Welcome back to the last post of Distribution Week here on The Cranky Flier. I know I’m getting really wonky here, and I apologize for that to my casual traveler readers. But this is something that really interests me, and I wanted to dig in deep. This post was the most difficult to write because trying to untangle the web of relationships is not easy. It got even more difficult when American and Travelport announced that some of these things will be implemented. If you missed the first two, see Part 1 which talks about the history of airline distribution followed by Part 2 which focuses on how some airlines want to sell tickets.
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You’ve now seen the vision for how some airlines would like to sell tickets, but why hasn’t it happened yet? That’s the million dollar question. Ultimately, the relationships between all the different players are incredibly complex thanks to goofy business models and years of entwined history. It’s not easy for those things to change, but the shift is happening. Just yesterday, American and Travelport announced they had come to an agreement that will start them on the path to making this a reality. That’s a big deal, but it was just a matter of time before someone made the move. The potential benefit is there.

The funny thing is that it doesn’t seem like much has to change. The diagram I showed on Monday just needs a couple more lines (below), but it’s the nature of the connections that are so difficult to alter.

I thought the most effective way to do this post would be to go through each group that has a stake in this thing to explain what this would mean for them and why they would or wouldn’t like it. This might help explain why we find ourselves still selling tickets the same old way. Let’s naturally start at the top, with the airlines…. (Grab some popcorn, we’ll be here for awhile.)

Airlines
The airlines have a huge reason for trying to change the way things work today; they want to sell more at a lower cost. An airline’s website does this quite well, and those channels are moving full steam ahead, but there’s no way full-service airlines will ever get everyone to buy directly from the website. So they need to find a way to do what they do on their website with third parties.

Could they file all their ancillary rules through the central fare clearinghouse and then let all the third parties use that data? Maybe, but I really doubt it. Each airline will create ancillary options differently and a very structured way of formatting this wouldn’t necessarily be a good plan. Even if it was, the process would still rely heavily on the Global Distribution Systems (GDSes) to do all the processing. That would not only give the GDSes more leverage in continuing to maintain their position, but it would prevent the airlines from personalizing offers as they’d like because they wouldn’t control what the customer was given.

That’s why airlines like this new way of selling, because it would let them handle the processing themselves. Effectively, what they present on their websites could be delivered to any third party channel that wanted to sell travel. It’s in XML format so it’s pliable and can be used in all kinds of ways by third parties. That would help reduce distribution costs by reducing the importance of the GDS (but not eliminating its relevance, as we’ll discuss below). It would also give much more control to the airline.

But how can they do this? Well, the plan that’s moving forward would have a standard set up by the International Air Transport Association (IATA) unimaginatively called “New Distribution Capability” (NDC). Despite all the scare tactics I’ve seen put out by opponents, I’ve yet to see anything that suggests NDC will be anything but a standard for allowing airlines to communicate their offers to third parties and then take bookings. It doesn’t say anything about the content itself – just provides a way for it to be sent back and forth. IATA just filed this with the Department of Transportation for approval, so you can read all 87 pages with the background and details if you’d like.

How would this reduce costs? Well, development work could be focused on one channel so that improvements would impact the website, travel agencies, and third parties. It would also give the airlines more bargaining power with the GDSes. Why? Because it’s really hard to create a GDS today, but if the GDS becomes more of an aggregator of various feeds from different airlines, then it would reduce some barriers to entry for competition and put price pressure on the GDSes. The airlines like that, but of course, the GDSes don’t. And that brings us to…

Global Distribution Systems
Outside of the airlines, the GDSes have the most at stake with these changes, and different GDSes have taken different approaches. Today, the GDS revenue model is kind of backwards, and that’s a quirk of history. Let’s compare it to an ice cream company called, say, Mr Whippy. Mr Whippy has several suppliers from which it buys the ingredients that go into making its ice cream. Once it has made the ice cream, it sells to third parties (supermarkets, etc) for a profit. Those third parties then sell to the end consumer. It’s pretty simple to understand.

Now think about the GDSes. They are in the business of selling airline tickets (and hotels, etc, but we’ll just focus on airlines). They don’t have seats to sell themselves, but instead they have suppliers, the airlines. But instead of paying the suppliers for the inventory, they make the airlines pay them for the right to be sold in the system. Airlines pay booking fees that can range from a couple bucks to a lot more for each flight segment. (Recently, it was revealed that American was paying Sabre $2.73 a segment, but when they got into a business dispute, Sabre jacked that up to an incredible $7.31 a segment.) For a typical roundtrip with 4 segments, that’s a lot of money.

What do they do with that money? They go and pay the third parties (travel agents) that sell their products. Goofy, right? But it’s because way back in the day, the airlines owned the GDSes. And as we know from the history on Monday, the airlines could get an upper hand by getting their systems into agencies. They could bias the results in their favor. And of course, they wouldn’t want to charge those agencies. Instead, since they had the agencies captive, they could charge the other airlines to play. They were making money even if the agent booked another airline. Brilliant!

But things are different today because the airlines no longer own the GDSes. Though the business has changed, the model never has. For airlines, that means they pay a lot of money for something that they don’t think is providing enough value now that technology is starting to open up new ways of selling.

The GDSes, however, realize that they still currently control a huge piece of the market. Airlines make a large percentage of their money on business travelers, and big businesses use GDSes (we’ll talk more about that later). Though it varies by geography, in the US, Sabre is the big boy with over half the market. Travelport is next with something in the 30 to 35 percent range. Amadeus has the rest of the market (less than 10 percent), though Amadeus is huge in other parts of the world.

Sabre seems to have taken a stance that its role is to, as described to me by Shelly Terry, VP of Airline Merchandising for Sabre, “ensure we’re meeting the needs of the agencies and corporate customers that utilize our system.” It’s not just that. There was talk about balance between the supplier and customer needs, but Sabre seems to think that this new plan by the airlines would tip the balance too far in favor of airlines and would harm agencies.

From what I can tell, that means Sabre wants to keep doing the processing itself instead of letting the airlines handle it, because the company thinks that will make it easier to compare offerings across airlines. It paints a picture of airlines withholding fares from travelers unless they fork over their personal information. As discussed Tuesday, that idea seems silly to me.

But for Sabre, it has a lot to gain by maintaining its position. As the market leader, it wants to keep what it has, but it realizes it can’t sit completely still. Sabre has moved to allow for merchandising in small steps, even using connections that have an XML feed and allow the airline to process the sale. But those are built as one-offs for specific ancillary services instead of addressing the entire merchandising/selling strategy for the airline. Those one-off connections can be very slow to set up (over a year to sell US Airways Choice Seats alone – just imagine the labor costs), and this method forces those ancillary fees to be separate from the fares themselves in the shopping experience, by design.

Sabre wants to keep fares sold the way they are today because it thinks that’s a better way to compare across airlines. As it suggests, this new proposal from the airlines is about “changing the way fares and pricing information is made available to consumers and travel agencies.” The disagreement is on whether that’s a good thing or a bad thing. And Sabre clearly thinks it’s bad.

Not all GDSes feel the way Sabre does. Travelport, for example, has introduced Agencia in Canada, and then just yesterday announced it would do something similar with American here in the US.

Agencia incorporates Air Canada’s direct connect content with traditional GDS content in a very user-friendly interface. Travelport does all the processing for the airlines in the GDS, but Air Canada handles processing for its bookings. You can see a nearly 11 minute video on the Travelport website. What’s even more amazing? I understand that agencies actually pay for Agencia. This flips the current model on its head and makes it closer to a more traditional business/supplier model.

Travelport will do the same thing for American in the US with one big difference. It won’t force the desktop upon agents. The plan is to find a way to offer all these various options through the existing interface, though possibly in other ways as well. It is VERY early in this process, but I imagine we’ll hear more soon. I was recently invited to a conference in April to learn more about this and I’m hoping to attend. I will keep you posted if that comes together, naturally.

For Travelport, this is a great move. It’s a distant second in the US market, but by offering this, it will be able to provide a distinct benefit to agents that Sabre doesn’t want to offer today. Sabre has to be steaming. With Travelport offering to become an aggregator that puts direct connections right next to GDS options in one place, there is a real alternative to Sabre now. Though it’s too early to know, this announcement yesterday could be huge in terms of pushing distribution methods to change in the future.

Travel Agencies
We know GDSes seem to be split at best on this issue, but what about travel agencies? Again, it’s the same kind of thing. Many brick and mortar agencies rely on the revenues coming in from GDS incentive payments, so the thought of losing that is a scary one. The idea of having to actually pay for the content is even more harrowing. Of course, travel agents like the idea of having all this information so easily accessible. It makes the job much easier. But if you have to forego a lot of revenue, then it wouldn’t be worth the switch.

That’s why it really falls on to the airline to make sure the agencies are made whole. There has to be a reason for the agencies to take the plunge. And this is really why working with a GDS instead of trying to reinvent the model is so important for airlines. It’s why the Travelport/American announcement is such a big deal. If a GDS doesn’t want this to happen, it can cut off agency payments or start biasing airline displays (at least in the US) and that’s a really tough thing to overcome. But working with the GDS, that becomes a non-issue, especially if the new GDS agreement involves lower costs for the airlines in the process.

This goes for online travel agents as well. Priceline took the plunge and now works with American on a direct connect. How did it manage to do that? I would assume that American made it worth their while, but Priceline also has a ton of business that’s not air-related. I can only assume it was able to use its heft to avoid any serious loss. And now it can sell American’s Preferred seats while others can’t… yet. Though we know that’s changing.

Corporate Business
Often called “managed travel,” this is the bread and butter business for any airline. These are usually the high fare-paying road warriors that airlines love, but above those road warriors is a large organization, usually one that has staff overseeing the travel program which is often administered by an agency (called a Travel Management Company). So how the corporate folks feel about this should matter greatly. How do they feel? I had the chance to talk to two people who run the corporate travel groups of very large organizations. For them, there are really three things that matter most.

1) Security – For any business, security is important. But when it comes to travel, you’re freely passing around credit cards, birthdates, passport numbers, etc. No, there’s no social security number, but there is still a lot of sensitive information flowing. For any technology to even be considered, the security has to be there.

2) Data – Big businesses run travel departments on data. They need all kinds of data in a way that they can slice and dice it to make decisions on a broad level. So any solution must be able to provide that kind of data. The GDSes provide a great deal of data, and that’s why corporates like them. They can get all kinds of data. So if direct connect doesn’t provide that same level of data to the GDS or some other aggregator to give to the companies, then it’s not going to fly.

3) Discounts – Businesses negotiate corporate deals with the airlines, and that usually means discounts with extra perks. This kind of information needs to be easily accessible when booking regardless of the source. And all the discounts need to be in one place with access to all flights and fares. People aren’t going to hop around to various tools depending upon the airline.

You would think that credit cards would have found a way to extract the data and attach discounts to that number by now, right? But they don’t. So GDSes are still the best bet for these companies to do what they need to do. Could they benefit from direct connect? Yes. If the airlines started including all the ancillaries and provided robust tracking data for everything, it could be beneficial. Then again, with a lot of these corporate deals, the ancillaries aren’t purchased anyway because they are frequently negotiated as part of the overall agreement.

I definitely heard some skepticism about airlines being able to pull this together. After all, they do some things that make things more difficult for the corporates. For example, there are different merchant codes used by some airlines for various ancillaries. It makes pulling the data together tough. But with Travelport integrating the direct connect, that’s the best of both worlds.

Travelers
Last but not least, we have the traveler. Travelers don’t currently receive incentives from anyone, so they should be the easiest to sway with new technology. Ultimately, it’s the traveler who may stand to benefit the most here. A clean interface that allows people to truly compare apples to apples by knowing how much each ancillary option costs (if at all, depending upon status) would be a huge leap forward. And getting offers tailored to a traveler’s need is helpful if done right. Naturally, just because the airlines put the direct connect out there, however, doesn’t mean it gets to the traveler. That only happens on airline-controlled channels.

As we’ve seen with Priceline, this can be done by third parties today. Even with limited funcionality, what Priceline has done is good for travelers, and benefits will only increase as more features are rolled out. Tech work is definitely a hurdle. IATA’s NDC has yet to roll out and then there will be development work required. But the barriers will continue to fall in time. Something that the airlines want which also benefits most of the stakeholders isn’t going to fail. I just wish things didn’t move so slowly in this industry. But after this week, you probably have a better understanding of why that’s the case.

As you know from my trip report last week, I was in Miami attending Farelogix media day. But what is it that Farelogix actually does? The company’s end goal is to give airlines the freedom to sell tickets the way they want. Ultimately, this will make it easier for travelers to buy tickets with the options they want. In fact, Farelogix has put together a system that would make buying tickets much better today… if there weren’t so many roadblocks preventing it from being implemented.

As a traveler, you shouldn’t care about the name Farelogix. Farelogix sells directly to airlines and won’t be the name you’ll see as a traveler. The idea is to create a system that the airlines can use to distribute fares and ancillary options to anyone who wants them. And I do mean anyone, because this is really just putting the information into an XML format that can then be sliced and diced in a million different ways. It’s up to the airlines to use this technology to reach the end customer, but as a customer today, you aren’t going to see it.

Today, I’m going to talk about what the system is, but then I’ll address why you can’t use it yet in a future post. Keep in mind that these screenshots are just of a basic system showing functionality, so it’s not meant to be pretty. The bundle names and fares have been changed as well.

When you do a search, you will be able to see fares in the way the airlines want them displayed. In this case, we see American’s fares on top with the three different bundles that the airline rolled out earlier this year. Then United’s fares are below and they don’t do bundles. So you can display it all in one place, expanding each airline if you want to see more details.

Then when you pick a fare, you can see all options available to go with that fare. Here’s where it gets really interesting. The idea is that you would have logged in and all of your airline frequent flier numbers would be stored, so it would know if you have elite status or not. It would then enable you to see exact fee information instead of just seeing ranges of fees as you do today.

In this particular example, there were two travelers. The one on the left is an elite member and the one on the right is not. As you can see, the guy on the left gets priority boarding and first two bags free while the guy on the right has to pay. But the guy on the right can simply click to add that to his cart before checking out.

Each of these options also gives the ability to integrate multimedia. So here you can see a picture of the meal that you would be buying. They can also put video in there as well. It means no more searching for pictures on random sites online to find these things.

You’ll also be able to pull up the seat map and see which seats are available at which price. It would include premium economy seats and those “choice” seats where you have to pay to sit. And you would be able to mouse over and see the seat that you’re going to get (maybe not the EXACT seat but, well, you get it).

Then when you’re ready to check out, you can see a final price that shows everything that’s included and everything you’ve opted for. It can process the payment and issue the tickets right there.

If you purchased something like a lounge pass, how would you get it? Well, the system can just send it directly to your phone if the airline is set up to use a QR code to allow you to enter. It can all be done very easily. But it doesn’t stop at the purchase point.

You can even check in using this system and it would be able to push upgrade offers right there, with payment handled in the system. Then you can get your boarding pass and be on your way.

Of course, for Farelogix, this is just something they mocked up to show what could be done. It’s pretty impressive, but it’s far from limiting. It’s all about having the data in a simple format that can be manipulated in a million ways. Online travel agents can use this data to create a far better display than what they have today, comparing options in a much more intelligent way incorporating fees as needed. Real travel agents can use a system like this to manage their own ticketing as well. In fact, it’s set up so that you can plug anything into it. In other words, if American did this, a travel agent could then pull in American’s data and combine it with that of other airlines that sell only through the Global Distribution Systems (GDSes). Then it can all be presented and acted upon in one place. How ideal.

So why hasn’t this happened? Oh me, oh my. It’s a long and painful tale. That will have to follow in a later post.

I’m going a little off topic today, but that’s why this is a Wednesday post. I thought I’d get some feedback from those of you who might have opinions here. I have an ultrabook now, but I’ve been thinking about one of these new-fangled laptop/tablet hybrids. So when Lenovo loaned me a Yoga for a week, I decided it would be worth playing with.

There were some things that I loved. This was my first chance to play with Windows 8, and I thought it was great. I think part of the reason I loved it was because the Yoga has a touchscreen. It really does make a computer operate like a mobile phone. But when you don’t want that, you have the keyboard to use it the traditional way. The flexibility is great.

And the keyboard itself was really good – easy to click and the keys were all where you want them. (My current ultrabook still frustrates me with the Page Up/Page Down keys.)

There were also some downsides. It is a touchscreen but the screen smudges easily. I guess it’s not an issue when the screen is on, but it is still a little annoying. And yes, this thing is really bulky as a tablet. That’s why it’s really a laptop with tablet functionality and not a replacement for a true tablet.

I also got nervous that I was going to break the thing. When you use it as a tablet, the keyboard is open for abuse on the back. Apparently this thing can survive heavy use, but it still made me uncomfortable.

Of course, Lenovo is far from the only one doing this kind of hybrid. I think pretty much every manufacturer is making one of these including Microsoft itself with its Surface.

So do you guys have any experience with these? Any suggestions? I suppose I’m leaning toward just keeping my ultrabook for now, but I am still tempted…

A couple weeks ago, I had a unique opportunity to connect through the massive hub that is Camarillo. Ok, so maybe it’s not massive. Camarillo is actually a small airport northwest of LA with no commercial service, but it is the home of Row 44′s Grumman Albatross test aircraft. I flew this airplane on a quick hop around San Diego back in 2009, but a lot has changed since then. Both Holly Hegeman from PlaneBusiness and I were invited to go for a ride to see what’s new.

Since they knew I was in Long Beach, they had us start our day at the Long Beach Airport. What I didn’t realize is that they weren’t bringing the Albatross over to pick us up. Instead, they had a Piper Cherokee fly us over to Camarillo where we would hop on the Albatross for a flight around Catalina Island. We cruised very low and very close to land the whole day. It was pure awesomeness. I fooled around with some video software to create this 3m18s souvenir of our day.

As you can see, this was dork heaven, but we did talk shop as well. So what’s new with Row 44?

The company continues to add clients. Most recently you might have heard that Allegiant will install a piece of Row 44′s system on its 757s for the long Hawai’i flights. This deal doesn’t include wifi but it does mean have cached video content will be available for people who want to pay to watch it on their own devices. In other words, the system uses Row 44′s hard drive and then broadcasts the content via the local wireless network on the airplane. It’s just not connected to the internet.

Southwest, however, is still the company’s biggest client and it is installing the whole enchilada. There are hundreds of airplanes with wifi today and the 737-700 fleet will be fully outfitted soon. These also have cached video as well as streaming media for news and other up-to-the-minute types of channels. (I flipped on MSNBC while inflight and it came in perfectly. It also doesn’t impact wifi speed, so it’s extra awesome.)

For now, Row 44 is happily committed to wifi using Ku band. My experience on our test flight was that it was adequately fast, but it wasn’t anywhere near home broadband speeds. Of course, we were in a freakin’ airplane, so I can’t really expect that … yet. The company continues to watch Ka band to see if anything develops but it’s still a ways away from being competitive. (I talked about this with Panasonic recently as well.)

What was interesting to me was the presence of Lumexis screens onboard the Albatross. It somehow escaped me that the big investor in both companies is the same. So the two are starting to work more closely together to be able to offer wifi and in-seat video to those airlines that are interested in a more complete package.

To end on a lighter note, I finally found out where the Row 44 name came from. Apparently the founder was on a Laker Airways DC-10 flying across the Pond many years ago. He was in row 44 and was miserable, so he decided that some day he would come up with a way to make air travel better, even for those seated in row 44. And there you have it.

Thanks to Travis Christ and Karin Pellmann of Row 44 for the sweet ride, and of course, for the updates on all things Row 44.

Do babies and first class mix? – CNN Out of the Office
I brought the babies in first class debate over to CNN this week, and I used comments from a lot of you to add to the discussion.

Staying Power: In a mobile world airlines and passengers are still keen on kiosks – APEX Magazine
This month I wrote a feature on the future of kiosks. There is a future, but it’s not just about checking you in for flights.

In the Trenches: Considering the Shark Tank – Intuit Small Business Blog
I love watching Shark Tank on ABC, but it’s not because I wish I could be in the shoes of those small business owners by any stretch.

One-On-One With Brett Snyder, President and “Chief Airline Dork” of Cranky Concierge – ExpertFlyer Blog
After my two small city guest posts, ExpertFlyer did an interview with me.

Five tips for getting a better airplane seat – CNN On the Go
CNN doubled up with me this week. The second was for their On the Go series (which will apparently run on HLN all weekend). I wrote a companion piece that CNN put up here.