Episode Transcript
Speaker 1 00:00:08 Hi, and welcome to this episode of Your Window Seat, where we at Travel Incorporated, discuss the topics that matter most in this ever-changing business travel industry. I'm Tracy Carillo, your host for today's topic, modern Airline Retailing, innovation or Disruption, and specifically how American Airlines N d c Announcement is impacting our industry. I don't think we could have a better guest on this topic than the one and only Cory Garner, former AA executive and c e o of T two r l Travel Technology Research. Welcome Corey to your window seat.
Speaker 2 00:00:45 Well, thanks, Tracy.
Speaker 1 00:00:47 So let's start by sharing a little bit about T two R l as I think this will really set the stage for where your thoughts and opinions are coming from as it relates to airline distribution.
Speaker 2 00:00:57 Well, the best way to explain it, Tracy, is we help travel sellers and corporate travel managers fix the things that we help airlines break. Uh, and to put, uh, a finer point on that, uh, we've been around for about 20 years, and we have our roots in helping airlines make their biggest technology and distribution decisions. And so what that means is we end up being right at the center of what's next in airline distribution and airline technology, and usually we're involved in what's next, maybe 2, 3, 4 years before it happens. So we're always on the leading edge, uh, and knowing that we're on the leading edge, uh, we also help the rest of the market, uh, adjust to what's coming from a technology ripple, ripple effect per perspective.
Speaker 1 00:01:44 Oh, thus the perfect person for this discussion. So thanks, Corey. So for those of our listeners who may wanna put a little bit of a historic perspective, um, to airline distribution and the topic of the new distribution capabilities or what we lovingly refer to as N D C, the concept was originally intended by the airlines to break through the limitations and constraints of the legacy GDS mainframes and distribute their content through a new platform or an alternative platform that could promote their brand and provide rich contents and amenities. Thus, modern retailing sounds terrific, the Corey, with a's announcement originally in December, and then with more clarity during this recent earnings call, how does this approach fit that original concept? Or does it
Speaker 2 00:02:35 Yeah, and, and you're, you're speaking about the right thing when you talk about the history behind the issue, and I, I think it is important to get rooted in the history behind the issue a bit before we talk about American specifically. Uh, because this is not a new trend at all. Uh, this dates back 20 years when airlines were first trying to direct connect with, uh, with travel agencies, with, with standards that predated n dc. And just to speak from an airlines perspective, if you, if you put yourself in an airline shoes, anytime you have a new technology project, you have to justify that to the ceo, right? And let me tell you something about airline c CFOs. Airline CFOs do not necessarily believe in revenue-based business cases. <laugh>, if you come to an airline CFO with a billion dollar business case, he or she may give you credit for 10 or a hundred million of that, but they're not gonna give you credit for the billion.
Speaker 2 00:03:36 But if you come to them with a cost based business case, then the situation is different. If you come with a hundred million in cost savings, then you have a real conversation on your hands. And so, when, as I said, we work with airlines all over the globe and have for many years now, but when we see airlines first go down the N D C path, what we find is they start with a cost-based justification. And that cost-based justification comes from the fact that NDC opens up the ability for an airline to distribute, to travel agencies outside of the gds. That doesn't mean that their end goal is to distribute outside of the GDS because their benefits to GDS distribution by NDC as well. And those benefits are largely from the revenue, the revenue aspects that you just mentioned. So there is a, the, the revenue aspects I break down in, in two categories.
Speaker 2 00:04:33 The first category is kind of the ancillary and bundle benefits that most people know about and talk about. Uh, so airlines can, can grow the pie by selling more products than they did before. And that can be good for customers, it can be good for the airline as well. The other part of revenue benefits that doesn't get nearly as much attention and actually should get much more attention is the concept of dynamic or continuous pricing. So dynamic and continuous pricing means a price that's calculated on the fly for a flight. It's not a price that sits passively on the shelf in a toco. It's not constrained by the 26 letters of the alphabet. It's calculated in the moment. It can be priced anywhere along the continuous demand curve. And, uh, there are airlines out there that are, uh, lowcost carriers that have been, uh, pricing themselves as continuously priced airlines since the beginning.
Speaker 2 00:05:33 And now more and more we're finding that, uh, the big leg legacy carriers are going up against these ultra lowcost carriers in certain markets. And the big legacy carriers need to respond somehow with more granular pricing. And so it's becoming more and more of an existential matter that the big airlines be able to price continuously. And the way technology works is the, the only possibility for a legacy airline to do that through the Travel Agency channel is by N D C. And if you're an airline that really needs to do continuous pricing, you probably don't care whether that goes through a G D S or not through a G D S. You need to have your most competitive pricing on the shelf. So that is kind of the general context of how most airlines think about, uh, this issue, starting with cost savings, growing into more of a revenue centric strategy that has this really strong undercurrent related to condu continuous pricing.
Speaker 2 00:06:33 Now, American Airlines, so American Airlines has been at this for a long time. It started, uh, way back when I was there many eons ago. And even American strategy 15 years ago started as mostly a cost centric strategy. It's evolved over time to be GS inclusive. It's evolved over time to be more revenue centric. And now with this latest iteration, American is making a big push. It appears to drive as much adoption of NDC as possible. Doesn't matter if it's GDS or non gds. They just want to power up all of their indirect channels with, uh, this NDC capability for the bundle purposes, the ancillary purposes. Who knows, maybe some dynamic or continuous pricing. They haven't been as, uh, public about their plans in that area as other carriers have been. But, uh, it, it certainly appears that they're playing a technology game. They see an opportunity to move the market forward and to grab some benefit, uh, perhaps sooner than they otherwise might by making a relatively aggressive move.
Speaker 1 00:07:45 And I guess that kind of goes into the why now question. I mean, with all of the changes, challenges, and shifts in business travel as companies are still trying to get into their group, do you think this is the right timing?
Speaker 2 00:07:59 Well, that's, uh, that's a big question, <laugh>. So, um, let's talk about, let's talk about why now, and then I'll give you my opinion. Um, so a couple, a couple of different factors to think about. So we've just been through a pandemic and during the pandemic, many things have changed. Uh, the mix of corporate and leisure travel has changed. Uh, corporate is not back to a hundred percent. Uh, many are saying that it may not go back to what it was before. It will turn into something else that is in the aggregate smaller. Um, and the other thing that has changed is that, uh, comparative yields between corporate traffic and leisure traffic has, has compressed. Uh, it used to be that corporate traffic came at a much higher yield than leisure traffic, and that made corporate traffic really hard to replace if an airline were ever to take any risks on in their share in the corporate segment.
Speaker 2 00:08:59 But there are a number of factors that are, are playing into corporate and leisure yields starting to, uh, squeeze together a bit. One of them is that, uh, premium cabins are becoming more dense over, over the period of time. The new aircraft that are coming in, uh, fewer have first class cabins. The premium cabins that they do have are squeezing more seats into less space. And because of that, RM teams at airlines don't have to sell premium tickets at a high as high of a price as they used to in order to make the same money per square foot in that cabin. Um, there are demand trends happening where you've got, uh, you've got revenge travel on the leisure side, you have blended travel becoming more common. And all of this is, all of this is adding up to airline executives feeling a little bit more confident that if they take more risk in the corporate segment, that, you know, maybe that corporate volume doesn't shift to other channels, but maybe you don't feel too bad about that because you're able to backfill that with some, uh, leisure volume that is more high, more high yielding than it was before.
Speaker 2 00:10:14 Um, so those contextual things are driving airlines into a position where they feel like they can take a little bit more risk than they could before. And now how that plays out airline by airline, uh, can be different according to the airlines individual situation. In the case of American Airlines, you have some changes, uh, at the leadership level that are happening at the same time as all these trends, uh, some super sharp people, all very logical, uh, and, and have kind of a different risk tolerance in this space than, uh, prior leadership had. Uh, and so, and now, and now you're seeing a bunch of changes all happening at the same time. So American has, um, has announced their distribution strategy, uh, which I guess we can go into more detail in a minute. Uh, but at the same time as they're making changes to their distribution strategy, they're also making changes to how they deal with their relationships, uh, in the travel, the TMC space and the corporate space at the same time, generally making those relationships, uh, less rich in terms of commissions and, and discounts. So you see kind of a, a lot of complimentary, uh, changes being made all at the same time against this backdrop where airlines feel like they can take a bit more risk in the corporate space.
Speaker 1 00:11:36 Well, there, there's a couple of things that I wanna hit on, because what I've heard about where, uh, American is going is really 40% of their inventory primarily going to be more along the leisure side, to your point, um, that isn't necessarily corporate flights that are typically taken. There's been a lot of discussion about whether where and if the industry is ready. Okay, big topic. Like what does ready even mean, let alone what the impacts are yet. So let's talk a little bit about your thoughts on the technology side first and then about that content, that 40% and what may be more than that down the road, um, as it relates to the corporate travel manager.
Speaker 2 00:12:17 Yep. Yep. Sure. Um, well, let's talk through an analogy first. I just, I did a LinkedIn post about this a few days ago, and I think it's a really important thing that people should pay more attention to. And that is, if you compare what's happening in the corporate market now to what happened in the leisure and especially online travel agency market 10 or 12 years ago, it's basically, it's exactly the same thing playing over again. So if you go back 10 or 12 years ago, and, and let's focus on American for a second, American was completely out of Expedia and Orbits for a period of, uh, several months. And that wasn't resolved until the parties kind of all got together and, and agreed that, you know, maybe there was a path forward with N D C after all. And, and so, um, the, the online travel agency market actually digested the N D C trend 10 or 12 years ago, a decade ago, and they made the changes that needed to be made in order to be ready from a commercial perspective and also from a technology perspective.
Speaker 2 00:13:24 So starting from the technology perspective, imagine you run an ota, you've got a booking tool, right? That's your, that's your website. And then behind the booking tool, you've got all these systems that aggregate content from multiple places and manage your PNRs and manage your ticketing. And then you have all this mid-office and back office stuff that you have to do as well from the perspective of the OTAs that the advantage they have is, for the most part, they're the ones who developed all that stuff. They're the ones who controlled all that stuff, and they could make the decision on their own to go fix those things. And the commercials, they could work out directly with the airline. Well, now look at the corporate space. All the same work has to be done, right? Uh, the booking tool has to be ready. Whoever's doing the content aggregation be that a GDS or somebody else on the back end has to be ready, your mid-office processes have to be ready.
Speaker 2 00:14:18 Your back office processes have to be ready and by ready, that means don't just show me the fairs, let me book them, don't let me just book them, let me ticket them, don't let me just ticket them, let me change them, let me refund them and handle all the, the scenarios that we normally do. And so the issue with, with corporate is there are many more links in the chain that need to be solved because in the typical corporate technology architecture, the booking tool, the content aggregation, the mid-office, the back off, this could all be provided by different players, none of which are owned by the tmc, none of which are owned by the corporate. And so there are so many things where finger, there's so much risk that finger pointing can happen because unless all the links in the chain are ready, none of them are ready. And if all of them can do the entire end-to-end process, then none of them can do the entire end-to-end process. And you have gaps in workarounds and things that you have to live through for a period of time.
Speaker 1 00:15:22 Yeah, it's really interesting here because we absolutely believe in innovation and yes, disruption because it's, it's really healthy for our industry. I mean, let's just face it what I think the biggest concern for our clients, um, is the lack of real transparency. What does it mean to them? And you mentioned a little bit about finger pointing, um, because they wanna know how are their negotiated rates gonna be available? Are they gonna be available, are they, how are they gonna be serviced? How are this tmc? And so what we are hearing and what we're seeing from clients and other discussions is that there's just a, a lot of deflection on this topic. And, um, I'm curious what you've heard about the servicing side and the negotiating rate side for the corporate, um, travel managers out there that are maybe talking to some of their airline reps and they're not getting a clear story and they're saying, you need to go talk to your tmc, or you need to talk to your online booking tool, rather than just addressing the questions that they have for them.
Speaker 2 00:16:21 Yeah. Uh, let's break those into two things. One is just the content access, and two is the ability to service. So, uh, on the content access side, like I was saying, all the links in the chain have to be ready for the whole thing to be ready. And so that, that starts with, um, the, the GDS or some other content aggregation me mechanism behind the scenes needs to have a connection with Americans, uh, n DC connection. Uh, and they would need to have developed to all of the functionality of that NDC connection to be able to support the whole end to end. Now, you can have the GDS completely integrated, but if the booking tool isn't tapped into the GDS for the same content, then then you have a missing link in the chain and it doesn't flow through. So let's imagine that you are on, you're a client of Travel Inc.
Speaker 2 00:17:15 And you are, you're on Concur, uh, concur come out and said, look, we're not gonna be ready for the implementation of American strategy in April. We're gonna work on it. Uh, it's gonna take some period of time. We don't know how long it's gonna take, but there's gonna be some period of, let's call it, let's hope it's months. So let's just call it months. There's gonna be a period of months where Americans N D C content is not piping through into Concur. Doesn't matter whether the g d s behind the scenes is ready or not. Um, well, what that, what that ends up meaning is, is if 40% of the lowest fair content is then not being displayed from American, that booking tool, um, in markets where you have an overlap between American Delta, United, then what that may mean is United and Delta may look comparatively more attractive in the booking tool because their fairs will be lower.
Speaker 2 00:18:14 Uh, and the the natural option would be for your travelers to book one of those carriers. Um, if you are, uh, uh, a corporate that's situated in a heavy American market like a Charlotte or a Dallas or something like that, where there, those alternatives aren't as plentiful than what you might find as the fairs that you buy are just naturally gonna be going up, unless travelers start spilling outside of the program naturally into OTAs or a.com or something like that, if that's a, you know, if that's too painful for, you know, corporate travel manager for a period of time, they can look at kind of more, more drastic options. They could look at, uh, a different booking tool that is already, that could consume that content from a gds, or they can look at going so far as looking at at another TMC proposition to the extent that the TMC has done some work with their technology stack to become more content source agnostic, but the permutations are, are endless. And it all kind of boils down to how much pain you think your own program is going to feel in terms of higher fares or shifting from one carrier or another, and how long you think that's, that's gonna last. You know, in, in my mind, because Concur is saying they're not gonna be ready, in my mind, that means that, you know, for the majority of corporate volume in, in the us Americans' fairs are not gonna be there. Uh, the American's lowest fairs are not gonna be there for some extended period of time.
Speaker 1 00:19:51 As we talk about Concur not being ready via the G d s, they have advised that they will be ready via the Travel Fusion integration. I'd love to get your take on what that being ready means as an alternative to GDS and distributing their N D C content. And then I'd like to get your thoughts on the loyalty factor. Americans just doesn't seem to be putting too much weight on the corporate side given the revenue from leisure blended travel happening today, and that corporate may not be completely coming back. Are corporations going to be okay with that? Are they going to look for alternatives or do you think they are somewhat confined based upon Americans' dominance in certain hubs?
Speaker 2 00:20:33 That that's a, that's a really interesting question and, and the use of the word loyalty is really interesting. I'll, I'll answer your question about Concur access to the API through Travel Fusion first, and then I'll come back to the loyalty point, but yes, you're right, right, concur. Uh, so it's the, the answer I gave before was in the context of where can you go to get fully fledged access to American Airlines content, and where and where will that fully fledged access be and not be. Concur does have a stop gap solution that it makes available to its clients, uh, through an NDC aggregator by the name of Travel Fusion on the back, uh, on the backend behind the tool. And so what that does is, um, the, the best way to think about it is, if you remember when Fiber Optics came to your neighborhood and all of a sudden you could get high definition TV and you had access to things like, you know, not just your cable box anymore, but you had Netflix and Disney Plus and all that sort of stuff.
Speaker 2 00:21:33 Think of, think of Travel Fusion like Disney Plus. So it, it's Disney plus that that kind of sits inside of your Concur booking tool, and it goes out and gets, uh, a new, new and exciting content like, uh, American N D C fairs. And so, uh, what Concur can do through Travel Fusion is they can show you the American NDC fairs, they can let you book them, uh, when they're ticketed on the backend. Americans says that, uh, TMCs can still get access to those tickets for servicing purposes. I think just a level set everybody's expectations, those that those servicing flows will probably be a bit complex, a bit clunky for some period of time. Uh, the, the data flows into the back office and things like that might be there, but it might be a different process. It might be a bit clunky, um, but it's a stop gap solution.
Speaker 2 00:22:25 And so anybody who feels like they're really tied down to Concur, really tied down to their TNC, really tied down to the G D s, whatever it is, um, getting access to American NDC content via travel fusion will be an option. And it, it won't come with the pain of not having access to lower affairs, but it may come with different kinds of pain for some, some period of time. Now, the, the loyalty point, you know, I I think it's, uh, in, I don't know how much, and I I'll speak kind of more generically about airlines generally here and non-American specifically, but one of the lessons learned coming out of the pandemic, particularly as yields compressed between corporate and leisure, is that there's, there's comparatively less ROI for $1 spent on an airlines corporate programs by the airline versus $1 spent on the loyalty program.
Speaker 2 00:23:22 So imagine you're an airline and you've got a billion dollars to invest in driving traveler behavior, and you can split that billion dollars between investing in corporate and TMC programs and investing in your loyalty program in order to drive behavior. I think one of the lessons coming out of the pandemic is that it's more li it's, it's probably more profitable for an airline to invest more in their, their own loyalty program than in their, their T M C and their corporate discounting programs. And it's not, it's never binary. It's not like we're not doing T M C and corporate programs anymore, and we're o only doing loyalty. It's all about degrees. And so coming into the pandemic, the pendulum had shifted way in, in favor of T M C and corporate programs in order to drive behavior. Um, if you are American Airlines in particular, and you're feeling like that's a game that Delta was mainly winning, um, you know, you, you could be excused coming out of the pandemic to think, well, I could pay a lot of money and, and be second place to DA Delta, or I could pay a lot less money and be second place to Delta.
Speaker 2 00:24:32 And so what would you do? Um, that's, uh, you know, being a little bit tongue in cheek, but, but that kind of puts into context why an airline might want to kind of scale back the T TMC commission scale back corporate discounting, have a distribution strategy that's a little bit more, uh, airline.com focused than perhaps it's been in the past, all to drive more touchpoints with the individual travelers themselves.
Speaker 1 00:24:59 So, um, American Airlines has drawn a line in that proverbial sand. You mentioned some of the other airlines. What do you see as the next steps for some of the other major carriers?
Speaker 2 00:25:12 Yeah, I, you know, the way I tell this story is it's like Goldy locks in three Bears, you know, where one porridge was too hot, one was too cold, and one was just right. And, you know, maybe for some people's taste, the American strategy is a bit too hot. Um, if you were to talk to most airlines in the world, they may tell you that Delta's strategy's a little bit too cold. <laugh>, uh, you know, Delta has not rocked the boat and has been very TMC friendly and corporate friendly for a long time, uh, to their benefit. It's been a great strategy for, for the one airline. Um, and then kind of right in the middle, you've got United Airlines and United Airlines has made a lot of the same progress with n c from a technology perspective as American has and has even raised the bar in some respects as it relates to automated servicing and servicing, uh, portable servicing between channels.
Speaker 2 00:26:04 You can book on united.com and have it fairly seamlessly serviced by your tmc. And so United, uh, actually is pretty well positioned, um, to kind of follow in behind American without perhaps ruffling quite as many feathers. Uh, and as American makes progress with technology in the market, uh, United has all the bones and its strategy to kind of come along behind and get some of the, the same benefits without having to apply the same levers. So, um, you know, there's a question mark as to what, if any ROI American might have on its strategy. I think United's ROI is gonna be pretty positive
Speaker 1 00:26:45 As we wrap up this incredible discussion. Um, are there any final thoughts that you'd like to leave with our listeners?
Speaker 2 00:26:50 Well, the last thing I would say, Tracy, is, uh, I think everybody should give American just a little bit of a break. Uh, for whatever reason, the way this industry is set up is that typically American has to go first, if there's gonna be any major change, uh, because of this Goldilocks thing that I just explained, uh, and what airlines have learned over the last 10, 15, 20 years is you can add whatever value add content you want, you can offer to pay people lots of money to use n dc but the, at the end of the day, the only thing that really motivates people is access to low fair. So somebody was gonna have to do it, it was probably gonna have to be American. We were all going to have to go through, uh, a transition anyway as an industry. We'll get through the end of it. Okay. Uh, nobody's gonna get a rash during the process, but it will be a little bit painful in the interim. Uh, but we'll get there. Just hang in there.
Speaker 1 00:27:47 Okay. I appreciate that. I think that for a lot of our clients and others that are listening, it's about getting the answers to the questions they need. So yes, ask the hard questions so that you can understand clearly the short term and potentially longer term aspects that might impact your program. I think it's good there's moving in the industry and that we are all here for the ride. Let's see what happens and work together, understand together, and most definitely make it happen together. We just need to put that plan in place and move on and carry on. And with that, Corey, thank you for being with us today.
Speaker 2 00:28:20 Well, thank you have for having me. And it was, uh, it was a fantastic time. Really enjoyed the discussion.
Speaker 1 00:28:26 If you'd like to learn more about T two r l, we have linked their website, t2 rl.com. I love it when companies keep it simple. Thank you to all of our listeners for joining us today. And if you haven't already, subscribe to this podcast, your window seat available on all major streaming channels. For information about US Travel Incorporated, go to www.travel inc.com and follow us on our social channels. We look forward to the next episode, and as always, from Travel Incorporated, save travels.
