Shearwater Blog

Sometimes I come across something that whilst vaguely interesting, I struggle to find where it fits into the “how would an airline use this information to help run their business better” category:

“Our research concluded that, on its face, there were no direct correlations between airline disasters resulting in loss of life and market reaction to the disaster,” said Dr. Pukthuanthong-Le.

and

Dr. Kuntara Pukthuanthong-Le, a finance professor at SDSU, along with Dr. Thomas Walker and Dolruedee Thiengtham, both from the Molson School of Business at Concordia University in Montreal, Canada, concluded that while the stock of the affected airline would plummet within the first seven days following the accident, there was no clear conclusion that could be drawn on the effect of long-term stock prices.

So maybe the only useful take-out is this: What really matters is selling more (both seats on the plane and ancillary services); fortunately I have more to contribute to the discussion on this topic than I do on the topic of airline safety or long term stock price correlation with other factors.

Whilst most of the airline related blogosphere today are talking about the water landing of US Airways flight 1549, my mind is on innovation for airline direct sales channels, especially as I am meeting someone later today on this topic, and I realize I only have part of the answer. When I think of useful innovation I sometimes think in terms of what has given me the greatest increase in productivity. Off the top of my head, the two things I adopted in 2008 that made me significantly more productive were setting iGoogle as my browser homepage, and using a BlackBerry mobile phone. iGoogle took the concept from sites like Netvibes that pulled together RSS feeds, and by adding useful widgets/gadgets it has become a very good platform. But I believe only a very small percentage of average airline travellers are using such a homepage, so building widgets seems more applicable to platforms like Facebook where I question the overlap between frequent users and frequent flyers.  

So the real question is, what type of innovative tool or service could an airline give me that would increase my productivity and/or leave me with a feeling that I have received enough additional value to make adoption worth my while.  I am sure this will be an ongoing topic of discussion in my various meetings with airline executives over the course of this year as they try to get an edge over competitors.

The banking example I linked to above is a good start, if only the platform was more widely adopted. RSS examples from airlines referred to previously were not compelling enough, but I do like the way Technorati allows extremely customized RSS feeds, so don’t rule it out completely. With Twitter I remain lukewarm, but I was seeing a good discussion on them trying to find a business model, especially in the comments at the end of this post. Maybe Twitter could be used in conjunction with other delivery methods such as customized RSS and the old favourites like SMS and email to ensure the content gets delivered exactly as your passenger wants it. But more channels, epsecially building for different mobile platforms, starts to increase costs quite fast. So tieing a widget and/or dedicated website linked to various communication methods with relevant and customized content drawing on the vast amount of information the airline already has on the direct sale customer is a start, but there is a lot more thinking required before I’ll be backing development of the killer Web 2.0 travel app for 2009!

Yesterday I mentioned that I had planned to write about Expedia, but was sidetracked by the announcement of the new Yahoo! CEO and her views on enabling innovation via a tolerance for failure. The reason I am interested in Expedia is because they are probably the best example that I know of in the travel industry using what I predicted would become much more important for airlines (and probably everyone else) in 2009. It is what I referred to as nudge marketing – basicaslly push, but much more targeted (a gentle push) and therefore a lot more effective.  

When I was presentating recently at an airline ancillary revenue conference (slides) (audio) I used part of this quote from Expedia below as a wake up call to European airlines.   

For example, one program that we have is if we know that you have searched for a flight from Los Angeles to New York and you haven’t bought and we see those prices go down by let’s say 10% or 15%, we’ll send you another email that says, “We saw you search for this flight. The price has changed. Do you want to buy?” That email converts at multiples of call it an email that’s not personalized 10 to 20 times non-personalized emails. We’re going to expand those programs into the European markets and hopefully we’ll see some good returns there.

I assumed that it was TRX that had built this for Expedia, especially as they get 45% of their revenue from this one customer, but someone familiar with the situation recently informed me that Expedia has built this functionality in-house. As an aside, I was very interested to see Expedia prepaying TRX their invoices based on expected transaction volumes. Either someone at TRX is a great negotiator, or they have dropped the price to get cash in the door more quickly.         

I’m currently working with a couple of airlines to implement nudge marketing, although in a different way to that done by Expedia. Before the middle of this year I hope to be in a position where I can release some very detailed statistics on the extra revenue this has generated for them, but in the meantime I am very pleased to see airlines waking up to the enormous possibilities from adopting this approach with ancillary revenue. I’m starting to wonder if it might even make me more of a believer in the legendary long tail? Only time will tell.

I was thinking about writing something on Expedia this morning, but I just saw the headline that Yahoo! has appointed a new CEO, and I saw an interesting quote attributed to her:

It’s the “3F” concept, or “fail-fast forward” — the idea that you engineer a company to fail in certain missions, to be resilient to failure, and to respond to it by overcoming quickly.

I was having a conversation with a colleague yesterday on how to best ensure big companies don’t lose their ability to innovate,  so seeing the above comment today made me think, as it did remind me a little of what we had been discussing. My point was that in big companies you tend to have 3 types of people

1. Those who complain things move too slowly
2. Those whose only interest is self-preservation and who try to force everything to move slowly
3. Those who work out a way to take the best of being in a big organization, but without letting it slow them down

When I was younger I sometimes fell into the first category, but now I see  that if you really feel that way you will die from frustration in a large company and you should either get out, join your colleagues in group 2 and just sell out completely, or stop complaining and move into group 3.  Writing this I can’t help thinking of some text at the end of Ayn Rand’s preface to the 25th anniversary edition of her classic book The Fountainhead where she talks about the types of people she writes for. Unfortunately I can’t find the text on the web (at least with a quick search) but there is a good clip from the movie on youtube. Howard Roark was the type of person who would never survive in a large company, but at least he knew that.

Getting back to the new CEO of Yahoo and her thoughts on enabling innovation in a large company:

“So we started this thing called ‘fail-fast-forward,’ and the whole idea is, listen, failure is very acceptable. When it happens, make sure you identify it quickly, and hopefully it’s in a forward motion. And then start going again.”

In my opinion this is where many large companies lose out. There are huge projects, with big upfront investment or maybe the reputation of the entire company is at stake, or maybe it is a community product promised to a range of customers who are depending on it – in these cases moving too fast will almost certainly cause problems later.  Proper business cases and multiple sign-offs at the top level are crucial. But the problem many big companies run into is when they treat every initiative the same as the mega projects – this is what kills innovation – paralysis by analysis.

Fortunately I am now in a position where I get the benefits of working in a large company (eg. global presence, strong brand name, great infrastructure) but on a product that is still evolving at such a rapid rate that the early customers in production are having a big impact on the direction, and most importantly, enhancements are being built in such a way that if it isn’t the commercial success anticipated, it won’t matter in the overall scheme of things.  Eventually every product as it matures must be bought more into the mainstream, but knowing the right time to do this is never a 100% sure bet. This is one way in which senior management really add value - understanding that zero failure will almost certainly mean zero innovation, and determing an acceptable level of failure as a cost of growing the business.

I’m only going to touch lightly on the topic in this post, as it deserves a much longer post or even a series of posts at some point in the future. Most of this topic is less relevant for this blog as it involves indirect (travel agency) distribution, but it should still be followed by people working with airline direct sales.

When times were not quite so lean, “people would go to industry meetings to discuss these things,” he said, and consensus often took years to emerge. “When you take all these forces at play — the practicality, the lack of people on both sides of the fence, the turgid process of getting industry concurrence — nobody’s got time to deal with it. “If GDSs expect airlines to dance to their tune, that’s just not going to happen,” he added. “I empathize with their situation, but that’s life.”

This quote reminded me of a panel session at the November 2008 ARAC conference in Budapest, as one question from the audience was similar to the quote above when Amadeus, Sabre and Travelport were on the stage. But what some people find convenient to ignore is that the GDS distribution business invests in technology that airline’s are asking for, and in order to have an effective community system, a system where products are clearly defined, can be sold by different parties in different countries using different terminals and without additional manual backoffice reconciliation work,  some form of agreement between airlines is essential before any GDS will start doing development. Just take a look at this simple example of the bicycle and you can see how charging for additional services can get very complicated and confusing for travellers very quickly. Nobody wants to see that example become the norm for someone travelling on a complex itinerary on different carriers who may be carrying one extra bag, or with any other form of “ancillary service.” 

So why should this area be followed by people working in direct sales? The simple answer is that the travel agency channel is undoubtedly moving in this direction, but the web will be leading this innovation as it has always done.

• It will cust costs for some costs for airline direct sales as filing of ancillary services via the GDS will better facilitate the revenue accounting function and reduce manual reconciliation work.  
• It further differentiates the web channel from other channels as more and more ancillary services are added. It even speeds up the channel shift from call centre to website, as the cost in extra talk time, and extra staff training etc make selling ancillary services more difficult)
• It allows better differention between fare families. This is very important if the website wants to take full advantage of the upsell capabilities of fare families, and avoid the example I referred to recently where 99% of buyers were not trading up to higher fare families, most probably because of a lack of perceived value from doing so. Apart from the clearly identifiable revenue benefits from selling ancillary services, the benefit listed here should not be underestimated, even though the result is not as transparently obvious as selling a rental car or hotel room on top of an airfare.

I think the topic of GDS involvement in facilitating ancillary services for airlines will be a very hot topic in 2009; but any mention I make of it here will be trying to tie its relevance back to the airline direct channel. Clearly it is largly an indirect distribution story, but not entirely so.

Sometimes I see a quote like this, and it makes me think maybe there is another side to this story:

“Online searches for flights during the week after Christmas dropped by 42 percent compared to the previous year.”

Sure the economy is having a negative effect on business, but this story is not referring to a 42% drop in sales. Maybe the other side to the story is that booking engines and websites in general are getting better at displaying the information, and consumers are finding it easier to get what they want with less searching?

I’ve written a few times about my skepticism regarding the hype around social networking, but if your airline hasn’t yet had its budget cut in this area (hurry up and spend it, as it will surely be cut), then you will find a great resource of stats here to help you justify any spending. Jeremiah Owyang is the social networking analyst for Forrester and of course you’d expect him to be an evangalist for his topic, but I actually find him much more balanced than most industry analysts/consultants.

“The key is to look at trend movements, don’t focus on the specific numbers but the changes to them over time. I put more weight on active unique users in the last 30 days vs overall registered, in fact, the actual active conversion rate will often range from 10-40% of actual users sticking around and using the social network, so don’t be fooled by puffed numbers.”   

So if you are still looking at investing in social networking, my recommendation would be to really ensure the content will be sticky enough to keep users. It is hard enough getting people to join in the first place, but how do you keep content relevant and current (without incurring the huge costs of manually doing everying yourself). Tripadvisor have mastered user generated content, but maybe part of the answer for the airline direct sales channels lies in better using the data you already have on a customer, and finding a way to share some of that on an opt in basis?

As my final prediction for 2009 shows, I am not a social networking athiest, but making money from it is incredibly difficult.

One reason I started this blog was that e-commerce discussion and analysis for hotels, tour operators, online travel agencies and many other travel industry participants was much better catered for in the blogosphere than it was for airlines. A perfect example of this is the lack of any discussion I have seen to date on the recent aquisition by Sabre of EB2. Sabre haven’t really had a compelling internet booking engine offer for a while, and EB2 have been rumoured to be the market for some time. Despite EB2 being seen as having a strong offer to smaller carriers a few years ago, the fallout from the SATA contract which no doubt left both sides bloodied and wounded must have taken some serious wind our of their sails. 

But with this in mind, is does seem to be a good and timely fit for both companies.

“Sabre should have been the company to provide the tool for Frontier’s new system – but it could not be done fast enough – thus F9 went to Datalex and got the work done.”

Datalex were rumoured to be in financial trouble a few years back, but who knows where such scurrilous rumours start. These days they are really pushing their ancillary revenue strengths and the message is resonating with airlines. I recently said to a colleague that if you are addressing airline executives and the audience is falling asleep, just the mention of the words “ancillary revenue” is guaranteed to wake them up with a jolt. Why do you think I put those two words so prominently on this blog! But when it comes to the design of Datalex’s Frontier site (compared to Air Canada and Southwest), some may like the simple LCC style look and feel, but in my opinion something is lost when you don’t have the calendar display showing the lowest fare over a range of days (and on the same screen as the fares for your preferred date of travel); without having to constantly click “next day” time and time again.

I once had a major airline tell me that when shown a webpage with multiple fare families, 60% chose the cheapest flight on that day, and 99% chose the cheapest flight for their selected departure time. The message for me out of this is that anything to make it easier for the consumer to see a range of prices gives them more confidence they are getting a good deal and therefore a higher likelihood that they will purchase. The fact that the 99% in my example were not trading up to higher fare families probably says a lot about the way these fares were differentiated, and no one would deny that Air Canada have been the leader in fare family differentiation.    

When it comes to the user interface (UI) layer of the booking engine, although all the press coverage always goes to the big airlines with the big budgets, the smaller airlines are feeling the pinch. I was speaking to a smaller airline recently based in AsiaPac who was telling me that a cost effective out of the box UI just wasn’t cutting it anymore as they faced two large carriers with fully customized UI’s on most routes and their website was looking tired in comparison. XML options were canvassed, and this might be viable for a large XML website like Iberia.com, but for a small airline to take complete control over the UI is going to be a major increase in cost and complexity versus a UI with set paramaters allowing customization. I’ll be interested in coming months to write about some of the small airlines doing innovative things online, as cost effective innovation is not the exclusive domain of the large network carriers and the LCC’s.

It’s an interesting time to be working with airline e-commerce, especially as all the IT suppliers are aggressively marketing their wares, and the airlines are always looking for more functionality at a lower cost.

Predictions are a funny thing, as our tendency as humans seems to be to take the recent past and extrapolate way into the future, and as a result we almost always miss the disruptive technologies that really matter.  I’m a little late to the game for 2009 predictions as many working in travel have already made theirs, and the most common theme I am picking up is that this year airlines will be more careful where they spend their precious resources and will want to see better value for money. Hmmm. To me, a prediction like that is about as valuable as saying that we have done a study, and 4 out of ever 5 people represent 80% of the population.  Let’s see if mine are any better:

In no particular order.

• Nudge is the new push – Rather than being an always forward moving line, innovation can sometimes seem like resembling more of a circular motion. With the death of Pointcast in the late 1990′s people said push was dead, but then a key Pointcast exec moved into the email space and it was supposedly alive again. And we still hadn’t entered the new millenium! RSS was push by another name, but whilst it is incredibly useful for news feeds, the experience of Iberia.com no longer regularly updating their feed would suggest it didn’t work as an airline promotional tool. I first used the phrase Nudge a couple of years ago in reference to something a bit softer than push, but I’ve never really promoted the term. If nudge is more contextual, then push is closer to spam, at least as far as email and mobile comunication is concerned – in short, a nudge is a soft push. 2009 will see airlines reassess their customer communications and look at who owns customer comms (is it dotcom, loyalty, a different department) and ensure continual optimization based on incremental revenue per communication. If I had to pick one area where airline direct sales could do things massively better for a relatively small amount of money, this would be the one. On a lighter note, hopefully this nudge fares better than the previous Nudge (inside joke for Aussies).  
• Defriending – It is not a new term, yet I have never heard anyone in the airline industry mention it. I have heard countless airline execs, consultants to the industry, and IT vendors talk about the incredible growth of social networks and how airlines must position themselves to sell via this new channel. Hype! A lot has been spent with very little to show for it. Defriending may not show up in official statistics, as more teenagers will come online and obscure the impact of adult airline customers getting jaded with Facebook and Linkedin etc, but don’t be fooled into thinking all ordinary adult consumers are as in love with this technology as those who make their living from selling it. Utilizing similar tools in a corporation is definintely an untapped market (why do secretaries manually update spreadsheets with employee travel plans – crazy, yet easy to solve), but for airline direct channels, defriending as described here is meant to cover everything that makes you realize social networking is not going to go away, but by the time you work out how to make money from it, it will look very different to the way it does today.
• Location, Location, Location – Estate agents have known these words are the most important three words for many years, but this year we will start to see some airlines and their partners using ‘location‘ to get much higher conversion rates on ancillary revenue offers. There is so much happening in this area, that surely one of them has to stick. Whether it is android, other GPS enabled phones, SIM cards, mobile itineraries, more effective use of PNR data combined with destination content, or something that is still totally below the radar, one thing is clear – more targeted marketing to travellers based on their current or upcoming location will improve significantly in 2009.
• One efficient direct channel back office – this prediction is just common sense, but I am amazed at how many airlines maintain duplicate and/or inconsistent processes and separate back offices for internet, and for call centre, and for B2B, and for staff travel, and for airport sales and city ticket offices. Maybe the increased focus on cost cutting will force airlines to look a this duplication of cost, something many consider to be a sacred cow or political hot potato. There are very few airlines today really going after these costs aggressively, but in coming months I hope to write about a few of those that are.
• One airline will launch the Web 2.0 killer app – I’m not the only one to question the social networking hype, or be very lukewarm on things like twitter, but don’t mistake that for being a luddite. Maybe there is only a 20% chance this will come true in 2009, but Southwest’s Ding is a few years old and was a great step in the right direction, KLM have made a valiant attempt with bluenity, Qantas are trying something with their frequent flier community (why the headlines only RSS feed on this?), and countless other airlines are taking small steps in this direction. Maybe 2009 will be the year one airline really gets it right, and when they do we will all sit back and ask why didn’t we do it first. I’ve been thinking a lot lately about what this killer application will need to be successful, and it will take a visionary person in an airline e-commerce department to make it a reality, but the championship title is definintely up for grabs on this one.       

I’ve been impressed with others that have gone back and reviewed their 2008 predictions a year later, so hopefully I’ll be in a position in 12 months to put at least 3 or 4 ticks next to the above bullet points.

I’ve chosen a name for the blog, set up an account, found a suitable template (I’m sure it will change many times over the coming weeks/months) and written some text about myself and my objectives for this blog – now it time to add some real content. Over the coming days I want to cover topics such as 2009 industry predictions, website design best practice, ‘around the world’ online booking engines, Sabre’s recent aquisition of EB2, the future role of the GDS in ancillary revenue, my take on the state of innovation in airline direct sales, and whether talking about innovation in email is an oxymoron. On top of this I”ll give my opinion on whatver topics of interest I come across that I see as directly or indirectly relevant for people working with airline direct sales.

I don’t expect any of these early posts to be a definintive statement on the subject, but rather they will designed to promote discussion amongst informed readers of this blog; as I continue meeting with and discussing these an other topics with senior executives working in airlines, I will aim to build on these themes with updated content and insight as the blog develops. – naturally always respecting the commercial confidences of clients and only mentioning new products or airline initiatives where they are already in the public domain of where I have explicit permission to do so. 

I welcome comments (including anonymous ones) from anyone with an informed opinion on the subject matter, but I will not tolerate unprofessional conduct, inappropriate language, flaming, or gratuitous/spam linking under the guise of leaving comments. 

Let’s get started.