As of autumn 2017, the market value of Priceline exceeds $90 billion. At the same time, the world’s most valuable airline, Delta Airlines, has a market cap of just over $34 billion. How have third-party platforms become so valuable?
The answer is clear: With a 360-degree view of customers, intermediaries in air travel possess deep customer data and analytics, allowing them to better target travelers and manage customer relationships. They work effectively as facilitators of mobility, offering customers the time, price, and experience they want. In a sense, these intermediaries are the ‘Amazons of Travel’.
Third-party travel platforms like Priceline altered the industry when they first arrived on the scene. Flash forward to today: With all this customer info, they have the insights needed to figure out how to continually disrupt distribution. Airlines will find it difficult to compete—at least today—but here’s how that can change.
Embrace New ideas, Strategies and Technologies
The most successful airlines of today have wasted no time adopting new technologies. They also are always looking for new ways to gain a competitive edge.
A good model to follow is Virgin Atlantic, whose profits increased by 81 percent in 2015. The airline has been successful because of its commitment to running a nimble, innovative operation. Virgin Atlantic realizes traveling is an experience, and that’s motivated them to adopt new technologies, like the Internet of Things (IoT) on their flights, to ensure flights run seamlessly. They’ve also made partnerships to create a more unified, enjoyable experience.
For instance, Virgin Money has partnered with Virgin Atlantic as their retail services partner. This not only benefits the customers in terms of miles and discounts, but also gives the airline more data to help understand what their passengers really want.
Create a Platform Economy
Amazon doesn’t just bring you choice, they offer seemingly unbeatable prices, customer service, and streamlined logistics. Needless to say, for airlines to successfully implement a platform model like Amazon’s, there must be a strong financial and strategic commitment, as well as a focus on increased efficiency and relentless innovation. If done successfully, a platform model can pay off.
Although airlines are behind platforms like Expedia, airline execs see the importance of building a platform that offers an omni-channel experience. In order to do so, airlines must not only emphasize being agile, secure, and ubiquitous, they should also focus on a seamless experience from departure to destination. Many airlines have taken steps to function more like this already. For example, American Airlines partnered with Uber to make travel more seamless from doorstep to doorstep.
Prepare for New Airline Industry Standards
The good news is that revised technological standards from IATA may help push airlines towards a true platform model and help them compete better with intermediaries (though it won’t necessarily help them get rid of intermediaries). One such standard is the New Distribution Capability (NDC), a distribution format that will develop and utilize a new XML-based data transmission standard. What NDC will do is change how airlines can market their content to travelers on global distribution systems.
For example, when a business traveler searches for a flight, hotel, and ride on a third-party site, airlines can show their content directly to the business traveler. Their ability to get sales won’t depend on what the third-party site displays as much.
ONE Order is another promising development for airlines. Using data communications advances enabled by NDC, ONE Order can create a single customer record, allowing air travel companies the ability to facilitate travel in a unified, consistent manner. This industry-led initiative streamlines processes and gives all players, from intermediaries and airlines to airport staff, a single reference point with which to properly serve travelers.
Now, let’s return the example of the business traveler. Thanks to NDC and the ONE Order initiative, airlines could have the data and ability to create custom offers and ancillary services to attract travelers in more exciting ways.
Can Airlines Actually Disrupt the Industry?
NDC and ONE Order don’t necessarily mean airlines will be the next disruptors in distribution. An intelligent strategy in this new distribution format and commitment to creating an innovative, efficient platform organization are what will enable airlines to be the game-changers.
The issue is that—despite the benefits—many airlines may still be hesitant to embrace new strategies and technologies, develop a platform model, and take advantage of NDC and ONE Order. This is natural, given the costs associated with such transformations. But those costs must be weighed against long-term returns, which could be enormous.
For example, while it requires a heavy initial investment, airlines can save in the long run by abandoning their proprietary application landscapes and pursuing an open API model that fosters innovation, enables strategic partnerships, and operates nimbly.
Overall, having an external ecosystem attached to the platform is what will make airlines true platform organizations, as this will allow airlines to offer complimentary products and services. This doesn’t happen overnight, and it requires investments like the pursuit of an open API model.