Airlines need to look at the success of Amazon in order to succeed with modern airline retailing, according to a report from airline tech provider Accelya.
Lessons from Amazon: What great retail looks like in Aviation argues that airlines started as peers to Amazon in the late 1990s but are now orders of magnitude smaller than the online retailer in terms of revenue.
“Today, Amazon has mastered all four elements of Offer, Order, Settle, Deliver (OOSD). Their experience shows airlines how to succeed with modern airline retailing,” the report says.
In an exclusive interview with Phocuswire, the report’s author, Oliver Ranson, editor of Airline Revenue Economics, said, “Many airlines, when you look at their organizational structure, are extremely well set up to develop technology, but less so to actually use it, develop new concepts, develop new ideas of getting people to be buying all sorts of new travel products and services through their website.”
Tye Radcliffe, chief customer success officer at Accelya said, “Some airlines have already kicked off RFPs and proper projects to pursue this but there's still a long tail of airlines that are sitting back and waiting.”
According to Ranson, “Airlines are some of the greatest brands in the world and that means the natural first point of contact in the travel shopping process for many consumers.”
Currently, OOSD has not enjoyed widespread adoption. Some argue that represents an opportunity for airlines.
George Bryan, head of orders at the Airlines Reporting Corporation, said, “Airlines that engage now aren't taking a blind gamble. They're helping shape what OOSD actually becomes in practice, and they'll be better positioned when the broader market catches up.”
Knud Kevin Brandt, CEO of Danish tour operator and consolidator Billetkontoret, is more pessimistic, citing the slow adoption of NDC as an indicator of aviation’s readiness to change.
He told Phocuswire, “No airlines are using [OOSD] except a few odd carriers. Even Finnair, which is apparently cutting edge on this, is still far away from going to anything near full OOSD. Many airlines are talking about it, but there is a ‘silent majority’ of airlines who could not care less about NDC, let alone OOSD.”
Legacy systems, fragmented processes
Airline distribution expert Robert Levy says that legacy distribution systems make it challenging to sell products beyond the seat through third-party legacy systems.
“The requirements for standardized product codes necessitate what many feel is a slow-moving governance. This resulted in a much richer product catalog being available through airlines direct sales than to their third party [sales]. Not only does this reduce product innovation but also reduces margins as higher-margin products may not be available through the third-party system.”
The Accelya report identifies fragmented payment processes as a major challenge in airlines becoming more like Amazon, and Accelya’s Radcliffe believes that OOSD will deliver a modern order management system that will enable different elements of a trip to be accounted for.
ARC’s Bryan said, “Part of what makes [payments] so interesting is the global dimension. Airline seats may look similar everywhere, but payment behaviors do not.
“China is almost entirely cashless, the U.S. remains deeply entrenched in credit cards, open banking is reshaping Europe and Australia, and much of Africa is still cash-based. The legacy technology platforms powering airlines today make it difficult to adopt market-specific payment strategies. OOSD changes that.”
Are consumers ready to embrace an airline “everything store,” to use the title of Brad Stone’s bestselling book about the rise of Amazon?
Radcliffe said, “There are airlines out there that are trying to sell more and more things and it seems like that's working for them.”
He believes loyalty will play a key role.
“If you can figure out a way to earn miles because of all the other things that you've purchased from there, then that's a strong driver,” he said.
Striking a balance on ancillaries
Levy says there is an enormous opportunity for airlines to grab a bigger slice of travel spend, and some have already started doing this with their tour operations, such as British Airways with BA Holidays.
He said, “It's well documented that consumers are spending more than ever on experiences, and airlines’ share of that spend has never been smaller. If airlines are to grab more, they will need to find a way to more effectively leverage their privileged early position in the travel planning funnel into sales from other suppliers.”
But he added, “Becoming a retailer requires an organizational change of mindset. Airlines are operationally focused rather than customer- or product-focused. Amongst airline CEOs, there are plenty who know their way round the cockpit or the balance sheet, whereas product and distribution often sit very low down in the org chart.”
Brandt argues that airlines should not try to sell everything.
“Look at Ryanair, one of the biggest and most successful carriers ever,” he said. “They sell flight seats, luggage, advance boarding etc. They don’t sell car rental, hotels, etc.—they make money on affiliate marketing of this, but why should they bother selling it? Combining air, hotel, car, activities etc., is the job of a travel agent.”
He added, “I don’t think many outsiders to the airline industry—including tech guys from Amazon—realize just how legacy-dependent the airline industry is. Everything speaks together in the same, albeit ancient, language—airlines, airports, travel agencies, handling agents, you name it.
“A language of 13-digit ticket numbers, six-figure PNRs, segments, coupons, EMDs, HKs and UNs. It’s horribly old school, but it is a language that everyone understands. OOSD is the Esperanto of the airline industry. Although the intention is good, I doubt about its success. Who speaks Esperanto today?”
According to ARC’s Bryan, “Airlines don't want to be Amazon because they are fundamentally different businesses. What the industry wants is to sell its products in a modern way, where each airline's unique value proposition can actually come through.”
“Right now, the industry is deeply commoditized. It's hard to justify investment in new aircraft, premium cabin designs and unique onboard experiences, when at the end of the day, a traveler is comparing you on route and price alone. What airlines want to borrow from Amazon isn't the business model, it's the retailing experience.”
He added, “The logical expansion is travel-adjacent products like hotels, rail, insurance and experiences. The problem is the legacy technology platforms powering most airlines today were built to manage seats and tickets, not to retail a broader travel experience. That's exactly the gap OOSD is designed to close.”