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Open Axis Warns Of Air 'Distribution Gap'

By Jay Boehmer / November 11, 2010 / Contact Reporter
Business Travel News on X

The Open Axis Group this month released a manifesto of sorts, endorsed by the largest airlines in the United States, outlining a vision to close a "distribution gap" between direct and indirect channels. The premise, as outlined in a white paper, centers on what Open Axis—a group of all major U.S. network carriers, as well as Air Canada, Frontier Airlines and ATPCo, that formed in July to create a standard for distributing ancillary airline services—called a "traveler-authenticated marketplace," through which airlines could tailor offerings at the point of sale based on the shopper's frequent-flyer status, perceived value to the carrier, corporate affiliation or preferred travel agency and other identifying features or preferences.

Among other key tenets outlined in the white paper, Open Axis broadly is advocating for XML—not EDIFACT—as the primary language of indirect distribution and for expanded electronic miscellaneous document transaction reporting "to ensure all parties have detailed and timely data regarding ancillary services without dependency on full-scale ARC/IATA production rollouts."

Open Axis group executive director Jim Young said, "You've got seven of the largest airlines in North America standing up and saying, 'This is the direction I want to head.' "

Entitled "Distribution 2.0: Innovating the Airline Indirect Channel," the position paper paints the current indirect distribution marketplace as one dominated by a "push model," through which airline offerings are differentiated largely on schedule and price, aggregated based on third-party rules and distributed to anonymous buyers. "As such, the airline product becomes fully commoditized, forcing the airlines to continually compete on price alone," the paper contends.

Claiming direct channels already give airlines the ability to integrate loyalty program status, personalize offers to individual travelers, control pricing and speed customized products and services to the market, the paper notes that "airlines are now seeking to deliver similar value and capabilities to indirect channels," which Young said comprise 50 percent on average of airlines' business.

"The member airlines have made it very clear that traveler-authenticated shopping is the direction that they want to go," said Young. "This is not about eliminating or replacing the current distribution channels that are in place. It's actually giving the current distribution channel—the infrastructure they have in place—an upgrade."

Young said the "traveler-authenticated marketplace" is built around answering the question, "Who's asking?" and said that if airlines knew more details about shoppers, they "might be able to offer something more competitive, other than just what would be considered the rack rate or the published standard price." That personalization could range from recognizing at the point of sale that a frequent flyer's status provides bag-fee exemptions all the way to carrying that personalization to the onboard experience.

"We've got allied members that touch all parts of the trip lifecycle," Young said, citing GuestLogix, which builds onboard retail systems. "We're not just looking at booking solution providers and ticketing providers." Suggesting that onboard entertainment systems could double as inflight point-of-sale systems, he said, "If you loaded in the traveler's frequent flyer program or some other indicator of who is at that seat, then that display could change. Instead of a cocktail for $7, it might be a cocktail for $3 at that seat."

Some carriers already have flirted with traveler-authenticated selling. "You have some that are making some very ambitious moves, like American and Air Canada," Young said. "You have others that are quietly experimenting with it with individual agencies, and then you have others that aren't quite sure specifically what they want to do, but know these standards need to be put in place so they can do something when they decide. We run the gamut among our membership, but they all believe this is the right thing to do going forward."

Delta Air Lines also appeared to be eyeing a marketing strategy built on customized offerings for travelers. "Additional services being considered by airlines will need to be delivered in a far more personalized and targeted fashion," Delta noted in September in its public comments on the U.S. Department of Transportation's proposed rules on ancillary fees and other matters. "Delta intends to distribute new products and services based on customer preferences. The price of these products may also differ based on criteria such as frequent flyer status or fare paid. New entrant providers such as Farelogix have developed technology which is more advanced and efficient." Delta said it was "willing to consider" the GDSs as a distributor of such content, but only if they "develop and demonstrate the capability."

Young and Open Axis hope global distribution systems and other links in the travel supply chain—from corporations to travel agencies—embrace "Distribution 2.0" or risk further widening the "distribution gap." The white paper concludes that such an outcome "does not serve anyone in the supply chain and is, in our view, a worst-case scenario."

In the meantime, American has been pursuing a bypass strategy, using Farelogix technology for a direct connect. Managing director of distribution and merchandising strategy Bridget Blaise-Shamai in September during The Beat Live conference in Chicago claimed "a number of" agencies were "already live and in production, are imminently going to be in production, or are at the point of signing contracts with us," but are reluctant to say so publicly to avoid impacting their established relationships.

Unlike American's, Delta's GDS contracts do not expire next year. Young argued that bringing merchandising to indirect channels is not a factor in GDS negotiations, but others disagreed.

"AA calls this direct connect and it's no secret that AA are tough negotiators," said former Worldspan executive Mike Parks. "They're very good at strategic planning and they think through the chess game several steps in advance, and the GDS negotiations are coming up. Many people don't want to admit it, but it's a big factor in why they're talking so much about direct connect. I'm not hearing a lot of TMCs approaching AA and saying, 'I want a direct-connect model outside our current processes.' "

Other conference attendees agreed that while much of the debate these days about airline distribution is related to GDS deals, transparency, standards, technical connectivity and economics, AA's, and evidently Delta's, key desire is for control and a closer relationship to the customer. The attendees also observed that current talks are different from previous rounds of airline-GDS negotiations in that the opportunities are revenue-related rather than cost-focused.

Former Air Canada executive Marc Rosenberg said, "It's healthy for the airline industry to encourage this kind of technical development and allow smaller companies and technology to grow and have a viable option to the three GDSs. There's nothing wrong to want a strategy in the market where nobody can control you. You don't want concentration of your supplier to the point where the supplier tells you what you can and cannot sell."

Jay Campbell and David Jonas contributed to this report, which appears in the Nov. 8 issue of Business Travel News.

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