How Can We Enhance A Mature Category Like Air?

Transcript

Peter HarbisonFirst point across is that aviation is a very boys-y industry unfortunately. We tend in our aviation events to have just boys on the stage. We try to change it, and it'll change eventually. You know in the whole world there are only seven airline CEOs who are women? Out of something like two and a half thousand airlines, so that's why the travel industry is so great, the corporate travel industry, you've got a lot more powerful influences and good thoughts coming in. There's a fair bit on the 50% of us who are here.

Let's kick off. I think obviously one of the things that's really interesting in occupying everybody's mind at the moment is that very dull issue of distribution. It's dull a lot of the time because we don't really understand all the ingredients of it. From the airline's end, from the intermediary's end, and also from the consumer's end. And were seeing a lot from the consumer that says "Well hey, this is the way I want to do things, you deliver to me." But technically there are massive changes coming through, there are lots of new ... something like 40,000 apps in development in the travel space, a lot of which are aiming at the distribution part of it, to try to get a piece of it. What are your thoughts about ... Let's start on the Sabre end of things, what are your thoughts about where we're at globally and where we're at in Australia in terms of how the distribution market is evolving?

Adam TulichYeah, right. Look, it is a really interesting market, as you say, distribution is dull, but how we get a product to market, it's kind of no different to how [inaudible 00:02:02] get their product to market in terms of infrastructure and that's what we do as well. So, yes it may seem dull, it's really not from our side. It's really exciting. We talk a lot about offline and online channels in terms of distribution, it's really interesting talking to a team say in the UK who's taking a completely different point of view in terms of how they're going to apply, say, service fee model to offline and online. They're looking at a world that says "Hey, we're always online, we're always on the Internet, we're always on WiFi," so we're going to completely do away with our service model between offline and online. If you're transacting with us as a team, say there's a value exchange there, there's a lot of work that goes into managing your business and distributing so we're gonna put a single service model to you. So we're just gonna do away with that whole offline and online, because it's ... and it's a bit of a mix in terms of, sort of controversial, everything that's behind that, but an interesting way forward.

I think also in an offline, because we talk so much about online, all the presentations here about the future in apps and all that, and I'm certainly not discounting that, it's absolutely the way forward, but there's a real missing component called "the offline environment", I mean we never get up and talk about what a travel consultant does, or the technology that a travel consultant uses, but it's a really important role, and so much has been invested into the online space, that our costumers are telling us "reinvent the offline space for us, we really wanna find efficiencies and gains within that offline environment. We want our consultants to be super efficient and when a booking needs to move from an online environment to offline, we want that to be really sleek and really cost effective." So we're putting a lot of investment back into that, plug per se, but we're just about to launch our new Sabre Red Works, it actually has been launched, but it's a real focus on real efficiency for the consultant and to turn them from servicing to consulting.

Peter HarbisonOkay, I hear what you're saying, but you've obviously got a vested interest in ensuring that the system stays pretty much like it is. What happens when something like NDC comes into the market? What the hell is NDC anyway?

Adam TulichI'm gonna talk for the next 17 minutes now. Look, it's an exciting space. But it's not new, so I'll step you through some of the parts there about NDC. It's not a separate machine, it's not a separate app that sits on your desktop. It's not a different machine that sits next to your GDS, it's actually part of the whole infrastructure. It's simplistically just an XML connection. We've been working under that since 2008, 2009. We launched United, American, paid seats, more connectivity. So it's there, it's been there for quite some time.

Peter HarbisonSo how's that gonna transform the industry? From an airline side, where are you at from the moment, Richard? Just looking at this with your interface.

Richard GeorgeJust in general, the technology part is moving very quickly. Everyone's ... The expectation of the corporate costumer and the travellers themselves is that they want everything real time, quickly, and they want to see what their options are. So the main part for us is a lot of APIs, we build now with different TMC partners, we're working with all the OBTs, with all the enhancements and we're really just trying to keep up with where the corporates are, and make sure the channels remain open and that we work with the industry partners just to make it as seamless and easy, and even when you're talking about the direct side as well, there's a lot that ... there's small businesses that we forget about sometimes. It's a massive industry as well, so there's a lot that goes into mobile technology as well as your online, normal PC based.

Peter HarbisonAs I understand it, and this is just sort of a layman's approach to it, but as I understand it, you've got as an airline, you've got a heap of information, heap of data, that you need to transfer from you to a whole array of different demands. And that data is not all that well organised in terms of industry. Not in a form that you can actually just stick a big pipe through and send it all down and people can digest it. This is where NCD sits in the middle, is that, and tries to digest that, and reproduces it in a form that everyone can digest in their own separate ways?

Richard GeorgeYeah, I suppose. I'm not the full whiz bang expert on the NDC side, but yeah, there's ... the data, and cutting the data, and being able to transfer between the two, that's a massive focus where, there's a whole number of GDSs and reservations platforms that different airlines use. Obviously we use the Sabre platform.

Peter HarbisonHaving changed from the more simple Naviter, one which does have that ability to, as you were a low cost airline originally, does have that ability just to feed information through very easily. So the low cost carriers actually probably have an advantage here.

Richard GeorgePotentially in some senses, but I think that the GDS and the connectivity, and just with from a corporate perspective, I think you have to look at the different channel mixes that we look at as an airline. So we know we've got our direct channel, you've got wholesale online, you've got Expedias and Webjets, and those ones these days. You've got your travel management companies. There's a whole range of channels that we use that probably, that more basic Naviter doesn't quite tap into. So when you look at it, yes, it might be a bit more costly, but the distribution channels that it opens up? Massive.

Peter HarbisonSo what about the middle man?

Mike MannixI'll take this one from the client perspective actually. So I'd characterise the client view on this as quite frustrated. Distribution has been extremely clunky, getting content that the customer wants to their travellers has forced some customers to build their own tech. That I think is pretty instructive for me. The NDC is here because, and I don't want to be controversial in any way, the NDC's here because of the gaps in the current distribution model.

Peter HarbisonGo on, be controversial.

Mike MannixNo, I'm sensitive to my fellow panellists here. That's ... the NDC is around because of the historical lack of functionality in the intermediaries. That includes the TNCs by the way.

Peter HarbisonIt's understandable isn't it, because as a new millennial like I am, you've got all these abilities [crosstalk 00:09:39] yeah I'm the previous millennial ... you've got an ability to do stuff direct and instantly, so when it comes to dealing with an airline or dealing with intermediaries it gets really clunky. You don't have any option there because this system has been here a long time and it works, but it doesn't work in the way that the new consumers want it to work and it doesn't change as fast as the other technology changes, is that right? How do you cope with that?

Adam TulichYes and no. For some markers ... I think it's important to understand that with the introduction of NDC, it's been here for quite some time, it's nothing new, that where we're heading in the future is not to a full NDC model, Jet is not gonna close down and other distribution platforms are not gonna close down. NDC is a complementary model and it's a great one. Airlines are looking to change, they need to merchandise and that's really important and we totally support that. And that's the essence of NDC; it's about a shopping request that is being sent out and returned back, and who is in control of that. So today, in a traditional environment, fares, availability, infantry, get linked up with fares that are told in atipico, and traditionally that deal is put together in given to a customer. In an NDC world, a request is sent to the carrier, the carrier constructs that deal, and sends it back to you. It's sort of how it works. It works in a direct channel, and that's great, but direct channels don't need to worry about comparison shopping, for example. That's something they don't need to worry about but we do; comparison shopping is the cornerstone of our business, that's what we're built in. So, horses for courses I would say, with NDC.

Peter HarbisonAlright, let's change tack entirely. Richard, the airlines have gotten a lot more sophisticated recently, in terms of revenue and infantry management. It's an area where I think if you went back 20 years, the old days of this market, the large part of the reason for their failure was the fact that they just couldn't get their revenue management right. Today it's so sophisticated, right up to managing to the last minute. In that environment when you're talking about putting together another year or two, or three years of a corporate travel deal, how does the corporate manager, or the corporate buyer need to look at dealing with the airline, because you are much cleverer, as I say, much cleverer at, not manipulating but responding to the market and leading it a little bit. Are they still gonna get the same sort of good deal that they used to be able to get?

Richard GeorgeYeah, and probably even more so. If you look at the Australian market at the market, there's two main players effectively from the corporate travel site. I think the benefits that the traveller gets today is probably better than it's ever been in terms of a value for money, but with a lot of that spend, systems get ... you can look at the present data, you can look at historical trends, you can look at the booking windows and the time frames that they do. Really for clients now you can break it down by OND, you can break it down by time of day and day of week, what they're booking policy is, with a lot of the OBTs now that they TMCs use as well, there's the adherence to the travel policy, so you can really more so than ever, they can measure, what were the assumptions, this is what our challenges are or what our needs are, assume this, and we can get that from the historical patterns if they don't think that's gonna change or we're gonna grow here or there ...

So you can take a lot of that data, you can be quite surgical in the way you can look at it, the difference between booking a week out versus a month out, from the best time of day type policy, we can demonstrate many many benefits that come from that. But I think the last couple of years it's been very price focused. Obviously a couple of years ago there was the capacity war that was on I suppose for a while, just juggling for that market position, but I think ... And dealing from the airline contracting to clients, I think what gets lost a lot now too is the beyond contract value stuff.

So that's a big focus of ours moving forward, where a lot of the corporate travellers ... We deal with the cure man, and we're talking, and we want the best price, and the lowest cost, etc., but for the passengers that are travelling and arriving refreshed, and they've got the benefits of the frequent flyer programme, etc., but even to just, where there's ... We've got the economy x product where platinums get it complimentary. So that actually has a value that sits outside of just the pure airfare costs. There's the fly forward benefits, there's all those things, and where we're sophist acted now is not just presenting and explaining what that is to the client but actually being able to measure it.

Peter HarbisonI was gonna say, that's the key thing isn't it? If you can't measure the benefit you're getting, you don't think you're getting a benefit. I guess it's encumbered on you to try and help them measure that benefit.

Richard GeorgeSo that's a big focus of ours over the next few months. One of our partners, Delta, actually had been doing it for quite a while now, and it's very effective. And you can actually show a client, in terms of down to OTP and cancellations. We're really focused on ... The cost of the airfare is one part, but there's so much more that goes into it, around flexibility, and what a value proposition is overall. With where technology's heading, it really gives us the ability to do the real time, and probably even more so especially with the TNT partners, with the OBTs you can see who may not be following the travel policy and work out very quickly what the lost opportunity cost is.

Peter HarbisonMike, does that ring true with you? Do you think, first of all, it's still possible to get a good deal, and secondly, can you actually measure, do people measure it? Are people on the ball enough to even measure it?

Mike MannixSo I'll talk about the, can you get a good deal question first. So when we look at sourcing, we work with lots of small clients, it's definitely, the dealing models of the carries is definitely towards the complex versus the simple end of the spectrum for sure. What we did one year ago, and for analysis and working for the value of the deal, we don't do that now. It's had to change, because the dealing models of the carriers have changed. We've got, you've got the different seat products that have come into the market, you've got carriers dealing at a fair basis level now, not a booking class level. It's very, very complex, it requires a very granular approach, which is at odds with what the customers want. They're looking for simplicity, they're looking for simple transparent dealing models and that's not what we're faced with.

Peter HarbisonAnd that've got a CFO who's saying "keep your costs down, keep your costs down."

Mike MannixYeah, but there's ... The good programmes actually balance the traveler's centricity piece with the cost piece, right? Depending on what your priorities are, you're gonna lean one way or the other there, but most will ... contemporary programmes will have a balance of the user experience, the value beyond price piece, as well as the price. In terms of the measurement, you're absolutely right, you guys bringing forward, like Delta does, very solid measurements of the value, it's important, that's on you guys to share that with the customers and define that for the client.

What's performance measurement? For a big cap mature client, it means something very different to a small buyer whose kind of a sit and forget buyer, they negotiate once or twice, or once every couple of years, they set the price, rely on the policy and the TMC to drive the performance of the programme. Larger clients are getting into the weeds at stuff. They're looking at whether the deals are adopted, whether the deals are actually contributing cost savings to the business. And then the holding their partners to account if they're not. So it means different things to different groups, obviously, but from a sourcing standpoint, to recap complex versus simple I think, the customer wants simple. From a measurement standpoint, I think the ... Everyone's doing it in a fashion, I think, and the advice we're giving our customers is focus on the stuff that matters, forget about the 10 KPIs, they're two or three things that really matter and just focus on that stuff.

Peter HarbisonI guess, I mean, this conversation we're having is about your starting point is what do you want, why do you want it and where do you wanna be. I guess that puts a lot more on the corporate themselves, on the buyer themselves, to say "well actually this is what I want, it's not just price." Are people getting more sophisticated in that way?

Mike MannixAs a trend, I would say there's a ... what the travellers want and the awareness of looking after the traveller population I think is there, different companies go about it in different ways honestly. You still see customers putting their poor tech on a budding 6:00 flight from Leon to London, or whatever else, and staying in a one star hotel, you still see that sort of behaviour for sure, but there's definitely a move towards travel centricity and looking after the traveller population. That's around talent retention, talent acquisition, about your corporate culture actually. There's some early movers in Silicon Valley obviously. They're the ones where you see it most. In the manufacturing sector you see it much, much less in telecoms and much less-

Peter Harbison-I mean, on that scale, how does Australia rank? I know our corporate buyers have sensitive enough to those, or is it in fact that they've too much sensitivity to it?

Mike MannixNo, I don't think so at al. I think the way the policy, you see that in the traveller policy settings. With the business class policy, most prominently. I think most companies feel like they've got to look after their employees. There's a lot of long haul traveller out of here because of where we are of course, so the policies tend to look after the travellers and there's an awareness of that from corporate Australia for sure. There are exceptions to that but I'd say generally speaking the policies are look after people.

Peter HarbisonOne of the points I was making, in my presentation, and I didn't really sort of elaborate on it, but 16, 17% of all our international traffic is now carried on low cost airlines, long haul low cost airlines. And that's a number that's going to continue to grow, particularly as these new aircraft come in on the market, particularly as those airlines expand. How does that change the equation? To what extent is there an acceptance of low cost carrier?

Mike MannixSo when you look at the low cost carrier community, there's this kind of three buckets of low cost carriers. You've got the ultra low cost, pay to go to the [inaudible 00:21:59] cost. You've got a middle group of carriers who are somewhere in between, then you've got the not so low cost end of the low cost carrier bucket. We've been contracting low cost carriers with clients for five years or more, and many of the names you had up there Peter, so they're very much part of the fabric of corporate airline programmes today. They offer a good level of service that, with the new aircraft coming and that type of thing, I think the traveller experience isn't too bad. That's been a big piece of this, that's been part of the resistance. But generally speaking, they're at the negotiating table with every client we work with actually, Peter. There's a good level of acceptance.

Peter HarbisonAnd I'll give you the final word Adam, just as you had the first word as well. With this expansion, I assume that in fact we will go 17 to 20 to 30% on low cost carriers. What does that do to rocking the boat in terms of distribution? Is that something that can be absorbed relatively easily?

Adam TulichYeah, traditionally they don't distribute via [inaudible 00:23:06] platform, and they have all the reasons for that, and that's the business model. What we do is we consistently try to sell our benefits, and that's certainly not a short term sales process, it's a very long term sales process. But we have achieved some good winds over the years, in the US, here in Australia, with that, but that's what we just have to do. That's their business model.

Peter HarbisonDo you have a proposition that's attractive to them though?

Adam TulichIt's a growth strategy proposition. The bigger they too grow, the scope and reach that you need, the infrastructure that you're on just won't handle it in a sense.

Peter HarbisonAnd the more they want to be in the corporate market, does that drive them?

Adam TulichAbsolutely. I think one thing though that to point out, it's low cost carrier but for who? Certainly for the fulfilment side, in a TNC environment, it's not exactly low cost, it's actually high cost, because it's out of the realm of efficiency. But it's just ongoing negotiations with them.

Peter HarbisonA changing world. A rapidly changing world.

Okay gentlemen, thank you very much for that, I would have liked to talk more, but interesting conversation, but thank you.

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