From Rio, Distribution under the Volcano, Spring 2010

You will ask yourself what spices and volcanos have to do with distribution and technology. Well, looking at the best cooks they experiment and develop the recipes further, with unusual combinations of spices and ingredients. And the volcano and its impact once again demonstrated how exposed airlines are to circumstances out of their control, with the majority of the value chain being influenced by airports, Governments and authorities, weather conditions, lease providers, manufacturers and - IT providers.

Yet during the conference I realized that most of the distribution questions that we asked ourselves already about 7 years ago, when I was Commercial Director for a start up low cost carrier, HLX (part of the world’s biggest tour operator, the TUI group), were still not being solved. Only very few people have realized that airlines should sell like retailers whilst emphasizing their service orientation. Whilst the maturity of the markets determine demand for progressive or less progressive approaches, IT providers seem to invest large amounts of money into new systems just to replicate the distribution solutions of the past. Amadeus alone invested 1 bn EUR in their new technology and have just launched their IPO. And still providers talk about migration periods of 1,5 – 2 years. Is this sufficient to solve the problems and dynamics of today’s airline environment? Why is it that at the same time in so many cases even the basic solutions still do not work in a reliable way, marked by customers trying to do online bookings and failing to realize whether it was completed successfully or not. Or by situations where system failures and lots of processing errors still determine the landscape, with the airlines being directed from one supplier to the other to solve the problem.

Where does this come from? Why did we spend most of the conference talking about today’s technological complexities of the business, picking on GDSs, agencies development, internet booking engines instead of looking at how the customer requirements – direct and indirect – will evolve in the future and how we need to prepare for that. Or how we can react faster with any new developments, reduce migration times, reduce standard technology cost instead of automatically increasing them every year in line with decreasing yields? Why do we not talk about how much mobile will take over and what innovative solutions there are being developed in that aspect. Why do we talk about simplifying the business, but in reality all the newcomers at the conference, sent by their bosses to get a good insight of what airline distribution is all about, were feeling like in a Chinese speaking environment?

Yet SITA have done a very successful project demonstrating the focus on solving the airlines’ business problems, even up to recommending non SITA solutions with Malaysian. Air India as a new customer is a reward whilst they still are quite a good alternative for smaller customers as well. With their mobile solutions portfolio they did show that they realized some of the current but also future demands and work on fulfilling these needs.

Lan Chile will spend the next two years changing from a mainly Amadeus solution to Sabre whilst maintaining their focus on online distribution and limited GDS content. Radixx just achieved a very successful and scaleable solution with flyDubai, naming also Open Skies /British Airways among their customers whilst most low cost carriers still focus on Navitaire as a main provider.

Payment providers have developed a long way to fight fraud and increase alternative payment methods. Yet there are hardly any offerings covering the full value chain of what payment solutions comprise.

There could be various potential responses about the answers to these questions, the reason why airlines and their IT providers seem to stick to old and complex solutions, missing out on innovation and looking ahead. The answer is probably a mix of different factors.

Is it because the majority of the airline bosses and top management are non visionaries, non technological guys, in many cases not even believing in the efficiencies of blackberries, not pushing but even forbidding use of Skype and other modern communication technologies which are not only becoming part of our daily life but could save a lot of money and increase efficiencies.

Is it because IT suppliers want to leverage on their old investments and created complexities? Going away from this would not justify the high charges? Are they just fat cats, not hungry any more?

Is it just because there is hardly anybody really having a full understanding of the full picture, all the dependencies of the various IT solutions? This leading to absurd situations where innovative suppliers with simple and cost efficient solutions are rejected because they are too cheap and therefore maybe cannot be trusted?

Or is it just because people do not like change and stick to their traditional approaches, with only a few visionary airline bosses - mainly from low cost carriers such as Air Asia, Easy Jet and Ryanair - pushing with heavy involvement and charismatic leadership into a different direction. Do we prefer to focus on operational problems and internal issues rather than focusing on solving the external demands? Is it because the standards are outdated that were set many years ago in order to make airlines work together overcoming investment and foreign market penetration legal limits? And all of this with the profitability of airlines being worse than ever and the market becoming more demanding and dynamic than ever.

Will the google takeover of ITA – whilst creating yet another monster in the distribution landscape – bring the so urgently required innovation? Both companies focus on an innovation culture, bringing about the best in their people and being prepared for the future. Will they come up with creative solutions that show that the airline business can be done in a simple and efficient way?

Mark Pilling, Editor of Airline Business, did a fantastic job moderating the conference and bringing in some dynamism and fruit for thought. Travel Technology Research demonstrated their distribution and market knowledge with excellent panel moderation by Ian Tunnacliffe and Mike Moore.

And last not least the location Rio – trendy, sunny, with Samba and beach, in my opinion one of the most fascinating cities in the world - might have inspired some people to rethink which demands the future will bring. It was a conference focused on the Latin American rather than global market, as could have been expected with a conference location in this part of the world. The service and customer orientation of the Brasilian people did at least bring the customer into the mind. And the Latin American market as such offers some interesting challenges and developments, huge growth potential and quite high quality standards, with taxation but also price levels still being comparatively high versus Europe or North America. A new middle class is growing fast, with a lot of potential still left for new airlines.

Einstein already said that we cannot solve today’s problems with the solutions of the past. Let’s hope that by next year’s conference we will see more pro-active focus on the customer and how to take account of the changed behaviour, adding some new spices to the soup and preparing a better foundation to cope with volcanos...

Ursula Silling

Some facts and figures about the Latin American market (from Alex de Gunten, ALTA, presentation at the conference):