In this episode, we chat about our recent webinar with Phocuswire. The topic was direct distribution and how IATA’s NDC standard is poised to make airlines better retailers, and the conversation was between Mike Slone, Principal of PROS Travel, and Graham Wareham, head of NDC and Partnerships at ATPCO. It was moderated by Kevin May of Phocuswire.
This episode contains excerpts from the conversation, but for the full experience, we encourage you to check out the entire webinar on Phocuswire’s website or on PROS.com. The conversation produced spectacular input around the next steps in airline retailing. Check out the “cliffnotes” version here.
You can listen to The View from 30,000 ft. on Apple Podcasts and Spotify. Or listen to the full audio version below.
In This Episode
[1:10]: Digital transformation: not just a buzzword. What does it mean?
[2:28]: Results of survey conducted by Hanover Research with ~400 airline industry executives. What do the stats show?
[4:03]: Specific changes airlines are making to their tech stack
[5:34]: How digital transformation is impacting the organization as far as budget and roles
[7:38]: People are the drivers of change and one of the keys to success in airline digital transformation
[8:21]: TAP Air Portugal as an innovation example
[9:55]: Revenue management as a critical function
[10:51]: How airlines measure the success of their investments in digital transformation
Aditi: Hello and welcome to the PROS Travel podcast, The View From 30,000 Feet. I'm your host, Aditi Mehta, and today I am joined by my colleague, Stanislava Yordanova. And today we wanted to talk all about airline digital transformation. In the world of business and technology, there's constant chatter about digital transformation. Some of us may call it a buzzword, but through conversations with business leaders, attending conferences, research, it's so much more than that. There's a ton of real work and resources that are being poured into digital transformation initiatives across the board. And it's really impacting the way so many industries, departments, and business leaders are operating....
Stanislava: This is so true Aditi for any organization today. This is why we decided to partner with Hanover Research to deep dive into what digital transformation means for airlines specifically. We know people talk about it all the time, but we wanted to understand better what it actually means for airlines and how they are changing and shifting to meet the needs of digital transformation.
Aditi: Right. So first, let's take a step back and talk about what we actually mean by digital transformation. People use the word a lot, but what are we talking about in the context of the airline industry?
Stanislava: Yeah, so we at pros define digital transformation as the process of using digital technologies to create new or modify existing business processes, culture, customer experiences, all to meet the challenges of the changing market. So for airlines we've found that digital transformation means many things, from improving the customer experience to increasing safety and optimizing revenue and performance, especially in the context of high competition, growing passenger demand, and lower profits.
Aditi: Right, right. And I do want to give our listeners some context. So, where we got a lot of the data and the information we're talking about today is a survey that PROS commissioned with a company called Hanover Research. We surveyed airline executives, about 400 people across digital revenue management, IT, e-commerce. And this was a global survey. So we surveyed airlines around the world and we asked them, what are their top priorities when it came to digital transformation? So Stanislava, can you talk a little bit about some of the results that we saw?
Stanislava: Well, we found out that airlines are well aware that they need to accelerate transformation by innovating or they risk being left behind. So the stats shows that over 60% of airlines say that technology innovation is their number one priority. That's a huge number. Customer centricity is also on top of the list and it is considered as a main revenue driver. And optimizing revenues also present in different forms in order to impact the thin margins in the industry. So bottom line, I think it all boils down to two main goals: customer experience, and revenue optimization.
Aditi: Yes. That's really interesting how airlines are prioritizing digital transformation initiatives, and what goals they have in mind. A really interesting stat to me from our study was that 68% of those who we surveyed say they are looking to upgrade software and IT infrastructure. They think that it's a first or a key step. Is this in line with what you were hearing from our customers and in the market?
Stanislava: Yes. We hear the same story from the customers we talk to. So for example, during the last customer day event we did in Paris, all the carriers shared that they're running multiple projects today across their core commercial systems and IT infrastructure.
Aditi: Yeah. And the survey also asked airline leaders, what are specific changes they are making in their tech stack? I thought this was really interesting. Can you highlight some of the data there?
Stanislava: So the survey data reflects a trend across carriers of all sizes and all business models. Two thirds of airlines we interviewed share that they're enhancing their systems for retail. So for example, we hear many customers say that they're decoupling their e-commerce tech from their core PSS. And this upgrade consists of airline shopping, pricing, merchandising tools that help them create offers with more flexibility and control over how they've designed the entire shopping experience, how they upsell with ancillaries and just so on.
Stanislava: In addition to this, carriers are also improving and innovating with new processes, using business intelligence, analytics, artificial intelligence, machine learning, all those modern buzzwords. And moving to the cloud is also an important step more than half of the airlines we asked confirm taking in order to be able to scale their business faster and more efficiently.
Aditi: Yeah, that's really interesting. I know it's something that's often overlooked except by the IT department is this whole concept of moving to SaaS and moving to cloud to help increase efficiencies across the business. But in addition to technology, I think a really interesting aspect of digital transformation is how it's actually impacting the organization and people's jobs. We asked a lot of questions around how much budgets are allocated to digital transformation and the impact on various departments. Can you talk a little bit more about that?
Stanislava: Digital transformation impact goes beyond just technology. We found that over 30% of budgets, for example, are invested in digital transformation and not only in tech stack upgrades, but also in increasing the qualification of existing talent and also bringing in new skills to the organization. Half of the full service carriers we talk to justify this with the expected return on investment being 10% and higher. This is a great number.
Stanislava: I can add to that, that people within the organization feel the impact by breaking the silos and working much closer with other departments. Over 60% of airlines claim involving four or more departments in their digital initiatives like digital strategy, IT, e-commerce, revenue management, pricing, marketing, and so on.
Stanislava: And last but not least, two thirds of airlines end up creating new roles across these departments that I just mentioned and they have a stronger retail talent. It's often engaging people that are data scientists that are going to help drive the success with artificial intelligence and analytics. And bigger carriers, they also claim creating entire cross-functional agile teams across the organization. So a lot of change is happening.
Aditi: Yeah, it sounds like tremendous amounts of change like we said to the organization in a lot of investments that are going on. It was really interesting because you and I both hosted this round table at the World Aviation Festival in London a few months ago. And at a round table, we had a leads of digital teams, CIOs, other department heads, and they were all talking about this friction around digital transformation. And you could feel some type of frustration within the group about the speed at which digital transformation was taking a hold in their organization. But it was really clear that the digital transformation wasn't just about IT and changing out legacy systems. It was really about people and having the right processes in place as well.
Stanislava: Absolutely. People are the main driver of this change. I mean airline professionals share that getting leadership onboard is really key for the success of digital transformation. You have to have buy in from the c-suite, and include the right people from the beginning of those projects and make sure you align all the objectives across all the different departments that are involved.
Aditi: Exactly. I think some of the most successful, innovative airlines are really about this interdisciplinary teams or structured focus on innovation. You and I were talking about this a while back. You mentioned this great example of TAP Air Portugal, one of our customers.
Stanislava: Yes, TAP Air Portugal is really an example that innovation can start anywhere. They have this program called More With Less that every employee basically can submit innovation ideas that are internally prioritized by the program boards. And also C level and business directors can sponsor innovation initiatives as part of their project portfolio and sign them up for the yearly budget. And of course they also partner externally like the customer engagement program with it together for applying artificial intelligence to help them optimize how ancillaries are sold on their dot com channel.
Aditi: Right. So it sounds like, for some of this innovation to come to life, you really have to enable the departments that are there to be successful and to experiment a test out with partners, and I think what TAP did is really great there. One point that you and I discussed after… CAB at PROS is a customer advisory board. We have some of our leading airline customers who meet with us annually and we talk about business initiatives. One of the CAB topics that came up was that revenue management is heavily involved in digital transformation. You would think that they are a department that's not involved in digital transformation, that it's more of an e-commerce project, but it's just not true. At the end of the day, revenue management owns revenue and they provide valuable insight for market behaviors, how products and offers should look, and how they should be priced.
Stanislava: Airlines are experimenting to find what works best for them, so there is no wrong or right answer, but what you're saying makes a lot of sense. Having in mind that revenue management has always been a critical function for airlines and it's unlike any other industry. So for example, carriers that are our customers and we talk to like Etihad, TAP Air Portugal, and Air Canada, also other airlines, seem to be bringing more and more responsibilities under revenue management. So it's really a leading function for digital transformation.
Aditi: Definitely. It definitely sounds like it from talking to our customers. One last point I wanted to touch upon is the barriers to digital transformation, and how airlines are measuring if their investments or resources are paying off. And from talking to people and seeing data, it seems like it's a mixed bag.
Stanislava: Yeah. I think airlines still haven't quite established what success in digital transformation looks like. Does it have to do with customer conversion rates? Is it about loyalty or increased bookings? There's so many ways actually to measure it, and I think it would vary depending on the initiative, on the carrier, and basically the end goal. But to tie it back to the airline's main goals, it's really about being customer-centric. So measuring the customer experience and how successful it is and optimizing revenues.
Aditi: Yeah. I think at the end of the day to push a digital transformation project and really win the buy in of your C-suite, other leaders, and get other departments working with you, you have to have clear KPIs and you have to be able to measure and show results. And I think one way to really do that is to have the right partner, right colleagues, who can help you build out that solid business case.
Aditi: So Stanislava, thank you so much for joining me today on this conversation, and it's really insightful to see all of the great research that has come out around airline digital transformation. And for our listeners, for anyone in the airline industry who's looking at more information about how to bring digital transformation to life at their airline, I highly encourage you to read our full white paper. You can that on pros.com; it's all about airline digital transformation. I'd like to thank everyone for taking a listen today and join us for our next episode of The View From 30,000 ft.