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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
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
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
"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
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