One-On-One With Amadeus' David Jones: Amadeus To Further Airline Retailing

Amadeus by 2010 plans to roll out its Airline Retailing Platform to offer merchandizing, upselling and unbundling options to airlines through the global distribution system. Executive vice president of commercial David Jones sat down with BTN senior editor Jay Boehmer late last month to discuss the platform's evolution.

BTN: What's the Airline Retailing Platform status?

David Jones: The last few years have been a period of quite considerable tension between the airline and the global distribution system industries. We thought long and hard about how we should deal with this. It's mostly about cost, but it's also about the benefits airlines discovered they could achieve through their online Web sites in terms of retailing. There are many things they can do through their online Web sites in a retailing sense—merchandizing, customer communication, branding—which they can't do through the GDSs as they stand today.

First, we thought about the cost issue related to airlines shifting more of their business online. Airlines can shift business to their own Web site in their home markets, where their brand is strong and where they're top of mind for the traveling public. The value that we added was greater away from the airline's home base than it was closer to the airline's home base. Driven in part by that thinking, we came up with our value-based pricing approach.

As a result, we have reduced what we call our local booking fees to a level where a number of airlines have said to us that the fees we're offering in local markets now are competitive to direct distribution. Though the airlines may be a bit reluctant to admit it, we believe that in parallel, even though our booking fees farther away from the airlines' home base have gone up quite a bit, they still deliver very substantial value for money. As a percentage of the fare, they're pretty low—about 2 percent. In our opinion, they deliver tremendous value for money.

Now, how does that relate to the retailing platform? Our analysis was there are two threads to the intermediated channel, which is still our primary business area. One was cost, and the second was that the airlines have discovered they can retail through their direct channel. The Airline Retailing Platform is our attempt to address the retailing issue.

We want to replicate for the airlines, as much as possible, through the indirect channel what they can get directly, but in a multi-airline platform and in a way that makes sense to travel agencies as well as airlines. It's an order of magnitude more complex than delivering it for a single airline on that airline's Web site. That's why we have the approach to roll this out in phases, because there is a lot of work involved.

BTN: Have you begun testing it with airlines?

Jones: Elements of it, yes. There have been some comments from vested parties that this is all a bit slow, and we would like to have everything tomorrow. We have been very determinedly migrating our technology to open platforms. We started over a decade ago and we will finish in 2011—a very substantial program. In the long term, it will bring our customers and us tremendous benefits because this gives us much better ability to handle complexity, it gives us greater flexibility, it will reduce our time to market because the programming task is simplified, and it will give us scalability. This is important because some of the things we are doing would be extremely difficult, if not impossible, to do without this move to open systems.

This is why we're rolling it out in steps and pieces. It can't just be a big bang, nor are we doing quick-and-dirty fixes. Yes, we are working with airlines today. We have airlines testing some of the early components and things will start appearing publicly soon.

BTN: On one hand, you have to standardize the offering, but at the same time you have to enable divergent approaches to how airlines want their products sold.

Jones: Absolutely right. One of the greatest values that we deliver is neutrality. Still today in Europe, we have a regulatory requirement that we are neutral as defined by the European Commission. That may change. As of today, we still have that requirement. And as of relatively recently, that was the case in North America. It's in our genes to be neutral, and indeed our business model requires it. Our business model is about providing community solutions, particularly in the area of distribution. The global distribution system has multiple customers—airlines, travel agencies, plus hotels and car rental companies and so on—all using the same platform for various needs. Yet marketing and retailing is about being smarter than the other guy so you get an edge. The way we have to evolve is adding to the community construction enhancements that enable different airlines to get an edge through their own smarts, but using the tools that we provide.

BTN: Retailing initiatives have the potential to cloud transparency from the initial price displayed in the global distribution system to the price a traveler pays. How do you determine the baseline or what's originally displayed?

Jones: If you think about leisure travelers, the way most people start out is the lowest price. I think that will evolve, actually. More people are realizing there are trading-up possibilities that can be very worthwhile. Most people who travel regularly for leisure now know you can get the cheapest flight at 5 a.m. or 11 p.m. If the amount you have to pay for a better time is low enough, it could be worth trading up.

When it comes to business travel, the issue is really the policy. Upselling is obviously determined by policy, so you have to look for the lowest fare, but if there is something that's better and it's within the policy, then okay. If it's unbundling, it undoubtedly gives the travel manager a headache, because he has to decide a number of different parameters that will apply. Once that's decided, it can be built into the profiles of people in that company. Corporations can input the parameters that determine what will be displayed to the travelers. We'll be adding some more parameters, but the bigger problem is determining how travel managers set those parameters internally.

BTN: What are Amadeus' revenue opportunities for the Airline Retailing Platform? Does value-based pricing come into that as well?

Jones: In a sense. We'll say if you're unbundling to generate additional revenue and our system adapts to accommodate that, we're adding additional value and we will charge airlines for that. Not much, but we will charge.

A more interesting question is: What about value for the travel agencies? Because the airlines have got to think how do they provide an incentive in this theoretically commissionless world, how do they provide incentives for travel agents to upsell or cross-sell? That's an interesting challenge for both parties, because the agencies will say, "If I'm delivering more value to these guys, they need to give me more share of the cake." How is that going to be worked out? I don't know. That's between the airlines and agencies. Our role as technology partners is to provide the tools which enable things, not then to determine how our customers use them.

BTNonline.com Web Extra:Business Travel News' interview with Amadeus' David Jones continues below.

BTN: Do you think these retailing initiatives have the propensity to significantly alter corporate travel distribution for airlines, agents and travel buyers?

Jones: The name of the game is to think about how you can add value to your customers or business partners. I personally believe that the phase we've been going through in the past few years has been understandable, with the airlines determined to reduce their costs—and I don't think we're at the end of this process. I regard it as a bit of a pity, because during this period there has been so much emphasis on the cost side of the equation that the revenue side of the equation, and therefore the value of the channel, has been minimized everywhere. In thinking about the channel, it's been about cost, cost, cost. With what's going on today—fuel prices and all that—it's not about to change. It's unfortunate because in reality any idiot can reduce their distribution costs to zero: You just close down your Web site and disconnect from the GDSs. You don't sell anything, but your costs go down to zero.

Distribution is about revenue—revenue with the best value-to-cost ratio, of course. Let's at least get the revenue side and value side back into the discussions. It's so frustrating trying to have constructive discussions with airline executives who have got the primary objective to cut the cost, and the revenue doesn't come into it.

Could this be revolutionary? It has the potential to change things quite a lot if it can help people focus once again on generating revenue and adding value—from our side to our airline and agency customers and from them to their business partners.

BTN: That said, are the airlines seeing the value of your retailing approach?

Jones: I have no doubt the answer is yes. The airlines to varying degrees are enthusiastic about the direction we're trying to take. For each of the elements of the airline retailing program, we are working with major airlines as launch customers, so the detail is being designed to give us that customer input to make sure we get it right from the beginning.

We still have very tough discussions about cost and price and it would be utterly naïve of me to think that wouldn't be the case. There is a lot of interest in the ideas that we have, and indeed they are pushing us.

BTN: What's your outlook for the European deregulation process?

Jones: I usually try to avoid any involvement in it because it's so frustrating, but it's grinding its way through what is inevitably a lengthy process. The EC has made clear where it stands and there is still some discussion going on around parent carrier rules. In our opinion, that's misguided, but others have a right to their view and their exercising it. We're confident that the weight of the argument is clearly on the side of those that say this is an industry that doesn't need regulation, that the forces of competition and the general rule of law are sufficient to govern the relationships between the different players—as they are in practically every other industry on Earth and as they are indeed in the same industry in North America. That's the way we see it.