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Examining the Future of Airline Distribution

For more than 40 years, airline distribution has been a relatively consistent environment, where expectations were clear, processes were dependable and change moved slowly and measuredly.

That is no longer the case.

Today's distribution landscape is a fluid environment, with disruption seemingly around every corner. As a unifying leader in the travel industry, ARC is working to bring together travel agencies, airlines, GDSs and other technology providers to determine which solutions will enhance business outcomes as well as improve the traveler’s experience.

Here’s what ARC is doing to help ensure the success of both travel agencies and airlines as new distribution strategies unfold:

Enabling Flexible Solutions

ARC held the inaugural Settlement Council in early 2017, facilitating meaningful conversations with a progressive group of industry stakeholders around the future of settlement: What does the industry need, and how can ARC enable new and divergent strategies moving forward? The Settlement Council consists of representatives from travel agencies, airlines, global distribution systems (GDSs) and technology providers. For more on this initiative, view our press release on the inaugural meeting.

Conducting Timely Research

ARC has partnered with the Global Business Travel Association (GBTA) Foundation to conduct long-term research on the airline distribution landscape and its implications on business travel. We established the foundational elements of this research with a brief online survey of 52 travel management companies (TMCs), paired with a set of in-depth interviews with 13 distribution experts from a spectrum of airlines, TMCs and GDSs.

Our research confirmed that distribution is already a substantial topic of conversation for TMCs: 71% of the TMCs surveyed have had conversations with airline partners about the future of distribution content in the last 18 months. ARC has partnered with the GBTA Foundation to conduct long-term research on the airline distribution landscape and its implications on business travel.

During those conversations, direct connections(also known as APIs — application program interfaces), were most often discussed, followed by leveraging NDC via a GDS, or, to a lesser extent, via an aggregator. Currently, little booking volume comes from APIs, but there is a sense this will increase in the next 12 to 18 months, causing mixed feelings among TMCs, as some prefer to use direct connections more often, and some prefer to use them less often than they do now. Among those currently using them, there is no doubt direct connections have profound impacts on business, from requiring changes to their technical platforms to costing additional capital to adding steps to existing workflows.

Facilitating Industry Conversations

This research was used to inform a dynamic panel discussion at the GBTA Convention in July. The lively discussion addressed the corporate travel market and touched on a number of key tension points and opportunities to hone in on going forward.

A key priority of both airlines and TMCs is product and purchase transparency for the business traveler. “The differentiation that we all want is for a corporate client to understand what kind of product [they are buying],” said Peter Vlitas, senior vice president of airline relations for Travel Leaders Group. “Do I have duty of care, and do I have transparency?”

“What we have in mind… is to differentiate the products and services to the corporate customer, as well as to the leisure customer, moving forward,” said Larry Ryan, Lufthansa’s senior director of sales for the U.S. “In the present technology environment,” he continued, “we don’t have the transparency… that we need in order to effectively market our investment [in our products and services]. And that’s our issue, basically, moving forward.”

A key priority of both airlines and TMCs is product and purchase transparency for the business traveler.

With discussions of transparency, as well as current technology limitations, airlines are exploring new distribution methods — whether it’s through a GDS, an aggregator or direct connections. With such a wide spectrum of possibilities, the future remains undefined at this point, but panelists agreed that individualized direct connections would present significant complexity and a number of potential challenges.

“When we’re talking about the future, people have the GDS in their head, where you can see all the fares. You can see all the airlines [and availability],” said Vlitas. “But that’s not the case when you go forward and you cut a direct-connect deal with each and every airline.” Vlitas also referenced the scale and complexity of such an endeavor, as ARC settles transactions for more than 220 airlines.

Managing itinerary changes would also become more complex for tickets booked through direct connections. Dee Runyan, president of World Travel, Inc., noted that TMCs and agents have to consider voiding and exchanging capability. With a direct connection, “that record is now completely within the ecosystem of the airline,” Runyan said. “How does the agency service it? There are definitely some questions we need to… sort out through our mutual dialogue.”

“Individual direct-connects, with individual carriers, multiple sources — it doesn’t make sense at all,” said Ryan. “I think one thing we can agree on, though, is that competition fuels creativity. And this creative discussion would not be taking place if we did not, [as an industry], push the envelope to open up that field into a technological competition. And all parties… at the table —be it the end traveler, be it the travel manager, be it the TMC, be it the supplier — stand to benefit.”

Ryan also shared Lufthansa’s approach to direct connections for corporations: “I’m happy to say, on the corporate side, many of the direct-connect solutions we put in place were with GDSs’ support and power,” Ryan said. “So it’s not like ‘them and us’ — it was really about moving the model forward together.”"We want to work with the agencies and with corporate travel managers in the way that they want to work with us, and equip them to do that with the information that helps them make a better choice.”
– Frank Hull, Delta Air Lines

“This is not about, necessarily, direct connects for us,” said Frank Hull, managing director of sales development for Delta Air Lines. “And it’s not about cost, either. I would say it’s really more about the revenue side. We have very productive relationships with the GDSs, so our strategy here is to really lean into the GDSs, to equip the GDSs with the ability to provide the rich content so it flows through into the TMC channels as it does today. It’s not really about going around that or creating a disincentive for that — or anything like that."

While new distribution methods have the potential to create new opportunities and increased transparency, the panel seemed to agree that a GDS solution, with the necessary technological advancements, would offer the smoothest transition to enriched content.

“Let’s not re-create something we have. We want to enhance something we have.”
–Peter Vlitas, Travel Leaders Group

“Building a lot of new direct connects, it… sounds like you’re just re-creating what’s there,” Hull said. “I’m sure there will be some that do go down this path. There will be options, and ultimately, if there’s a customer who wants to work with us that way, we want to work with them in the way they want to work with us. But I would expect most TMCs, most corporations, to kind of continue through the TMC-GDS path. That’s the part that I think is really critical for Delta, at least, is how do we make sure we get that part really right?”

“We have to be careful, because travel is a big driver of the global economy,” said Vlitas. “So let’s not make a mistake and start screwing up a system that has worked pretty well up to now. We should continue these discussions.”

“Let’s not re-create something we have,” he added. “We want to enhance something we have.”

ARC and GBTA are planning to host a follow-up webinar later this year to further the dialogue and obtain valuable input from within the industry through a special Q&A session. In 2018, ARC and GBTA plan to conduct comprehensive quantitative research to dig even deeper into the future of distribution.

Equipping Agencies and Airlines

October 19-20, 2017, marks ARC’s fourth annual TravelConnect conference, held in Washington, D.C. This year, we will be focusing in on topics related to distribution, with panels such as Adapting to an Evolving Distribution Landscape: Insights from Global Experts, which will feature industry figures from Expedia, Southwest Airlines, United Airlines and Farelogix. We’ll also have sessions highlighting new travel agency business models and customer-centric innovation, with plenty of actionable insights for agents, airlines, and technology providers throughout the industry.

The industry is at the cusp of major change in airline distribution. Don’t miss your chance to learn more about what’s ahead: Register for TravelConnect to reserve your spot.

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About the author

Megan Leader is a senior brand and content strategist for ARC. She writes about air travel data, trends and destinations for readers throughout the travel industry. An avid traveler, Megan loves to explore art, design and food culture in cities around the world.