Comments of Aviation Professor Emeritus Nawal Taneja

Introduction

I have worked in and around the airline industry for more than 40 years, making it literally a life

- long study. As a practitioner, I have provided strategic planning consulting for major airlines and airline service industries globally. As an academic, I have served as a Professor and Chairman of the Aerospace Engineering and Aviation Department at Ohio State University , and as Associate Professor in the Flight Transportation Laboratory of the Department of Aeronautics and Astronautics of the Massachusetts Institute of Technology. During my career, I have authored two series of books: first, eight books for graduate and undergraduate students; second, seven books on various aspects of the industry for practitioners , often at the request of airline executive m anagement. In the second series, t wo of my books, Fasten Your Seatbelt: The Passenger is Flying the Airplane , pub lished in 2005 (Taneja, 2005) in which I examine the changing relationship between modern airline passengers and airlines, and The Passenger Has Gone Digital and Mobile: Accessing and Connecting Through Information and Techn ology , p ublished in 2011 (Taneja, 2011) delving further into the role of technology in these changes , are particularly relevant to this issue.

Today’s Travel Consumer

There is no doubt that consumers are largely in control of the airli ne market, although this may contrast with the general perception of most travelers. But the evidence is clear. The most telling statistics are the inexorable decline in average yields from passengers

– a trend that can be traced from the early days of commercial flight s

. Despite cost cutting, airlines , as a group, have been consistently unable to

earn profits at even modestly healthy levels. In contrast, passenger s in this highly competitive industry have paid less per mile for air travel , while air travel itself has become faster and safer at the same time.

My research, involving hundreds of interviews with passengers and airline executives, disc losed important trends which, when combine d with consumer control of the market , are central to IATA’s initiative: (1) a growing segment of passengers want s more choice of fares and ancillary services when they sho p for air transportation , (2) many passengers are willing to pay more than the cheapest fare for basic, no frills transportation wh en they clearly understand the added value , and perceive the additional cost as fair , and (3) a growing number of passengers would choose a personalized shopping experience if one were available

. These forces impact all participants in the marketplace who must pay closeattention to these trends to survive

. All must become more consumer

- centric in their distribution

strategies, as well as their product and service value propositions.

Many of t oday’s modern air transportation consumer s understand there are differences in fares, driven by advance purchase time and the flexibility of the fare in terms of refunds or changes and other variables. When they see a highly

- restricted, deep ly

- discount fare, they want to know the cost of a fare with fewer restrictio ns in order to make an informed choice

. Further, t hese consumers understand there are differences between carriers, particularly low cost carriers and the legacy network airlines, and the recent “unbundling” of services and amenities has increased the pa ssengers’ spectrum of ancillary
service choices. These consumers know that some aircraft come equipped with in

- flight entertainment or WiFi, not all seats are equally comfortable, and that some airlines offer ground side amenities such as priority passage through security or airport lounges. Not surprisingly, these consumers want the information necessary to shop around these quality and amenity differences. These consumers are accustomed to comparing differences in hotels, car rental services and a wid e array of other consumer experiences from buying books, music, computers and other products online, and are looking for a comparable experience in shopping for air tra vel

. The existence of websites and mobile applications such a s seatguru.com and tripadvisor. com among many others, underscore consumer demand for the consolidation of this information. And there is a growing number of tech

- savvy, frequent traveling consumers who are willi ng to go beyond mere transparent product and pr ice to use technology to personalize their shopping experience. These consumers are happy to have their travel agents or preferred airlines keep their preferences and profiles on record, and use them to del iver the best deal with the amenities they value. As this trend grows, we can expect airlines, travel agents and others to test new, innovative ancillary services so long as the technology allows those offers to be marketed and sold efficiently to consume rs.
Airlines must be prepared to respond to today’ s modern consumer by balancing simplifica tion with more choice and genuine consumer value with cost. Distribution technology must improve to provide transparency not only for fares, but complete offer s wh ich will include more options, ch oices and services. Whether offers are generic bundles produced by airlines , built by the consumer using a “shopping cart” methodology or are customized based on information provided by the consumer, d istribution technolog y must ensure the consumer understands what each offer includes (and does not), the total cost and has transparent access to alternatives for comparison . IATA’s proposedstandardization of a robust, flexible XML data format appe ars to be a necessary , if n ot sufficient, step in

the process needed to support this consumer trend.

IATA’s Resolution 787

As I understand, Resolution 787 has two distinct features. At its most basic, the Resolution merely directs IATA to develop new data interchange specificatio ns in XML, creating one new working group in the process but otherwise relying on its existing governance structures. This is hardly revolutionary since IATA, together with ATA, developed and managed the current data specification long ago. The novel as pects are only the use of XML and requirements for increased functionality. At the same time,
Reso lution 787 describes potential changes for which the new standard would provide a foundation. Despite some protests, m any of the cited changes are inevitabl e once the ai rlines have differentiated the products and services surrounding the basic element of air transportation. With an array of products and services, airline distribution will follow the means and methods of other online retailing.

“ Shopping car t” product selection, re

- bundling discrete packages, and customized offers to reward shoppers’ loyalty are obvious paths for airline distribution to replicate. These are all either well

established or are growing trends in the online sale of consumer prod ucts and those same consumers will demand the same experience in shopping for differentiated travel services.

Travel Agents Should Be Supporting Resolution 787

In this context, opposition by travel agents is perplexing. Today, airlines are making improv ements in their own websites, enabling the marketing and selection of alternative, less restrictive fares and ancillary products and services. Consumers seem to appreciate the information and choices, voting with their wallets and driving revenue opportun ities for the airlines beyond the sale of mere transportation. Airlines control this environment and are profiting from it. But airlines no longer control the technology available to travel agents, which has lagged the rapidly changing marketplace. IAT A’s proposed standardization of the data interchange in XML is helpful only in the indirect, travel agency distribution channel, and has no impact on airline direct website sales. Thus , its adoption only benefits travel agents by mitigating one technolog ical barrier to access to better price, product and service choices. By opposing IATA’s initiative, agents increase the obstacles bl ocking their access to this content

. Critics’ suggestions that IATA’s proposed New Distribution Capability will diminish transparency and risk increasing the sense of unfairness and discrimination in pricing , even attempt ing to “gouge” consumers is equally unfounded in my opinion . With the growth of different airline models, new in

- flight productsand an expanding array of ancillary services, transparency must include not only price, but much more

information about the qualities of the promised service, product and alternatives. Comparison shopping of this differentiated airline product is difficult today because the information is generally only available on individual airline websites, not through online or brick

- and

- mortar travel agents. IATA’s proposal specifically targets that gap, hoping to make the revenue opportunities of these choices available through more channels. The corollary effect of facilitating the presentation of these consumer choices through the travel agency channel is to increase comparability of differe nt offers, enhancing transparency. Critics argue the risk of gouging resulting from broader distribution of price, product and ancillary service information into comparison shopping formats . However, it appears to me that the skills of professional trav el agents will be augmented with better information.

Despite the concern caused by some participants in the airline com munity, IATA is not propos ing an overnight revolution in airfare distribution. Resolution 787 appears to help the indus try smooth t he transition to a standardized use of XML instead of the out dated EDIFACT data structure language. IATA’s processes ensure broad input and ATA and IATA together developed and maintained over decades the data structure in use today without controversy. The establishment of an XML standard is overdue and necessary to support point of sale marketing of the full spectrum of airline fares, products and services through all distribution channels. Standardization enhances efficiency and lowers costs for all concerned; airlines, agents and technology service providers such as GDSs. While necessary, it is not sufficient to bring about the changes in distribution described in part s of Resolution 787. Once the XML standard is in place, it will be up to the airl ines to listen to the consumer demands for more informed choice. T he marketplace will determine the pace of adoption and development of the functional capabilities the Resolution anticipates. In this industry, we can expect those changes to take years to spread.

Impacts of Resolution 787: Consumers, Airlines, Travel Agents and GDSs

Assuming eventual adoption of the new standard, what will be the impact? For consumers, there should be more ability to buy just the transportation and related services desi red, with full comparison shopping capability. And the shopping should be more dynamic, with the consumer able to filter, sort, compare and select services and prices on a wide variety of criteria. Take , for example, a businesswoman seeking a transcontin ental flight able to look only at flights with WiFi connectivity and extra leg room allowing her to work comfortably and stay in touch with colleag ues while she is enroute. Or on her next flight with her family, she may use the enhanced data and technolo gy to limit her searchto only flights with seat

- back entertainment for her children. For her teenage son’s spring break, a

traditional low fare, no frills, search may be best. With the robust capabilities XML offers, consumers should expect all of the se capabilities. In the longer term, creativity and innovation not only by the airlines, but by travel agents and others may create new service opportunities.

For airlines, there is an obvious revenue opportunity. Unbundling and the presentation of far e and service choices has provided product differentiation beyond mere transportation. The a irlines will be able to offer th os e ancillary products and services that passengers actually value, identified by their willingness to pay. Some critics contend t hat these services used to be “free” , which is of course, not true. The cost of providing the additional services was simply shared by all passengers whether they utilized the service or not. With the ability to market products, such as additional leg ro om, or services, such as security fast lane access, airlines can more accurately determine which services passengers value and make the corresponding investment. Competition may be taken to a new level and a irlines will have to pay close attention to the consumer’s needs, desires and willingness to pay. Just as small fare differentials caused disproportionate shifts in market share, th e full transparency of price and ancillary service fees that will follow standardization and adoption in travel agency channels, may also lead to rapid shifts. It will be essential that airlines have the real time flexibility to respond to consumer demand.

Travel agents will see their role enhanced. As airlines offer more complex choices, the travel agent’s role expands. Whether it is harmonizing corporate travel policies with a broader array of in

- flight amenities, or guiding an occasional traveler through the alternatives, the value of an experienced, knowledgeable travel profes sional seems likely to rise. XML is much better understood and more widely used than EDIFACT, and XML programmers are ubiquitous. Thus, IATA’s open XML standard also increases the likelihood that innovative travel agents will find services and amenities they can offer at point of sale along with the airline’s offer of transportation, increasing their revenue opportunities and the service they can provide their clients.

T echnology service providers will feel the pressure to adapt. The shopping and booki ng process will be different, with airlines capable of responding to either anonymous shopping or customizing offers based on information provided by the consumer. GDSs will have to make new investments and will likely face new competition as new entrants offer services to the travel agency community based on the XML standards. This could explain much of the opposition that has been generated. But the need for some kind of intermediary is still apparent. While the role may change, the tr avel age nt will still need atechnology solution to formulate and submit the request, to filter the request to send it only to airlines

that provide service on the requested route, and to organize and display the responses received f rom airlines for compar ison, selection and booking by the agent. Resolution 787 seems to hope for new entry in this intermediary role, but t he GDSs have enormous advantages over any prospective new

entrant . GDSs have established relationships with travel agents and connectivi ty to the world’s airlines. And the business model which includes incentive payments to the agents and business support such as back office software, combine to make a formidable entry barrier.

Conclusion

In conclusion, Resolution 787 and a new, open XM L

- based data interchange specification will provide broad benefits to the industry and consumers. It is a necessary, but not necessarily sufficient, step toward improved comparison shopping consumers already enjoy in a wide variety of other online retail in other business sectors . The criticisms, ranging from potential “gouging” to some kind of grand conspiracy to compel consumers to provide detailed personal information just to receive a service and fare quote seem unlikely in this traditionally compet itive industry. The standard seems aimed at enhancing the data to be received by travel agents where comparison shopping takes place either under the trained eye of a professional travel agent, or where various online shopping tools are only a click

away. Accordingly, Resolution 787 has my full support as it helps the airline industry address the changes in consumer demand for a more complete travel shopping experience and personalization.