancillary services thus restricting their market access to the full offerings an airline wanted to sell. This is of course something that the New Distribution Capability (NDC) initiative is also addressing. EMDs seemed to be the missing link, but since e-ticketing has been the norm since 2008, it s taken a long time for EMDs to join them. The EMD path from conception to early implementation seems painfully slow according to a four year-old TNOOZ article 3. This charts the journey of the very first US EMD issued in August 2011 for an American Airlines Preferred seat sold by a small travel agency using a Farelogix desktop. The story shed interesting light on how much functioning EMDs were needed to unblock the ancillary pipes and unlock their potential. The Europeans (Amadeus/Finnair) were ahead of the EMD game, but only by 6 months. Today, it is imperative for airlines to have systems and processes in place to handle EMDs, not only to comply with an IATA mandate but also to help them further unleash the revenue potential of their ancillary selling strategies. Within IATA s Billing and Settlement Plan (BSP), EMDs have replaced all those miscellaneous paper documents that used to record and settle ancillary transactions. EMDs have helped airlines make further progress towards paperless transactions. A BSP is the central point through which data and funds flow between travel agents and airlines. It saves every agent having to build individual relationships with each airline by acting as a consolidated hub for the necessary information exchange. The Airline Reporting Corporation (ARC) acts in a similar way in the US. 5.2 What are EMDs bringing to the table? Although EMDs had a slow early take-up rate, without a doubt they are reducing the complexity of ancillary sales and making it easier for the agency channel to sell them. EMDs give airlines the ability to maximise their ancillary merchandising by offering: > Flexibility to sell the same ancillaries regardless of direct or indirect channel > Better access to data and the scope to analyse it in order to: - Manage routes by yield and ancillary contribution - Have more transparency & accountability of ancillary revenues - Enhance the customer experience by using real-time information about customer preferences and needs to return more relevant and targeted offers In response to a growing trend in airlines wanting to get ownership of their customers and customers in turn wanting more customer recognition, many airlines have begun leveraging information gleaned from their EMDs both to improve the customer experience and loyalty, as well as boost profitability. Page 19

20 There are currently two type of EMDs. EMD-A (associated) which is tightly associated to a flight coupon with add on services related to the flight such as the pre-paid bag or any in-flight services. Then there is the EMD-S (standalone) which does not have to be directly associated with the flight such as pre-paid lounge passes or any subsequent changes to the trip. 5.3 Benefits of EMDs According to IATA EMDs have clear benefits for everyone involved in the value chain: Airlines: > Able to sell more ancillaries and get paid for them faster) > Less processing time, more accuracy and faster revenue collection for ancillaries > Real time access to the status of all ancillary documents associated with e-tickets > Lower costs due to simplified revenue accounting and back office processing Passengers: > More access to ancillaries regardless of buying channel used > Easier billing for services bought > Complex itineraries involving multiple airlines making interline/alliance travel smoother > Single document (ticket) for all services Agents: > Opportunities to sell additional services with associated customer service > Easier fulfillment for sales of ancillary services > Capability to issue and track EMDs via their own systems providing increased productivity, market intelligence, and more efficient corporate billing and control Both IATAs NDC and EMD standards are part of the organisation s strategic Simplifying the Business (StB) Programme aimed at implementing industry standards to achieve two principle objectives: > Improve the passenger experience > Save the industry money. Page 20

21 In the case of EMDs IATA estimates $2.9 billion in costs will be saved by the industry by streamlining the process and cutting out the paper trail. This is a similar to $3 billion savings made by the move to the 100% adoption of e-tickets according to IATA. Improving the travel experience is particularly important when it comes to interline ticketing and EMDs (in other words, tickets for a journey involving more than one airline). This is usually trickier because it requires different airlines databases talking to each other. Fortunately airline alliances and partnerships on particular routes facilitate much of this information exchange. 5.4 International travel and Interlining International air travel is often not just flying from A to B, but can involve multiple routes and airlines across countries and continents. No single airline, regardless of size can have established routes across all corners of the earth. Airline co-operation and interline agreements is the answer to making air travel across the globe seamless and painless for the air traveller, even though aircraft changes are required. This is nothing new and a large portion of long haul travel involves switching flights in hub airports. Organising complex itineraries is what travel agencies and management companies excel in using the services of the GDSs who have easy access to airline networks and passenger service systems (PSSs). Such itineraries are routinely structured around already established codeshare and interlining arrangements between the airlines. Code sharing helps airlines manage schedules and aircrafts, while offering passengers more route and flight time options, while interlining helps airlines attract customers for long haul routes. Interlining allows passengers to book multiple legs of their entire journey on multiple airlines allowing easy transfer with baggage. As part of NDC adoption, airlines will continue to need to be able to access routing options based on their codeshare and interline agreements to create and manage bookings on their partner airlines (PSS) in addition to their own. Interline airline s fares, pricing rules and offers also need to be available with the ticketing so that airlines can provide effective and efficient customer service throughout the journey with the Offer Responsible Airlines (ORA) PSS taking the lead. Interline agreements is an early airline innovation for the convenience of customers who can only get to their destination via a connection using two or more different airlines. Agreements cover fares where the carriers involved agree to publish a fare from the origin to the final destination and then internally divide the revenue between them. The passenger then only has a single aggregated fare to pay based on each carrier s flight and is issued with one ticket with the appropriate flight segments included. The provision of interline travel services covers the booking and ticketing functions. When a passenger purchases a multiple segment, multiple airline, ticket, generally the ticket is issued under the name of the first airline in the sequence of flights, or the one providing the agent with the most commission. Interlining arrangements streamline this process for airlines and make it more convenient for the traveller. Page 21

22 When interlining or code sharing takes place a lot more data needs to be exchanged. This is currently largely done in the airline legacy EDIFACT language but as NDC gets increasingly adopted, IATA is also making provision for interlining XML standards. NDC provides airlines the capability to distribute their services using rich content (ancillaries and add-ons) in a standardised way. While interlining is fairly common among legacy airlines it is quite rare among low cost carriers, although some low cost carriers have stated ambitions to enter into interline agreements with some of their legacy competitors. In future there is likely to be a lot more cooperation between LCCs and FSC in establishing short haul connections to long haul flights. NDC is opening the doors for LCCS to opportunities in terms of interlining with other carriers. 6. Future IATA Improvement Initatives So now all industry eyes are on IATAs current initiative to streamline processes for the sale of ancillaries through agency channels. NDC is making progress, but as e-ticket and EMDs have illustrated, the complexity of airline systems and processes and the dependency on legacy architecture means that the NDC revolution cannot happen overnight and is going to require commitment to change as well as investment in new processes, systems and, of course, analytics platforms. But although not specifically mandated by IATA the reality is that many airlines are already piloting NDC with positive results and many more are seriously looking at how they can get involved. You could say IATA has pushed it far enough up the hill for NDC to begin to pick up its own momentum. So what next. NDC is by no means the end of IATA s StB road. To deliver the change the airline industry needs, IATA s StB intends to become even more ambitious. The next piece in the simplifying business puzzle relates to serious streamlining of not just the Offer Management, but also the whole Order Management of selling airline products with notable impact on how the reservation is recored and accounted through payment and fulfilment. The new initiative already being dubbed One Order is one that we will all hear much more about next year, once IATA Board agreement is obtained. It aims to build on NDC message standards in order to develop one complete set of XML schemas capable of handling transactions end-to-end among all parites concerned from initial Shopping right through to Customer Servicing. This would significantly simplify the multiple booking, ticketing, delivery and accounting methods in use today and replace them with a single flexible order management process. A flyer would only have one reference number / document (regardless of the complexity of the itinerary), airlines could dispense with the costly reconciliation process between E-tickets, EMDs and PNRs and travel agents have an easier way of accessing all airline products, delivering customer after care and reconciling payments. IATA firmly believes the future benefits of a streamlined process far outweight the costs of implementation and will bring the airline industry in line with the e-tailing capabilities of modern day e-commerce. Page 22