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glenndorothytc · 7 years

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A Passenger Wish List When Designing an Airline From Scratch

An ideal airline would be thoughtful, confident, smart, and creative. Canadian airline Porter, pictured here, stands out as an example. Heads Up Aviation / Flickr

Skift Take: What would the Casper or Warby Parker of the aviation world look like? We take a stab at outlining the characteristics.

— Colin Nagy

Modern luxury companies, according to Lean Luxe, are reinventing countless categories.

The names are no doubt familiar: Warby Parker for glasses, Casper for mattresses, Parachute for linens. Almost every category seems to have someone, even like Quip for the toothbrush, turning things around.

But as these companies gain share with a consumer that is obsessed with strong branding, transparency, and a fresh approach divorced from legacy operating structures, it’s fun to think about what it could look like in the airline space.

Something highly consumer-centric in a world of passenger betrayal, something with a brand as strong as the new stalwarts outlined above, and something people could feel actual loyalty for without points schemes.

The state of U.S. domestic airlines — and some other international airlines — can indeed be dire, and innovator Virgin America will soon be extinguished through its merger last year with Alaska Airlines.

One of the most charming, sharp airlines, Porter, seems to be a holdout on quality, but it only flies limited routes to and from Canada.

So, based on the formula of these so-called modern luxury companies, I’ve outlined the potential characteristics of what a new style of airline could be. Yes, I know this is rife with operational and financial complexities, labor snarls and route competition. But this is merely some creative (and wishful) thinking.

Quiet Confidence in Branding

The market is littered with sub-brands like United’s former airline Ted that always seemed forced, and the result of long, arduous focus groups and highly paid branding agencies owned by monstrous holding companies.

This new, hypothetical airline needs to be quiet, crisp, and elegant. For inspiration, look no further than the recent re-brand of Air Canada, as well as the entire branding of Porter, both done by Winkreative.

The advertising and communications should reject the cheap and overused category cliches and use interesting photographers to document the brand, in the channels that matter to them. Think of Instagram at its best versus top-down calculating brands in terms of aesthetic. Written communication should be crisp, clear and simple with a well-articulated value proposition. Planes would be new, ideally the Boeing 787 or the Airbus A350, allowing passengers to arrive in comfort with more humidity in the air and lower cabin pressure.

Virtue of Product

We cannot ignore the commercial realities of the airline industry, so it’s hard to advocate for some overly luxurious and utopian approach. However, in every cabin, considerate details should abound.

For inspiration, Etihad’s headrests in economy on the A380 allow passengers a comfortable way to nod off even if they’re in coach. Virgin America’s dine on demand eliminated the need for a trolly blocking the aisle, and also allowed passengers to pay and select from their seat backs. Emirates food in economy is inspired. JetBlue’s Mint Class is innovating in terms of private design for business travel.

In addition, an opportunity exists to improve in-flight entertainment and make it aligned with how people want to consume media today. It is one thing to have an avalanche of content. The other thing is to actually add value in the packaging and curation.

Elsewhere, look to Norwegian for a well-priced “business” option. Not a fully flat seat, but something that offers a higher level of comfort for long-haul flights, while still having enough capacity to sell the necessary amount of tickets.

Transparency and Credibility

Modern customers want to know what they are buying and don’t want to be nickel and dimed with every small thing. A clear fare that transparently states exactly what comes along with it, and making sure the baseline needs of travelers are addressed in terms of baggage, seat selection, and boarding areas.

No hocus pocus, bait and switch or caving to Wall Street desires to extract more earnings per share. Inspiration here comes from Southwest, which allows customers to change their flights without extracting a $200 change fee. This goodwill goes a long way in building brand equity quickly.

Delta ran a series of beautiful campaigns several years ago focused on the behind the scenes and poetry of what they do every day. “What does it take to fly?” illustrated all of the moving parts behind the curtain. This creative approach to storytelling around the logistics of transportation could be interesting for a new brand as well, as when people know how hard it is, they appreciate when it all goes right.

A Rejection of Scale for Scale’s Sake

A focus on smart routes for a mobile, entrepreneurial and highly creative class of consumer, not just the investment banks, consultants and well-heeled passengers. This airline doesn’t need to serve every market, just the right ones for the audience. It doesn’t have to be the biggest, but just the most thoughtful for key routes, starting small and growing deliberately.

Solving real problems

This airline would focus on solving real problems, evaluating every major pain point of modern travel and having an active solve. The biggest opportunities are the user experience of the booking process, subtle improvements to the mobile experience, a thoughtful flight with service that cares and the ability to transparently get help if you need it, in the medium that you choose. Call centers are a thing of the past, when we have a new suite of tools at our fingertips.

A Full Embrace of Today’s Consumer-Centric Economy

The airline would be close to its consumer, and not a walled-off, faceless entity. This means vivid apps, great and thoughtful user experience down to the design of the boarding pass, as well as crisp customer service and transparency when things go wrong in terms of flight disruptions. In addition, data would be used to improve the customer experience, reward those that fly frequently, and generally iterate and improve nimbly over time.

Post-Script

Well, I told you that operational and financial complexities, labor snarls and route competition, would not blunt this vision.

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Interview: Copa Airlines CEO on Building the ‘Hub of the Americas’ in Panama

Over 30 years, Copa CEO Pedro Heilbron has turned the airline from a tiny regional player into one of the most profitable carrier sin the Americas. Copa Airlines

Skift Take: Panama's Copa Airlines is not well-known in most of North America, but it's among the most profitable airlines in the Americas. Its secret? Like Southwest Airlines, it keeps its model simple.

— Brian Sumers

Editor’s Note: Following our previous CEO interview series in online travel, hospitality, and destinations, as well as our CMO series across verticals, we’ve launched another series, this time focused on the CEOs of leading airlines outside of the United States. To better understand the challenges facing airlines in an age of fluctuating oil prices, rapid growth, and changing passenger expectations, our Future of Passenger Experience series will allow leaders in the industry to explain their best practices and insights. Read the rest of the series here.

This is the latest interview in the series.

In the last year, Copa Airlines’ stock price has more than doubled, rising roughly 135 percent on the New York Stock Exchange.

What do investors know that casual flyers might not?

Panama’s flag carrier is among the best-run — and most consistently profitable — carriers in the Americas, even though its home country does not have one the region’s overall largest economies. In the first quarter, Copa reported net income of $102 million with an operating margin of 19 percent. Last year, its net income was $339.8 million, with a 12.4 percent margin.

The airline’s model is simple. Copa relies on a well-placed hub in Panama City to connect passengers between most destinations in the Americas. Through what it calls “the hub of the Americas,” Copa carries passengers between places like New Orleans, and Manaus, Brazil, or from Cordoba, Argentina to Havana. In all, the airline flies to more than 70 destinations in the Americas, including big ones, like New York and Mexico City, and smaller ones, like San Pedro Sula, Costa Rica.

Copa flies only two types of single-aisle plane types, the Embraer E190, and the Boeing 737. It flies its Boeing 737s longer than most airlines, sometimes flying them for nearly seven hours, including from Panama City to Buenos Aires. But the aircraft is fuel-efficient, and like Southwest Airlines, an all-737 operator, Copa can control costs by sticking to one aircraft type for longer routes.

To be sure, Copa has struggled. Some of its money is trapped in Venezuela, with the government refusing to permit airlines to repatriate funds from ticket sales. Late last year, Bloomberg reported Copa still had almost $500 million stuck in the country. And like most Latin American airlines, Copa has stumbled as some of the region’s largest economies, including Brazil, have faltered. But the macroeconomic climate in South America is improving.

In early June, we met with Copa CEO Pedro Heilbron at the IATA Annual General Meeting in Cancun, an annual conference for airline executives. Heilbron became CEO in 1988, when Copa was a tiny regional airline. Today, its main Panama operation has 84 planes, and a network that stretches as far north as Montreal and as far south as Buenos Aires.

We asked him why Copa does not want to fly to Europe, and why it has little interest in larger airplanes or flatbed business class seats. We also asked about Copa’s recent decision to create a frequent flyer program from scratch.

Note: This interview has been edited for length and clarity.

Skift: Why is Panama the right place for an international hub connecting North and South America? Why has it been so successful?

Pedro Heilbron: A few things. First, we’ve been building this hub for over 20 years so whatever we see today — a large and successful inter-America hub — is not something that happened overnight. It started small and it has grown over the years.

Now, why is it such a great hub? No. 1 is geography. There’s no country in the Americas with better geographic position than Panama. It sits right in the middle of the Americas. It’s also the way the isthmus of Panama bends. It’s a good position to connect not only north with south and central, but also the Caribbean connects very well from Panama because we’re very close to many Caribbean destinations and again right in the middle.

Secondly, the airport in Panama city is at sea level with no major obstacles, in a region that is full of high and hot airports, with mountains. Aircraft perform much better at sea level and without obstacles.

And [third], the government of Panama over the years has come to realize the importance of aviation for the economic and social development of the country. That has resulted in investments in the right infrastructure. We don’t have to work very hard to convince our government that it’s important to grow airport infrastructure, for example. So we’ve had more gates than most of the airports in our region — even airports that serve cities many times our size.

Skift: You’ve been growing in the United States. Later this year, Denver will be your 13th destination. Why do you see opportunity?

Heilbron: Panama’s economy has been growing for a number of years but that’s just part of the reason why we fly to so many cities in the U.S. [We want to] connect the most cities throughout Latin America with [North America].

[We connect] the major cities, which in some cases have enough service and don’t really need us, but we also tie the major cities of South America and Central America with secondary cities in the U.S. that lack connectivity to our region. We also connect a lot of secondary cities [in Latin America] with large and secondary cities in the U.S. and that’s something unique about our hub. Plus, it’s very easy to connect in Panama. You, you don’t have to go again through immigration and customs, so you can go gate to gate.

Skift: Has there been a Trump effect? Are some travelers from Latin America preferring not to visit the United States?

Heilbron: No, not at all. We have not seen a Trump effect. Latins are flying, as always. None of that has been affected by the change of government in the U.S. and we don’t really see a reason why it should be affected.

Skift: You’re one of the only airlines in recent years to create a frequent flyer program from scratch. Before 2015, you used Continental OnePass and United MileagePlus. Why make the change?

Heilbron: [The reason for using the Continental and United programs] goes back to 1998, when we signed a unique and comprehensive alliance with Continental. Continental bought 49 percent of Copa, which they later sold when we went public. At that time, we adopted OnePass as our frequent flyer program and we got rid of the program we had before which was really small and not world-class level, like OnePass was back then. That brought great advantages. And when Continental became United, we transitioned from OnePass to MileagePlus.

But from 1998 to 2015, when we came out with our own program, Copa changed quite a bit. The Copa of 1998-99 was very different to the Copa of today. We are much larger today, so we got to a point where it made a lot of sense to have our own program and be able to control the future, to better compete against other programs in our region.

It has allowed us to know our members better and and communicate directly with them and serve them in way that suits their specific needs. We maintain full reciprocity with MileagePlus and United. We’re in the same Star Alliance, plus we have our own bilateral relationship, which is very strong. Maybe it’s the best of both worlds.

Skift: Do you have better data about your customers now?

Heilbron: Well, whatever data we had before, and whatever communication we had with our members, had to be done through United and approved by United. We could not manipulate and manage the data in any way we wanted because it was not our data. We could ask for reports.

But now we can do whatever we want with that data. So there would be like an infinite number of examples of the things we can do today [that we couldn’t before.] Now, we have a lot more flexibility.

Skift: Before, if you wanted to know my flying patterns, you had to ask United?

Heilbron: Yeah. MileagePlus was their program and our frequent flyers were theirs and our data resided in their system. They would have to give us the report we needed, which is much different to having our people with full access to the data and just running a new report and then using that for communicating offers, for whatever.

Skift: Let’s talk about passenger experience. You fly some of the longest Boeing 737 routes in the world, like Panama City to Buenos Aires, at seven hours. Yet, your most generous business class seat is a recliner with only 50 inches of pitch. Why not try flat beds?

Heilbron: Our business class is more similar to the BusinessFirst of the past [from Continental Airlines]. There’s more recline [and] there are foot rests and the whole thing. But it doesn’t go all the way down to flat. The reason we do it that way is because our fleet rotates everywhere, so we need to combine [having] more comfort on our long hauls with the efficiency we get from [having the same plane] fly a very short haul. We don’t want an aircraft that’s configured just for one market.

We actually do have two fleet types. We have a fleet that has what we call a premium business class, which we use for the longer hauls and then the more densified business class, for the rest of our system. But still the aircraft might get mixed and, and there are some shorter hauls that have to be flown by our premium configuration. It gives us a lot more flexibility.

Skift: You’ll soon add the Boeing 737 Max, with more range than 737s in your fleet. Will you fly longer routes?

Heilbron: First, we’re starting with a Max 9, and it will give us additional range. But we pretty much cover every city we want to fly to.

What it does for us, is that it takes away some [performance] restrictions we have on the [current generation Boeing 737-800.] That has an economic benefit. We’ll be able to carry more cargo or more passengers and not be weight restricted like we are today on some routes. That’s the big advantage. Obviously, plus lower operating costs.

Skift: What about widebodies, like the Boeing 787 or Airbus A330? Don’t you want to fly to Europe?

Heilbron: We’ve looked at widebodies even though it doesn’t fit our business model right now. We’re not looking to fly to Europe. We’re sticking to out 737 fleet serving the Americas, which we can serve very well with narrowbodies.

Skift: You serve food and alcohol on your flights. Why?

Heilbron: Good question! When we had our inaugural flight to Chicago, the chief flight attendant had to get on the PA and inform passengers, mainly Americans, that the food was included in the price. Because when the flight attendant came down the aisle with the food cart, many passengers were saying no thanks, thinking they had to pay for it.

So why do we do it? We’ve been very consistent over time in managing a tight operation. [But we don’t want to] have the big swings of, when we’re doing very well, we give out a lot, and when we do bad, we cut back. We stick to our business model and that includes the right meal service, depending on the flight length. And [with] free liquor at the right time of the day, we try to be very rational. Over 95 percent of our flying is international and it’s something we’re known for. One way or another it’s in the price.

We do give out free meals and free alcohol but in everything else we do, we’re very cost conscious. We have one of the lowest unit costs of any full service airline in Latin America. I’m not even comparing to other parts of the world.

Skift: There aren’t as many low cost carriers in Latin America as elsewhere in the world. But don’t you worry that someday an airline will undercut you on price, but not serve free meals? And customers will choose the cheaper option?

Heilbron: Well, you know the day that becomes a big issue, we’ll deal with it. I’m not saying that we’re going to stick to this our whole life. When we have to compete strictly on price, then we’ll consider that. Most of our competitors today have similar service and also have free meals and free alcohol.

Skift: Over time, do you expect we’ll see more discount airlines in Latin America?

Heilbron: I think that we will see more but I also believe that it won’t be like the U.S. and Europe. It will be very different, for a number of reasons. No. 1 is that the ULCCs, [or ultra low cost carriers], have shown to work much better in open markets with traffic that can be stimulated, with low airport taxes and airport fees. You find that mostly in the large domestic markets in Latin America like Mexico, Brazil, Colombia and others. That’s where ULCCs work best.

But when it comes to international flying, there are other factors that have to be considered. There’s no Open Skies [agreements between most Latin American governments], so you need to negotiate route rights, which are not always available. Even more than that, each base becomes a different country, which means a different operating certificate [for each country.] That’s costly and complicated, so it’s not like you can just move planes around and fly any market. You have to comply with local laws in each country, including ownership laws and go through a complicated process, an expensive process.

[Also] airport taxes are really high in international markets and ULCCs depend on stimulating traffic with very low fares. But you might have a one hour and a half route, where the taxes are going be over $100.

When we combine all those factors, what we get out of that analysis is that there’s some domestic markets where ULCCs are working and others where [the model] may work in the future. There’re a few international markets where it will also work well. And then there are many other markets that cannot be stimulated, or are not large enough, or where the fees are too expensive.

We’ll see some more growth, but nothing like Europe, which is one European Union, or the U.S. which is one big country.

Skift: You have your own ULCC, called Wingo, based in Colombia. It’s essentially an airline that used to be a struggling full-service carrier called COPA Colombia. Has switching models helped you lose less money from that business segment?

Heilbron: Wingo has only six months of operations so it’s still a new thing. I would say that it’s doing better than expected. This year, we’re projecting losses for Wingo, so it’s losing less than what we’ve had projected. That’s a good thing.

Wingo basically replaced a network that does not touch our Panama hub. Its flights were operated by Copa Colombia before, under the same Copa business model type you know — free food, free liquor [and] traditional GDS [global distribution system] distribution. So Wingo is a new version of what we did under Copa Colombia, with no GDS [contracts], lower costs and densified planes. Very few things are free. It’s doing much better, which means losing less.

Skift: Let’s say Wingo is a big success. Might you bring some of what works to Copa?

Heilbron: It’s definitely like a test bed. What we’re going do with the knowledge we’ll get out of Wingo, I can’t tell you. But we are learning a lot and it will help. It’s interesting lesson for Copa, especially because that network was operated by Copa before under traditional GDS distribution and travel agencies and the whole thing. So we know how a market behaves one way and then when we change the business model how that exactly same market [performs]. [Do we] get more passengers at lower fares or do we get less passengers because we are no longer selling through travel agencies? All that information is very, very valuable as we think of how Copa needs to evolve in the future.

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#Interview: Copa Airlines CEO on Building the ‘Hub of the Americas’ in Panama

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glenndorothytc · 7 years

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Chefs+Tech: What a Chef Thinks About When Launching a Dining Room-Free Restaurant

Chef Anthony Strong's dishes for Young Fava in San Francisco are made to travel. courtesy of Young Fava

Skift Take: Technology allows delivery services to quickly connect restaurants and consumers, but translating the traditional restaurant experience to your dining room takes a lot of forethought and intention.

— Kristen Hawley

Editor’s Note: In September we announced that Skift was expanding into food and drink with the addition of the Chefs+Tech newsletter.

We see this as a natural expansion of the Skift umbrella, bringing the big-picture view on the future of dining out, being fanatically focused on the guest experience, and at the intersection of marketing and tech.

Bonus: We now publish C+T twice weekly.

Delivery-Only Young Fava to Open in San Francisco

The restaurant experience is about much more than the food. In a society that’s embracing delivery of restaurant-made food at a rapid clip, restaurateurs are left wondering how to translate their in-house experience to takeout and delivery. In fact, according to market research firm NPD Group, 61 percent of restaurant visits in 2016 were for to-go orders. Given the popularity of eating at home, one San Francisco chef felt delivery food wasn’t being given the attention it deserves. Chef Anthony Strong, formerly of the much-loved Delfina Group, will launch his new restaurant Young Fava on Wednesday. His inspiration comes from his own experience, and he plans to fill a perceived need in the market: capturing the same varied use cases as any neighborhood restaurant, from date night to a casual solo dinner at the bar. Strong says he’s had a couple “eureka moments” about the role of delivery in San Francisco. For example: after finishing a late-night event, he came home exhausted but hungry at 1am to find some leftover foie gras torchon in the fridge. “I was sitting there eating some foie gras on the couch and just loving life, watching Game of Thrones, eating this awesome food. I was so glad I was doing that instead of cheap delivery pizza.” And since most of us don’t have spare foie gras kicking around in the fridge, he thought, “what if everyone could have this kind of cool takeout experience?”

Thanks to delivery technology and competition, restaurants don’t have to hire their own couriers or deal with a barrage of phone orders during peak service time. Strong is partnering with UberEats for the launch, adding Postmates, Doordash, and Caviar two weeks later. Read the full interview with Strong, where he reveals more details and his own well-informed thoughts on the new restaurant experience, including its challenges, on the Chefs+Tech site.

When the Branding Is (Literally) on the Burger

Restaurateurs have admitted that the rise of social media and Instagram especially has changed the way they design and light their dining rooms, menus, and plates of food. A new trend takes that a step farther, as restaurants are putting their branding directly on the food. Bloomberg’s Kate Krader examines the trend, which has caught on for foods ranging from ramen (with the restaurant’s name printed on seaweed) to burgers (literal branded buns) to cocktails (clever stencils and bitter sprays create designs right on the drink).

According to OpenTable’s recent survey on technology and dining out, 25 percent of people use their phone to take photos of a meal to remember the experience. Notably, the number rises to 50 percent for those 34 and under. In fact, this was the top reason people admitted to pulling out their phone at the restaurant table. The number of respondents who say they take photos to share via social are slightly lower — 13 percent of respondents say they do this, while 26 percent in those 34 and under say the same. So, any element that makes a plate of food more Instagrammable, as much of this quirky branding does, creates a higher likelihood of photographing and sharing. Searching Instagram for any of the restaurants mentioned in the article yields pages full of the branded food, and those are only a few examples. If you’ve ever been to an Umami Burger, you’ve seen this in action. Branded food is exciting and different the first few times you see it, but can you imagine if every restaurant dish you ate came touting its kitchen of origin? Is it too far off to think that this could eventually expand to include actual advertising? I could, 100 percent, see this happening, especially at stadiums and events.

How Chipotle Accidentally Started Fast-Casual Movement

Chipotle wasn’t intended to be the fast-casual pioneer — and powerhouse — that it is today. In fact, founder Steve Ells initially planned on using the original Chipotle, in 1993, as a venture to fund a fine-dining restaurant. Denver’s Westword has a great story on the pioneering fast-casual chain, highlighting the decisions that Ells made that ended up becoming pillars of its business model. For example, because the restaurant was meant to be a means to an end, Ells purposely streamlined its operations in a way that would allow him to step out of the kitchen: introducing limited ingredients and menu options and an assembly-line style of service. This pared-down mode of operating meant replicating the concept was easy — and it still is, 2,300 restaurants later. In fact, Chipotle only uses 51 ingredients, “all of which can be found at a farmer’s market,” according to Ells.

In fact, ingredients are one of the differentiating points that have made fast-casual restaurants, like Chipotle, so popular. Ells took a page from the book of his former boss, noted California chef Jeremiah Tower, who focused on fresh, seasonal ingredients at Stars, his landmark San Francisco restaurant of the mid-1980s (and beyond.) The fact that a famous fine-dining restaurant wielded so much influence over a seemingly unrelated concept speaks to the way food trends emerge. These same fresh-food principles are moving from their fast-casual spotlight into fast food as most of the major chains, including McDonald’s and KFC, have announced improved attention toward ingredient sourcing. So while on one hand, Chipotle’s success may have been a happy accident, it’s also a reflection of what customers want, which, ultimately, is the best predictor of restaurant success.

Digestifs

LA’s Jon & Vinny developed a menu for Delta One flights from LAX — Delta

Why the best restaurants are obsessed with knowing their guests — @benleventhal on Medium

The latest Trump-era setback in the fight for higher wages for fast food workers — Eater

http://ift.tt/2shVnr3

#Chefs+Tech: What a Chef Thinks About When Launching a Dining Room-Free Restaurant

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glenndorothytc · 7 years

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Business of Loyalty: The Assault on Redemptions and Airline Loyalty

A promotional image of a seat back in United Airlines' Economy Plus section. United Airlines

Skift Take: Are old-school U.S. airlines too focused on short-term profits and competing against low-cost carriers to deliver a quality product to their loyal passengers?

— Grant Martin

Editor’s Note: Skift’s Business Traveler newsletter is now the Business of Loyalty newsletter.

In this weekly missive, we’ll bring you the same insight into what matters most to the people who travel for a living, but now with an added focus on how airlines, hotels, and credit card programs battle for their attention and their business — a points geek with a Ph.D. of sorts.

While we are still looking at how these moves impact the consumer, the focus is on what the industry is doing to win their loyalty. The newsletter is being written by Grant Martin, who you’ve come to know as the author of our Business Traveler newsletter over the last three years. He’ll be able to take advantage of contributions from Skift editors including Brian Sumers (airlines) and Deanna Ting (hotels) in order to better explain what’s happening with loyalty right now. We hope you’ll stick with it, and we promise to never devalue your reading experience.

Not long ago, it made sense for elite members in an airline loyalty program to book the cheapest airfare on the market and expect to receive a modicum of decent treatment from the airline in return. Free upgrades, checked baggage and snacks all came with various levels of elite status and passengers knew that despite booking a bargain-basement (or office-mandated) fare, it would be a journey in relative comfort.

Basic Economy fares, however, which American, Delta, and United are now integrating in full force, are now starting to supersede those perks and erode the basic values that loyalty programs used to provide. On each carrier, the restrictions are slightly different; Delta takes away upgrade perks, seat assignments, and the rights to change a flight. American takes it further by reducing earned award miles and rescinding overhead bin space. And United goes even further by slashing elite qualifying miles (though earned miles remain in tact).

Some of these restrictions such as the overhead bin rule are eased for loyalty program members with elite status, but others, such as upgrade restrictions apply across the board.

At first, frequent flyers took the introduction of basic economy fares in stride — after all, the fares were originally billed to compete with low cost carriers and only integrated on a handful of routes. But now, the fares are spreading aggressively and passengers are getting agitated. Last week, United confirmed that it had rolled out its fare to all of its domestic routes. Delta, content with its domestic strategy, is now expanding basic economy to international routes. And though American has only integrated the fare into a handful of routes, most expect that carrier to follow suit.

Some passengers overexposed to the fares have taken to social media to respond. “In reaction to this nonsense I just booked my first ever [Virgin America] flight, SAN-SFO,” said one United traveler on FlyerTalk, who apparently holds top-tier 1K elite status with the carrier.

Late last month, Zach Honig, editor of The Points Guy, wrote about United’s “infuriating” basic economy strategy, calling some of the pricing “insane.” Among the comments in that piece, one reader admitted that “as a United Platinum flyer I have stopped flying with them. It’s not worth it to deal with the hassles. I will fly with an [Ultra Low Cost Carrier] or a [Low Cost Carrier] over them just because I know what I am getting into.”

It’s tough to broadly conclude that passengers are actually leaving their favorite carriers and abandoning loyalty programs en masse — after all, the only story that airlines will tell is that revenue is up and that loyalty programs are only improving. But there’s a real sense of discontent flowing through the passenger base around basic economy fares — and sooner or later, something’s going to give.

Subscribe to the Business of Loyalty Newsletter

Skift Stories and More Expert Insight

Alaska Launches Promotions Just for Regional Loyalty Program Members

In a time where most airlines are making drastic cuts to loyalty programs, Alaska Airlines appears to be headed in the opposite direction once more with a new promotion aimed at travelers flying through the west coast.

Alaska’s Mileage Plan program continues to get stronger with a new series of incentives aimed at west coast Virgin America customers. Between the incentives and the numerous partners, Alaska has put together a pretty solid loyalty program.

Clever Ways Basic Economy Fares Force Flyers To Pay Extra

Predictably, basic economy has been condemned as yet another step in the industry’s relentless drive to strip all comfort and grace from steerage class. But there’s a shell game going on here—this consternation overlooks a far more insidious change: While adding these new bargain-basement fares, carriers also raised prices on traditional economy seats.

Four Seasons CEO Sees ‘Airbnb Effect’ in Luxury Hospitality

Four Seasons isn’t taking Airbnb’s push into high-end lodging lightly.

Interview: Marriott CEO on Politics, Technology and Loyalty

Arne Sorenson is not the kind of hotel CEO who likes to stay quiet about the most pressing issues impacting not only the hotel business, but travel overall.

The Wall Street Journal: Even Elite Frequent Fliers Find Fewer Airline Perks

The decline in airline amenities that has vexed consumers in the back of the plane is now hitting elite frequent fliers, too.

Australian Business Traveller: Four Seasons hotels to introduce luxe loyalty program

Four Seasons is planning a guest recognition program to bolster loyalty in an era where plush bathrobes and free high-end toiletries are standard, as it seeks to sharpen its focus on refining guest service. [Note: Skift told you about this first over two years ago.]

http://ift.tt/2sWg7SK

#Business of Loyalty: The Assault on Redemptions and Airline Loyalty

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glenndorothytc · 7 years

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Travel Tech CEO Series: Farelogix Tries to Profit From Airline Distribution Turmoil

Farelogix CEO Jim Davidson is a regular on the airline conference circuit. His company helps Lufthansa and 18 other airlines with pricing, merchandising, and direct distribution. But getting airfares to agencies while bypassing the traditional middlemen is harder than it looks. Farelogix

Skift Take: Lufthansa Group and IAG (the parent of British Airways) are striving to shake up airline distribution. One of the tech providers that they've hired to do this is Farelogix, whose boss, Jim Davidson, has a provocative vision of the future that's running into commercial resistance.

— Sean O'Neill

Editor’s Note: This year we expanded our coverage of the technology companies that do the behind-the-scenes work of powering the technology systems of the world’s major travel companies.

We’re chatting with a handful of industry leaders for our new Travel Tech CEO Listening Series to discover where they think the industry is heading. Read the other articles the series here.

This spring, International Airlines Group (IAG) — the parent company British Airways — lashed out at the business model used by three airline distribution middlemen, Amadeus, Sabre, and Travelport.

Starting in November, IAG plans to slap surcharges on flights sold via those third-parties to travel agents. It will copy similar fees added by Lufthansa Group in 2015.

The moves by the two airline groups (plus a similar one by tiny Ukranian International) may have set in motion a global shake-up in how flights are marketed and sold.

Through the surcharges, the airlines intend to coax travel agencies to bypass the global distribution systems and connect directly with the carriers’ reservation data for cheaper fares and more upselling options, like seat upgrades.

This has left a technology gap to fill, and a small Miami-based company named Farelogix is hoping to cash in.

This spring Farelogix signed a multi-year deal to expand the direct connection services it has been providing to Lufthansa Group.

Not everyone’s happy about Lufthansa’s actions. One of the tech middlemen, Sabre, has told Lufthansa Group that its effort with Farelogix and other tech companies violates its contract. The airline group responded last year by suing Sabre in a Texas court and Sabre countersued. The litigation is ongoing.

The moves by Lufthansa Group and IAG — if it is not merely a tactic in negotiations — to shake up distribution cast a light on broader industry trends. Several technology companies are trying to take advantage of the opportunities springing up.

There’s growing interest in two types of technology: software that helps airlines be smarter about what they sell, and software that helps them distribute their inventory directly to travel agencies.

The pioneer of the first solution is ITA Software, which has been offering pricing and merchandising tools for about a decade and didn’t stop when Google acquired it in 2010. Farelogix, Datalex, and other companies offer related services. Amadeus and Sabre, via their airline IT divisions, also offer related systems.

The other part of the tech puzzle — building direct connections — has been the sweet spot of Farelogix, Vayant, Travelfusion, and other companies. Vayant, for instance, says it provides a part of the software solution for both Lufthansa and British Airways.

The face of the change face of distribution

Farelogix appears to have gained the most from the distribution upheaval so far. While it doesn’t disclose its financials, it does say it is profitable and that it has grown its employee count to 175, up from 125 in 2015.

Farelogix has 19 airlines, including American, Emirates, Lufthansa, and WestJet, using its tools to power their direct connections with agencies.

Based on that success, its chief executive Jim Davidson has become the public face of the issue.

News articles often portray Farelogix and its peers as having the end goal of getting the three major tech companies (Amadeus, Sabre, and Travelport — known as global distribution systems, or GDSs) out of the distribution chain.

Davidson says that’s a misunderstanding. “I actually see the reverse. The GDSs need to hurry up and take this capability in-house so they can provide both the traditional offering that they do today or support the new offer directly from an airline.”

“There’s a tremendous value that the GDSs create for that. I think they’re missing out big time on that by not investing faster and heavier. I wouldn’t have a business today if they stepped up.”

We caught up with Davidson to find out the latest on Farelogix and the industry’s future. We edited the interview for brevity and clarity.

Skift: Jim, Farelogix often says “airlines need to control their offer.” What does that mean?

Davidson: In layman’s terms, it means airlines need to be able to set their price and product in a dynamic environment. Historically they haven’t. Which would be unheard of for any other type of retailer. Up until now, airlines have created static prices that are distributed to agencies. That worked well when airline seats were like a commodity, just a cabin and a price. But not for what the airlines want to do now.

Skift: I don’t think an average person will understand what that means.

Davidson: Most airlines have mostly outsourced the work of pricing and distributing their product to others. The general exception is for the seats they sell via their own brand.com sites,

But they’ve outsourced it to third-parties that have outdated technology and are limited in what they can do.

Right now, airlines send their content, either via global distribution systems [GDS] or passenger service systems [PSS], through a series of static filings.

The GDSs or the PSS are basically creating the offers on behalf of the airlines — and quite imperfectly from the perspective of the airlines.

But all of those things that airlines want to do to make their product and brand stand out and to help earn more revenue — seat assignments, meals on the plane — all of those things can’t be statically filed with organizations like ATPCO [Airline Tariff Publishing Co.]

Skift: Airlines have had multiple classes of service and checked bag fees for ages. What do you mean by airlines now want to control their offers?

Davidson: They’ve been constructing price, but not creating offers. There’s a whole deconstruction effort going on around airline product as a way to earn more money and build brand loyalty.

Skift: This is a lot of fuss if it’s just about fare families and upselling.

Davidson: It’s about more than that. Airlines know ultimately who buys from them, and at what price they buy. But what they really want to know is what share of, say, college kids in Florida shopping for tickets in a given week chose their airline instead of a competitors’.

To be a smart retailer you have to really understand what people are searching for. Today airlines don’t have the capability to do that. If they want to react to shifts in market demand, they need this data.

Skift: What does “reacting” mean?

Davidson: “Reacting” means increasing products of services, bundling, opening up buckets of seats for booking etc.

The tech needs to evolve to enable more of a supply-and-demand-type of an activity than just simply filing a fare in some centralized database used by agents and hoping somebody comes and buys your tickets.

Skift: How many airlines control their offer today?

Davidson: I would argue only the low-cost carriers do.

Skift: So now some network carriers are interested in “insourcing” the availability and the pricing from the middlemen tech providers?

Yes. Once you insource, you can get into taking apart or bundling together products or offering certain things to certain people based on what inventory an airline has and who the customer is what other products and services the airline has on any given flight.

Skift: So what needs to change in the technology, in plain English?

Davidson: The tech needs to add the ability to match more of a relevant product with a certain traveler. Say I’m an airline. The third-party systems don’t know how many premium meals I, as an airline, have. They don’t know what my load factor is in my business class. They don’t know what I want to offer this particular business traveler when they’re sending in their frequent flyer number because of her high status.

Skift: What is the technical limitation?

Davidson: The key difference is that the airlines are wanting to set the rules around how they sell their product based on all these new dynamically changing conditions. The other part is some of the airlines don’t even realize who’s searching them right now.

Skift: What do you mean?

Davidson: Now the system of third-party distribution is limited to 25 RBDS [reservation booking designators, or “fare buckets”].

You separate that by two or three cabins, and then you want to try to separate that down within different products within those cabins for different types of corporations or trips. You run out of the capabilities to do that.

Skift: How is the tech improving?

Davidson: Airlines are slowly updating their pricing engines, and that will help.

Today’s new pricing engines don’t have dependencies on filing static fares in a central system. Or at least they can take a filed fare and then supplement it with products and services on a real-time basis based on availability.

Skift: It sounds like a lot of tech systems are needed to control the offer and distribute. But Farelogix doesn’t yet have a full suite of solutions to do that, does it?

Davidson: We are in production with one airline to offer a pricing engine, an availability calculator, a schedule builder.

We have about 10 airlines using our merchandising engine.

Skift: So Farelogix as of today can’t offer the full tech solution, right, to meet the “control the offer” vision you’ve outlined?

Davidson: Again, when it was just price and merchandising engines, Datalex has one, ITA has one. We certainly didn’t invent this.

Again, our industry is responding to a natural progression.

As an airline, I start with the pricing engine, now I’m going to look at a merchandising engine, but now I need to get availability. Anything that the airline can manipulate and control to enhance, offer more choice and give a better product, they’re going to do over time.

Skift: Some critics say Farelogix is just a glorified API [application programmable interface] provider.

You need a better appreciation of what we do.

We support travel agencies with exchange and refund servicing. Priceline, in their call centers wherever they have them around the world, when there’s a booking on United or American it needs to be serviced. I’m talking complex exchanges and refunds. We handle it.

We’re IATA BSP-certified [the Billing and Settlement Plan of the International Air Transport Association] in 107 countries.

We produce more EMDs [Electronic Miscellaneous Documents, used primarily for ancillary sales] in the North American market than all of the GDSs combined.

I’m not trying to say that we do everything because we certainly don’t or aspire to.

Our APIs have to operate with a lot of capabilities if you’re doing services for American Airlines or Lufthansa.

We do a pretty good job versus some of the other APIs that we’re maybe getting compared to.

We invest millions of dollars a year into developing new services all the time for travel agencies through our airline customers.

Skift: In that case, is Farelogix a global distribution system? Shouldn’t Lufthansa hit it with a surcharge as a third-party tech provider?

We do not qualify as a GDS. For one thing, we work for the airline. We don’t work for anybody else.

We don’t have subscriber agreements. We don’t represent hundreds of airlines. We don’t rebate to agencies or have any arrangements with agencies at all.

We don’t have most of those services that GDSs do. We mainly do the components such as the pricing and the availability and the schedules — all of which are an airline function, not a GDS function.

We certainly do profess to be an alternative for an airline to distribute into the travel agency marketplace.

But we don’t do a lot of aggregation… We work for one airline at a time, the exception being those that have a group of airlines like Lufthansa Group. You can, in fact, get the four airlines on our product in that one case

There’s quite a bit of difference. Regarding whether the surcharge should apply or not, I think that’s a foreign argument to me. There are other reasons, but I’ll spare your readers.

Skift: Do Farelogix and its peers still want to bypass the global distribution systems?

Davidson: The industry discussion often equates a lot of what’s going on with GDS bypass. I actually see the reverse. The GDSs need to hurry up and take this capability in-house so they can provide both the traditional offering that they do today or support the new offer directly from an airline.

There’s a tremendous value that the GDSs create for that. I think they’re missing out big time on that by not investing faster and heavier.

No, the idea that we’re going to open up this whole new network that goes around the existing GDSs and travel agencies is silly.

Skift: But that was one of your original ideas, right? Farelogix pivoted away from that.

Davidson: Yeah, in the early days we thought we could do it cheaper, better, faster than the GDSs, especially for the low-cost carriers.

Some airlines will continue to have some part of their distribution mix in a, what I’ll call nontraditional direct, not the website, but a one-to-one relationship with an outlet whether that’s an online travel agency or a large travel management company or a specialty corporate travel agency.

But the majority of that is still going to go through the network of travel agencies and the GDS path.

Airlines don’t want to take over the network of travel agencies.

What airlines want to do is be able to create that offer and send it down through those existing pipes and have it displayed and sold. That has tremendous value for the GDSs.

So I continue to be amazed at why they don’t want to do that or only talk about doing it. I think they can probably create more of a financial opportunity. Who’s to say?

Skift: Amadeus, Sabre, and Travelport all say they can handle rich content, dynamic fare bundles, and other merchandising.

Davidson: The GDSs claim they already have this technology and the question is whether or not they are going to invest in that technology that they claim they already have. Are the GDSs going to allow an airline to send them, rather than the bits and pieces, actually send them the full offer?

Today, they take offers from low-cost carriers. Are they going to do that with a network carrier like a Virgin Atlantic or a Lufthansa or an American when those airlines step up and say, “I want you, instead of just taking my paid seat, I want you to take the whole offer because I want to send a dynamic price down to you on the request.”

Same with the passenger service systems [PSSes].

While I don’t have a specific insight to PSS agreements, what I hear in the marketplace is there’s a lot of concern about PSSs allowing airlines to break out certain functions such as pricing or availability and manage that on their own, and still inter-operate with the rest of the PSS.

Obviously departure control, and revenue management, and all those other things that you don’t want to throw out.

Skift: Let me recap this to make sure we got it: It seems like some airlines that want to have direct connections with agencies can’t be bound by their reservation system provider if it’s the same as the global distribution system provider. Lufthansa and British Airways seem to want to look at independent providers such as Farelogix, Vyant, ITA Software by Google to provide that passenger service system functionality, Farelogix, Vayant, ITA Software by Google, etc.

Davidson: That’s partly right. Though you have to be cautious. The passenger service system [PSS] is more than what I’ll call the creator of the offer. We’re really talking about what has really become offer management.

More and more airlines are saying, “Look, a community pricing model used by the GDSs might not work for me.” You’re hearing things about some charges going up. Airlines also may not want to be dependent on having somebody else decide when they want to build out certain functions that I, as an airline, need.

Airlines are looking at a slice of the PSS, particularly those things that are around the offer, and those are the engines that we’ve talked about before. Your PSS has historically provided that.

Skift: We seem to avoid talking about pricing. Airlines are driven by an imperative to cut costs. It’s not clear to me how they’re cutting costs once everything in total is added up by expanding their tech ecosystem to fulfill the vision you’re spelling out.

Davidson: Again, the advantage we have and that a few others have is that we don’t use the community-based model that companies like Amadeus use.

The idea of the community model is that the more airlines brought on, the unit cost for pricing and, basically, for everything will go down because they’re all going to use these same systems. That works well in a commoditized market. But not in today’s more complicated one.

Skift: The passenger service systems as we know them are going to go out of business?

Davidson: No. I’m not saying that. They work fine for some airlines.

My view is more nuanced. What I’m saying is that some airlines are going to say, “I’m going to manufacture my offer myself under the control of these engines,” whether via Farelogix or Vayant or ITA, Google, or whomever as a tech partner.”

They’ll also keep using the status quo system. WestJet, one of our clients, is doing that today, for instance.

That’s our strategy and what we’re betting on. If it plays out, that’s great. So far we think that certainly is, for the larger airlines, we’re seeing that trend develop.

Skift: But do corporate travel agencies care?

Davidson: They do. What the airline can offer on its brand.com site is generally much more sophisticated than what it can use to sell via travel agencies. But corporate buyers aren’t getting access to a lot of those services that could be negotiated on behalf of what the airline has regarding product.

Skift: Where are you now in terms of the number of agencies that are working with the direct connect services?

Davidson: We have about 6,500 travel agencies that have the capability to use our direct connect gateway to airline products. I don’t have visibility into how many of those agencies are using the direct connects every day. A lot of those agencies, obviously, are using it to make very small numbers of bookings. Others are using it to make and service a lot of bookings.

If somebody goes with one of Farelogix’ direct connects, the only capability of servicing that is through either they have their own servicing capability that they hook the API up to or they use our software solution.

Skift: But agencies aren’t incentivized to go along with this. For example, in testimony last autumn in the US Airways versus Sabre trial, a key executive at American Express Global Business Travel, Mike Qualantone, said that the agency was disappointed with its flirtation with Farelogix’s tools. He called your company “a shell of a GDS” that was “a lightly capitalized company that would never meet Amex’s global or U.S. needs.”

Davidson: Obviously I take a little bit of exception with Mr. Qualantone’s comment. I understand where it’s coming from. I understand the financial incentive that American Express receives.

However, I can also tell you that our longest running travel agency implementation was American Express in Canada. We had integrated rail service and GDS service and Air Canada Direct Connect, and WestJet.

Matter of fact we had to actually turn it off because we couldn’t make it PCI [Payment Card Industry Data Security Standard] compliant.

He certainly doesn’t have any view into our capitalization structure. We’re a very profitable company, growing, and so forth.

Skift: Not PCI compliant? Is that going to be an ongoing problem?

Davidson: Oh no, we’re PCI compliant as a company. That technology was so old, it was impossible to make it. It was a past consulting user interface that nobody wanted to invest in and make it PCI compliant.

Skift: We never hear about major online travel agencies working with Farelogix. What explains the lack of agency interest there?

Davidson: We’re connected to about 60 OTAs around the world.

Just to be clear, Farelogix itself doesn’t have any contractual relationship or subscriber relationship with travel agencies. If an airline wants to hook up an OTA, like if..

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#Travel Tech CEO Series: Farelogix Tries to Profit From Airline Distribution Turmoil

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