This piece has been co-authored with Vojin Rakonjac, VP Travel at Endava.
Legacy technologies have served the aviation industry well. Airlines, large and small, still rely on a handful of Passenger Service Systems (PSSs) and Global Distribution Systems (GDSs). These hardy frameworks are based on the EDIFACT communication protocols that were finalised over 30 years ago.
Yet while these technologies have proved impressively robust, they’re imposing an increasingly eyewatering opportunity cost. As profits struggle to rebound from the Covid era, airlines need the tech firepower to implement root-and-branch innovation strategies. But their tech stacks are so old and complex that they turn what should be small feature integrations into open heart surgery.
Until now. A breed of new technologies coming on stream promise to rewrite the revenue streams of the whole industry. Let’s scroll on to take a look at the emerging systems expanding the aviation business model.
WHY IT’S TIME FOR A NEW DISTRIBUTION MODEL
The PSS and GDS that underpin the world’s airlines were designed for a time when travel agents reigned supreme. Holidaymakers would walk into their local travel agent’s office with their destination and travel dates in mind. The agent would then select their flights and book their hotels.
As anyone in the business knows, that’s not quite how things work anymore. 2023’s passengers are more likely to do this all themselves, using flight comparison and metasearch engines to construct their own travel plans tailored to their own needs.
Airlines’ legacy systems offer neither the flexibility nor the data to fully cater to these self-directed customer journeys. Their fare rules limit the ability to implement dynamic pricing and tailor offers to customer behaviour.
PSSs also impose greater complication. The passenger’s ticket is just one of a number of individual documents to be issued. Other electronic miscellaneous documents (EMDs) might cover baggage check-in, meal entitlements and paid seat reservations.
On top of this, these systems’ obsolete components make expanding the feature set difficult and costly.
It’s much more pleasant not to think about how much potential revenue is being squandered here. But there is no doubt that a new way of doing things is sorely needed. The airline industry needs a distribution infrastructure that breaks away from legacy tech.
This infrastructure will serve connected customer experiences and allow airlines to integrate new technologies as they emerge.
SIGNPOSTS TO A BETTER DISTRIBUTION SYSTEM
The IATA has gone a long way in creating a blueprint here with its New Distribution Capability (NDC). This is a data exchange format based on Offers and Orders management processes. It allows airlines to sell their own goods and services directly to third-parties without intermediaries.
NDC goes hand in hand with another IATA scheme, ONE Order, which will phase out the current booking and ticketing record system. No more passenger name records and other miscellaneous documents - just a single, XML-based customer order.
THE PROMISE OF OFFER AND ORDERS
Taken together, the NDC and ONE Order frameworks have the potential to open many new value channels. ONE Order consolidates all customer data into one record, which airlines can update and monitor in real time.
This move towards Offer and Order management systems (OMSs) will also eliminate the need for reservation booking designators (RBDs). This opens up the possibility of offering individual fares and booking options. Prices will become more dynamic and ancillary packages more bespoke. Airlines will simply know their customers much better.
The NDC’s API integrations also make airlines’ prospects for personalisation and sophisticated retailing a whole lot brighter.
MAKING THE TRANSITION
The IATA is aiming to see 100% Offers and Orders across the aviation industry by 2030. The challenge lies in convincing each airline why they should jettison a PSS they know works well.
Airlines are currently underestimating the commercial potential of these systems - and the retailing they enable. The most recent estimate by McKinsey places this at $7 per passenger. As mounting use cases from early adopters substantiate this figure, more and more brands will get onboard.
In the medium term, airlines ought to anticipate some wider technical challenges in making this transition. Orders-based systems will, for a time, co-exist with legacy environments. To maintain safety standards, changes on the Orders side will need to be reflected in the PSS. Similarly, upgrading Revenue Management systems to handle RBD and non-RBD functionalities at once will require time and investment.
THE NEW PROVIDER ECOSYSTEM
PSS providers will inevitably feel threatened by the redundancy of their core products. Some, such as Sabre, are already expanding their wheelhouses to handle ONE Order systems. Yet enthusiasm among this sector will likely remain muted.
This opens up space for a new stable of aviation IT service providers. Some of these companies may have prior PSS experience, while others will be pure-play NGD providers. If these second-row providers can offer a diverse set of systems, such as revenue management and departure control, so much the better.
A SOFT LANDING FOR INNOVATION
These systems could herald a boom in aviation industry growth. But this can only happen if airlines are prepared to take them on. Order-based technology is now mature enough for airlines to start the transition without fear, aided by emerging providers.
In a recent podcast, our enterprise innovation experts spoke in depth about data-driven strategies for airlines to modernise their digital infrastructure. Want to know how to upgrade your systems without pressing pause on day-to-day operations? Listen to it here.