Accounting plays a key role in delivering airlines to the future world of offers and orders. But how can an airline’s finance team reconcile new ways with back-end operations – while doing business-as-usual? The solution lies in an Order Accounting System that seamlessly integrates with the airline’s Order Management Systems to track and account for personalized products offered to the customers. In this Air Transformation Lab article, Muffi Lokhandwala, Accelya’s Global Head of Business Development for Financial Solutions, looks at how airlines can get ready now for their journey to an order accounting world.
The introduction of IATA’s NDC and subsequent ONE Order initiatives has transformed airline retailing by giving airlines greater control over creating, distributing, and delivering offers. After a slow start, adoption of this “NDC-powered” retailing approach is rapidly gaining traction. Accelya’s FLX platform shows a 73% increase in the tickets sold through NDC channels in 2021 as against the pre-pandemic period. This is not surprising, given the value of retailing. In a recent McKinsey & Co study, the value of airline retailing has been estimated to generate about 40B USD in additional annual value by 2030. This represents up to an extra 4% of the total industry revenue or $7 per passenger at the end of the decade.
But the airline retailing journey does not end with a customer buying an innovative offer and the generation of a confirmed order. Airlines must reconcile the new world of offers and orders to backend financial operations. They need to ensure downstream processes, such as fulfillment and settlement, adapt and integrate tightly with front-end systems. In this way, airlines can track all product and service line items and account all sales receivables to the bank until the offer is completely fulfilled and revenue recognized.
To meet these imperatives, we are seeing airline finance teams go above and beyond current operations to meet the traditional demands of revenue accounting while building out order accounting capabilities. As such, they are very much at the center of retailing transformation.
In this article, I will introduce you to the order accounting approach.
What is order accounting?
Order accounting is a technology solution that robustly meets current revenue accounting demands while supporting the airlines to move to a more retail-centric world of new offers and ONE Order – all within the airline’s retailing transformation journey.
It enables the processing of traditional documents (eTickets, PNRs, EMDs), NDC Orders (Enhanced Distribution), and the single order record (Simplified Distribution) envisioned in ONE Order. Order accounting integrates with various systems like Order Management System (OMS), Enterprise Resource Planning (ERP), payment, refund management, accounting, non-airline financial, and invoicing systems and manages the order lifecycle in real-time.
Order Accounting handles the accounting functionality for Order Sales, Order Fulfilment for Flight and Ancillary Services, Order Outdating, and Order Accounting Reconciliation.
Order accounting as part of the airline retailing ecosystem
In working with our airline customers and IATA, we have identified multiple scenarios in the transition to a retailing environment characterized by ONE Order. Regardless of the journey, a solid order accounting game plan is key to achieving high-performance retailing.
We recommend that you check the following while building your order accounting capability:
- Strategy: If your airline is still in the decision-making process regarding NDC and retailing, set out a clear business and technical strategy from offer-to-settle with order accounting at the center. You need to ensure the impact of all solutions is considered from a business and technical perspective, e.g., data warehouse feeds, accounting impact on ERP, etc.
- Business continuity: Adopt a hybrid approach to financial operations that supports traditional revenue accounting processes and retailing models. That way, you can continue business-as-usual as you transition to the ONE Order world.
- Industry standards – A technology solution should comply with industry standards, like:
- NDC 21.3 – This latest release by IATA has new features, e.g.,
- Sending rich media (via resource path/URL) to the seller.
- Waitlisting support in offers rather than rejection.
- Party structure to better represent the various entities within the transaction.
- ONE Order – Provides an integrated customer record to streamline handling order sales, changes, fulfillment, and accounting processes across the order lifecycle. ONE Order enables you to combine services so that detail level Order Accounting can be performed by service line for non-NDC partners, thereby future-proofing your operations.
- Settlement with Orders (SwO) – To simplify settlement with sellers through the IATA settlement platform (IATA clearance manager/IATA Billing and Settlement Plan). With SwO airlines can initiate a settlement request to trigger the payment process automatically.
- You can check if a vendor is compliant by checking out IATA’s new Airline Retailing Maturity (ARM) index. Look for certification in Shop, Order, Pay, Account, Settle, and Setup capabilities.
- NDC 21.3 – This latest release by IATA has new features, e.g.,
- Flexibility – Your solution should be able to integrate and interact with any OMS or other downstream systems so you can partner with your vendor(s) of choice.
What does this journey look like?
Every journey to ONE Order is unique and many of our customers have already embarked on it.
Regardless of the journey, NDC and SwO are important to Order Accounting. As a finance leader, you need to think of your SwO strategy in conjunction with NDC and work with your partners to guide you through the readiness. The airlines Accelya works with are leveraging this opportunity to transform their offer-to-settlement processes, and this is what their journey looks like:
- Discussion with IATA on SwO implementation.
- Definition of accounting and settlement business requirements.
- Addressing the current retailing phase of NDC orders (orders linked with e-tickets & EMDs).
- Integrating processes from offer to settlement for an end-to-end view and control of NDC orders.
- Getting accounting systems primed to sell innovative products through modern distribution systems.
- Getting future-ready for any new services that may get added to their existing offerings.
- Adopting new airline retailing standards as they evolve.
How to get ready for your airline’s retailing journey
Your retailing journey could be different from that of your peers. These are the points that you should consider while preparing for your transformation:
- What does this new world of retailing imply for my airline’s finance operations?
- Remember, every airline’s journey is unique.
- Does my airline’s retailing journey end with order fulfillment for the customer?
- Think end-to-end from offer to settlement.
- Are current legacy processes capable of transmitting orders to the financial revenue accounting systems?
- Be future-ready!
- How are my financial systems getting ready to account for every new and innovative sale that is possible in an Order world?
- Think about the role of order accounting in the journey to high-performance retailing.
What’s your unique retailing and order accounting story? We would love to hear from you. Click on the button below to get in contact with us.