Dynamic Offers: The Path To Customer-Centric Revenue Optimisation

Transcript

ALESSANDRO CIANCIMINO:Okay, so dynamic offers. I'm going to talk over the next few minutes about dynamic offers, a topic that clearly is top of the agenda for this industry. Yesterday we heard from Tamur from Lufthansa. They're very focused on that. So we'll cover the opportunities, the challenges, and our vision on that. So if we look at the recent market trends in the industry and the impact that they had on retailing, distribution, and fulfilment is significant. So starting from retailing in 2018, so the highest number of new routes opened than in any year in the decade prior to that. About 55,000 new routes have been opened worldwide. But of course, this is not just the schedule expansion, the only revenue lever that the airlines used recently. Of course, we We continue to see a steady growth in ancillary revenues. Again, the latest estimate for 2018 is just short of $93 billion in ancillary revenues, or 11% of the global airline revenue. Spirit, that we saw yesterday being awarded, more than 40% of the revenues coming from ancillaries. North of 30% for Ryanair. So clearly a key part of the revenue generation. If we move on to distribution, what we've seen in 2018 is a slight decrease in indirect distribution, but mainly driven by the disproportionate growth of low-cost carrier capacity, growing at 3x versus the full-service carriers, and so skewing the distribution towards more the direct channel. And of course, NDC as a catalyst, both from a retailing and from a distribution perspective, and paving the ground for what's coming next from a dynamic offer perspective. And then in fulfilment, clearly the request and the preference from customers to move towards digital and online services. I mean, today online check-in through a smartphone is by far the most preferred way to check in. And of course this is changing. the way the airlines communicate with customers and manage situations like irregular operations. As we see these trends, then, and we think, what's next then? Well, we did a survey interviewing a number of airline leaders, and we asked a couple of questions. The first question was, Which area of retailing is your airline primarily focused on today? Clearly, we have 2 areas that stand out: revenue and pricing optimisation and distribution strategy. It's not a surprise. These are the fundamentals of retailing. If we go to the next question, that was, what are instead the areas where you will be focusing moving forward, again, from a retailing perspective, we have an interesting mix of answers here. But the one that received the highest share is personalised bundles in the shopping path. That goes very well together with revenue and pricing optimisation and distribution strategy that is pushing revenue management towards the shopping path. That means real-time. So real-time is the key theme here. And real-time is clearly a great opportunity from a retailing perspective, but it's also a big challenge technologically, from an operational perspective. And we'll see that in a minute. So if we look back historically, the offers that airlines put out in the market were, and to a large extent are still, made of 3 major components: fares, schedules, and availability. And again, historically, these components have been defined, designed independently with different business processes, siloed data, and independently. Now, over time, these business processes started to evolve and to morph. So what used to be pure scheduling morphed into what today we define as commercial planning, that is integrating schedule planning, short-term scheduling, pricing, and revenue optimisation. Fares manager evolved into more sophisticated inventory control, possibly in real time again. And then, you know, the standard traditional e-commerce practices evolved into the, you know, the shopping experience as we know them today. Today we see for the first time in the industry a single end-to-end platforms that offer retailing capabilities to airlines. The battle over customers and winning customers is all-time high, and being able to differentiate, to capture with relevant offers the customer attention is, is, is way critical. Again, With the proliferation of ancillary services, the risk is to offer a long list of ancillary services, most of which are irrelevant to that specific customer or group of customers, and this could have a counter-effect actually. So being able to really tailor, to the extent that is possible, offers to single customers or group of customers will define who will succeed and who will fail. So as I said, we see today the first end-to-end platform for retailing. Trends that we see, of course, the API economy that has stimulated the need for more flexibility microservices that are enabling airlines to define and build the various components of the offer at scale. But what we see today is everything is still fairly static. We don't see really the dynamic dimension of these offers. And we heard yesterday from Tamur at Lufthansa, who is really leading the industry from that perspective, we launch something that started to be truly dynamic in Q1 next year. So we are going there, we are not there yet. So how do we see the future then? Well, clearly what is going to make the dynamic offers a reality is moving into machine learning, artificial intelligence, and leveraging those capabilities to really move something that currently, from a retailing perspective, in its infancy, still static, to something that is really dynamic. Clearly, NDC will play a key role as a change agent. I mean, NDC in the end It's nothing else in and itself than, you know, a new protocol, standard protocol, XML-based. So nothing revolutionary around that in and itself. What is revolutionary is that through NDC, NDC is paving the ground to enable new capabilities from a retailing perspective. That are not available, that were not available without NDC. So NDC will play the role of a key change agent to that, but again, what is going to differentiate the airlines is the ability to use this infrastructure to create something that is really unique and dynamic. The scalability is the challenge that we will— the industry will face again from a dynamic offers perspective. So being able to process and scale the real-time retailing is going to be key. And the other aspect that was to some extent discussed yesterday as well, with Lufthansa is the ability for the airlines, now that they have to build and generate the offers, the ability to provide and generate these offers in sub-second response times. We've seen over the recent years a steady growth, almost exponential growth, of shopping transactions. As the airlines now will have to build their own offers, that are even more complicated and sophisticated than the traditional ones in real time, in a sub-second response time environment. This is going to create a challenge, and this is again is going to be the make or break between who will succeed in this new environment, who will not. So in a nutshell, again, Sabre has promised the market an end-to-end platform that will cover retailing, distribution, and fulfilment omnichannel. This is our vision. We are chartering this vision. We will make it real. Thank you. Thank you, Sabre.

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