Why Airline CCOs Should Champion the Transition to Orders
Of the wide array of commercial benefits unleashed by the industry’s transition from EDIFACT-powered fare filing, PNRs, and tickets to the new world of NDC-powered offers and orders, the typical airline Chief Commercial Officer can readily recite only those which arise before a sale is made. New offer management engines can make a wider, more personalised selection of products available at more granular prices. NDC can close retailing gaps between direct and indirect channels, as well as reduce reliance upon higher cost, less flexible distribution channels. Who can blame them? These are real headline-grabbers! Importantly, they are also commonly under the CCO’s direct control to implement. Their Revenue Management team is responsible for creating and configuring the core offer management engine. Their Digital team is responsible for exposing these revenue-producing products and prices on the website and app. Their Sales and Distribution teams are responsible for motivating third party channels to use the NDC connection.
Lurking in the corner is the obscure and intimidating final frontier of the industry transition: order management. Many very capable CCOs have perished scaling the mountain of tedium required to explain how an order management system works. Through glazed over eyes, a CCO could be forgiven for seeing the transition as a massive headache for someone in the Operations or Finance organisation to champion.
To such CCOs, we say do not lose heart! The transition to order management is the key which unlocks several strategic outcomes. In this piece, we share a few of the most important ones to foster the bravery required for CCOs to become order management champions.
Strategic Outcomes of Order Management with C-Suite Appeal
We know and love many colleagues in airline revenue accounting, and even they would admit that the moment revenue accounting comes up in a c-suite conversation is the moment when many in the room start looking at their phones. The same goes for discussions of exchanges of partially used tickets involving unaccompanied minors on multi-city, open jaw, interline itineraries with multiple stopovers. Do we even have to mention discussions of schemas? Though every issue at an airline is important, these do not often feature on the list of things which the c-suite team deems “strategic” and, therefore, a good use of their attention.
The industry has heretofore spent much energy describing the “what” and “how” of order management, while focusing the “why” on the valid and very long list of back-office processes which will be improved by the transition. To be an effective champion, however, a CCO needs a shorter, concise list of “strategic whys” which can be explained at the CEO’s staff meeting without resorting to the minutiae of messaging standards, ticketing processes, or revenue accounting principles.
What follows is our attempt to give the airline CCOs of the world a list of a few, high impact strategic outcomes of order management which can be easily communicated and understood at CEO staff meetings.
Order Management Can Enable a Competitive Advantage in Servicing
It is universally accepted that legacy servicing processes are imperfect. The c-suite already understands conceptually that many scenarios are very complex, defying automation and requiring human intervention. Some of those scenarios require a considerable amount of time and attention of expert staff in their call centres.
What many do not fully appreciate is that much of the complexity is driven by the “order” in legacy systems being split into two separate but related records: the PNR and the ticket. Most changes to the customer’s travel plans require both to be modified. Each record has its own business rules which introduce constraints what can be done with both it and the other record. Human intervention is too often required to enforce pricing integrity, update both records within the boundaries of their business rules, keep them in sync, and properly document the outcome so that the service is delivered, and transactions are reported accurately.
Orders address the complexity of the legacy world by replacing PNRs and tickets with a single record and set of business rules to perform both functions – i.e., recording the items ordered by the customer and the status of each item’s ordered, paid, and used status. The lone act of reducing the number of records from two (or more!) to one makes it possible to automate a much wider array of itinerary modifications more readily. This opens the door to things like more self-service opportunities and proactive, automated flight disruption management during irregular operations.
It is common for an airline to receive its highest satisfaction scores not from customers who experienced perfect flights, but rather those whose flights were disrupted and well-handled. Order management therefore presents a new opportunity to exceed customer expectations during the moments that matter most. It encourages customers to keep coming back to the airline and, as a side benefit, likely to the direct channel and/or app.
Order Management Can Close Competitive Pricing Gaps
Competitive pricing is an existential matter for airlines. In some markets and among some customers, failing to price a fare at parity with a competitor can cause significant swings in revenue performance. Continuous pricing provides airlines with a new way to price flights at points in between legacy fare classes to better optimise load factor and yield. The airlines which pursue it first and with the greatest array of possible price points are likely to outperform those who do not.
The transition to NDC-enabled offers has already unlocked a greater degree of flexibility for airlines to implement continuous pricing. However, offers and NDC alone cannot deliver the full benefit. Though the reasons are many, for simplicity we will focus on legacy revenue accounting systems which can only ingest fare basis codes and tickets. While offer management systems can in theory generate an infinite number of price points already, legacy accounting systems require them to be matched to a previously filed fare (often with a discount applied from a finite list of filings) which is subsequently memorialised on a ticket. For so long as continuous pricing is fulfilled with conventional PNRs and tickets, it cannot truly be continuous.
Orders, on the other hand, have been designed to accept any price for the items which it contains. Airlines which fulfil their continuous pricing using orders and an order-based revenue accounting system can therefore truly offer an infinite number of price points. This is important not only for competitiveness as a standalone airline but also in connection with airline partners. Two airlines with order-based continuous pricing could in theory offer an infinite number of price points on combined itineraries, but if either still fulfils with PNRs and tickets it may introduce pricing constraints on the entire itinerary. Implementing orders could therefore become an expectation for being a “good partner” and/or attaining or maintaining membership in one of the global alliances.
Order Management Can Help Airlines Break Free from Legacy Commercial Constraints
Despite over a decade of progress implementing NDC, many airlines are still dissatisfied with the overall condition of their indirect channels. Costs are still too high. The use of legacy technology is still too prevalent. The degree of upsell to higher fares and/or attachment of ancillary products is still too low. Product displays are still too commoditized. Some airlines point to the content commitments and technology constraints in their global distribution system (GDS) contracts as the primary contributors to the underperformance.
While GDS contracts can by themselves be very “sticky” due to the number of bookings they produce, two of the three global GDSs also have another major hook into their airline customers as passenger service system (PSS) providers. For many airlines, upsetting a GDS is an unthinkable risk. Some airline CCOs may see upsetting a GDS which is also the airline’s PSS provider as a career-limiting move. Such a GDS could complicate not just a subset of an airline’s indirect channel bookings, but also its entire operation. Despite the underperformance of indirect channels, many airlines find themselves too ensnared in the commercial tentacles of their GDS and PSS providers to stomach the risk of disruption.
Before order management, airlines’ PSS choices were limited to the two GDS operators plus a range of small providers. Because of the cost and operational headaches of switching PSS systems, the market favoured the incumbents. With order management now becoming an option, more airlines have already resolved that they must switch from their existing PSS to a new system in the coming years. This erodes some of the incumbents’ advantage and opens the door to new providers which do not have an interest in preserving their GDS business.
To the extent an airline decides to use a non-GDS vendor for its order management system, greater degrees of commercial flexibility can be unlocked. This can result in accelerated distribution cost savings, faster deployment of NDC, and revenue upside from upsell, ancillary attachment, and continuous pricing.
Thomas Edison – the American inventor of the incandescent light bulb, phonograph, and motion picture camera – once said that opportunity is missed by most people because it is dressed in overalls and looks like work. Order management certainly looks like work. To many CCOs, it looks like work for someone else in the company. It certainly will be.
The opportunity of order management, however, arguably lies more with the commercial team than any other department. It can enable leaps ahead in customer satisfaction, ensure pricing competitiveness, and erode debilitating commercial constraints on indirect channel performance, among other benefits. All of these are central to the success of the CCO and ought to motivate them to become the ringleaders of this industry transformation.