How Can We Enhance A Mature Category Like Air?

Transcript

Peter Harbison:Welcome. First point, of course, is that aviation is a very boysy industry, unfortunately.

Mike Mannix:A boysy industry?

Peter Harbison:Boysy. We tend in our aviation events to have just boys on the stage, and so we try to change it, and it'll change eventually. You know, in the whole world, there are only 7 Airline CEOs who are women out of something like 2,500 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. Okay, 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 and 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 we're seeing a lot from the consumer end 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— I mean, I think we counted something like 40,000 apps in development in the travel space, a lot of which are aiming at the distribution part of it, just to try to get a piece of it. What are your thoughts about— let's start from 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 Tulich:Yeah, right. Look, it is a really interesting market. I mean, you said distribution's dull, but, you know, how we get a product to market, I mean, it's kind of no different to, you know, how Coles or Woolies get their product to market in terms of infrastructure, and that's what we do as well. So yes, it may seem dull, but 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 TMC 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 We're always on the internet, we're always on Wi-Fi, so, you know, we're going to completely do away with our, say, service fee model between offline and online. If you're transacting with us as a TMC, there's a value exchange there, there's a lot of work that goes into managing your business and distributing, so we're going to put a, you know, a single service fee model to you. So we're just going to do away with that whole offline and online.

Peter Harbison:OK.

Adam Tulich:Because it's, you know, and it's a bit of a mix in terms of slightly controversial, you know, everything that's behind that, but an interesting way forward. I think also in an offline, you know, because we talk so much about online, you know, all the presentations here about, you know, 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 here and talk about what a travel consultant does or, you know, the technology that a travel consultant uses, but it's a really important, really important role. And so much has been invested into the online space, but our customers are telling us, reinvent the offline space for us. You know, we really want to 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. You know, plug for Sabre, but we're just about to relaunch our new Sabre Red Workspace. Actually, it has been launched, but it's a real focus on efficiency for the consultant and to turn them from servicing to consulting.

Peter Harbison:Okay, I mean, 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? I mean, what the hell is NDC anyway?

Adam Tulich:Well, how much time have we got? 17 minutes? I'm going to talk for the next 17 minutes now. It's a really exciting— 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 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 via that XML connectivity. So it's there. It's been there for quite some time.

Peter Harbison:So how's that going to transform the industry, though? I mean, from an airline side. Where are you at at the moment, Richard, just looking at this with your interface?

Richard George:Yeah, look, just in general, I mean, the technology part is moving very, very quickly. Everyone's— the expectation of the corporate customer and the travellers themselves is 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 our 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 that the channels remain open and that we work with the industry partners just to make it as seamless and easy. And even when you talk about the direct side as well, there's a lot that— those small businesses that we probably forget about sometimes. It's a massive industry as well. There's a lot that goes into mobile technology as well as your online normal PC-based.

Peter Harbison:As I understand it, I mean, this is just a sort of pretty much a layman's approach to it, but as I understand it, you've got, as an airline, you've got a heap of information, a 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. It's not Not in a form that you can actually just stick a big pipe through and send it all down and people can digest it. And this is where NDC sort of sits in the middle, is it? And tries to digest that and then reproduce it in a form that everybody can digest in their own separate ways?

Richard George:Yeah, I suppose I'm not the full whiz-bang expert on the NDC side, but yeah, there's, you know, the data and cutting the data and being able to transfer between the two. Yeah, that's a massive focus. Where we— I mean, there's a whole number of GDSs and reservations platforms that different airlines use. I mean, obviously we use the Sabre platform.

Peter Harbison:So having changed from the more simple Navitaire one, which does have that ability to— as you were a low-cost airline originally—

Richard George:Yeah.

Peter Harbison:Does have that ability just to feed information through very easily. So the low-cost carriers actually probably have an advantage here.

Richard George:Potentially in some senses. But I think 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've got our direct channel. You've got wholesale, online. You've got your Expedias and WebJets and those ones these days.

Mike Mannix:Yeah.

Richard George:Your travel management companies. There's a whole range of channels that we use that probably that more basic Navitaire 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 Harbison:So what about the middleman? I mean, where—

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

Peter Harbison:Go on, be controversial.

Mike Mannix:No, I'm sensitive to my fellow panellists here, but that's— the NDC is around because of the, I think, the historical lack of functionality in the industry. Intermediaries. That includes the TMCs as well, by the way.

Peter Harbison:I mean, it's understandable, isn't it? Because as a new millennial like I am, you've got all these abilities—

Adam Tulich:That's old.

Peter Harbison:Yeah, I'm the previous millennium. You've got all this ability to do stuff direct and instantly, and so when it comes to dealing with an airline or dealing with any intermediaries, it gets really clunky. So, I mean, you don't have any option in that because this system's been here for 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 work— doesn't change as fast as the other technology changes. Is that right? How do you cope with that?

Adam Tulich:Yes and no for some markets. And I think it's important to also understand that with the introduction of Well, 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. You know, GDS is not going to close down and other distribution platforms are not going to close down. NDC is a complementary model and it's a great one. You know, airlines are looking to, you know, to change. They need to merchandise and that's And that's the essence of NDC. It's about a shopping request that is being sent out and returned back, and who is sort of in control of that. So today in a traditional environment, fares availability, inventory get linked up with fares that are filed in ATPCO, and traditionally that deal is put together and given to a customer.

Peter Harbison:I think that's a really good point.

Adam Tulich:In an NDC world, a request is sent to the carrier, the carrier constructs that deal and returns it back to you. So that's how it works.

Mike Mannix:Yeah.

Adam Tulich:And that works in a direct channel and that's, you know, that's great, but direct channels don't need to worry about comparison shopping, for example. So, you know, 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 do. You know, it's what we're built on. So horses for courses, I would say, with NDC.

Peter Harbison:Alright, let's change tack entirely. Richard, the airlines have got a lot more sophisticated recently in terms of revenue and inventory management. It's an area where I think if you went back 20 years, you know, the old days of Ansett in this market, a large part of the reason for their failure was the fact that they just couldn't couldn't get their revenue management right.

Mike Mannix:Yeah.

Peter Harbison: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 2 or 3 years of a corporate travel deal, how is it— how does the corporate manager or the corporate buyer need to look at dealing with the airline? Because you are much cleverer now, as I say, much cleverer at Not manipulating the market, but responding to the market and leading it a little bit. Are they still going to get the same sort of good deal that they used to be able to get?

Richard George:Yeah, and probably even more so. You know, if you look at the Australian market at the moment, there's 2 main players effectively from the corporate travel side. I think that the benefits that the traveller gets today and It's probably better than it's ever been in terms of value for money. But with a lot of that spend, systems get— you can look at the PRISM data. You can look at historical trends. You can look at the booking windows and the timeframes that they do. So really for clients now, you can break it down by O&D. You can break it down by time of day and day of week, what their booking policy is. With a lot of the OBTs now that the TMCs use as well, there's the adherence to the travel policy. So you can really, probably 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 it's going to change. Or we're going to grow here or there. So you can take a lot of that data. You can be quite surgical. in the way that you can look at the difference between booking a week out versus a month out from a best fare of the day type policy.

Mike Mannix:Mm-hmm.

Richard George: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 there was, a couple of years ago there was the capacity war that was on, I suppose, for a little while, just juggling for that market position. 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— and we deal with procurement and we're talking and we want the best price and the lowest cost, et cetera. But for the passengers that are travelling and Arriving refreshed and they've got the benefits of the frequent flyer program, et cetera. 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 cost.

Mike Mannix:Mm-hmm.

Richard George:There's the fly-forward benefits. There's all those things. And where we're getting sophisticated now is not just presenting and explaining what that is to the client, but actually being able to measure it.

Peter Harbison:I was going to say, that's the key thing, isn't it? I mean, if you can't measure the benefit you're getting, you don't think you're getting a benefit. So I guess it's incumbent on you to try and help them measure that benefit.

Richard George:So when— yeah, so that's a big focus of ours over the next few months. You know, one of our partners, Delta, actually They've been doing it for quite a while now and it's very effective. And you can actually show a client in terms of even down to OTP and cancellations.

Adam Tulich:Mm-hmm.

Richard George:So 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. So with where technology's heading, it really gives us the ability to do the real-time. And probably even more so, especially with the TMC 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 Harbison:Mike, does that ring true with you? I mean, 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? On the ball enough to be able to measure it?

Richard George:Yeah.

Mike Mannix:So I'll talk about the can you get a good deal question first. So when we look at sourcing, we work with lots of large and small clients. It's definitely the dealing models of the carriers is definitely towards the complex versus the simple end of the spectrum for sure. What we did one year ago and for 5 years ago for analysis and working out 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 know, you've got the different seat products that have come into the marketplace. You know, carriers are actually dealing at a fare basis level now, not a booking class level. So it's very, very complex. It requires a very granular approach, which is at odds with what the customers want. You know, they're looking for simplicity. They're looking for simple, Transparent dealing models, and that's not what we're faced with.

Peter Harbison:And they've got a CFO who's saying, keep your costs down, keep your costs down, which isn't a qualitative thing.

Mike Mannix:Yeah, but the good programs actually balance the traveller-centricity piece with the cost piece, right? So depending on what your priorities are, you're going to lean one way or the other there, but most will— contemporary programs 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. I think 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. So what's performance measurement? For a big-cap mature client, It means something very different to a small buyer who's kind of a set-and-forget buyer, right? They negotiate once or twice, or once every couple of years. They set the program in place, rely on the policy and the TMC to drive the performance of the program. Larger clients are really getting into the weeds of stuff. I mean, you know, they're looking at whether their deals are adopted, whether the deals are actually contributing cost savings to the business.

Richard George:Yeah. Mm-hmm.

Mike Mannix:And then they're 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 they— everyone's doing it in a fashion, I think. And the advice we're giving our customers is is really focus on the stuff that matters. Forget about the 10 KPIs. There are 2 or 3 things that really matter, and just focus on that stuff.

Peter Harbison:I guess, I mean, in this conversation we were having yesterday about your starting point is what do you want, why do you want it, and where do you want to 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 you seeing— I mean, are people getting more sophisticated in that way?

Mike Mannix:Look, as a trend, I would say there's a— what the customers, 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. I mean, you still see customers putting their poor tech on a bloody 6 o'clock flight from Lyon to London or whatever else and staying in a 1-star hotel. You still see that sort of behaviour for sure.

Richard George:Yeah.

Mike Mannix:But there's definitely a move towards traveller centricity and looking after the traveller population. That's around talent retention, talent acquisition, about your corporate culture actually. Look, 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 much, much less.

Peter Harbison:How does, I mean on that scale, how does Australia rank? Ooh. I mean, are our corporate buyers at the moment sensitive enough to those? Or is in fact there too much sensitivity to it?

Mike Mannix:No, I don't think so at all. I think the way the policy— you see that in the travel policy settings actually, you know, with the business class policy, you know, most prominently, right? Look, I think most companies feel that they've got to look after their employees. There's a lot of long-haul travel 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.

Adam Tulich:I'd agree.

Mike Mannix:But there are exceptions to that. But I'd say generally speaking, the policies look after people. Actually, Peter?

Peter Harbison:One of the points I was making in my presentation was— and I didn't really sort of elaborate on it— 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 is going to continue to grow, particularly as these new aircraft come into the market, particularly as those airlines expand. I mean, how does that change the equation? To what extent is there an acceptance of low-cost carrier operations?

Mike Mannix:So when you look at the low-cost carrier community, there's There's kind of 3 buckets of low-cost carriers. You've got the ultra-low-cost, pay-to-go-to-the-dunny low-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 5 years or more, and many of the names that you had up there, Peter. So they're very much part of the fabric of corporate airline programs today. They offer a good level of service. With the new aircraft coming in and that type of thing, I think the traveller experience isn't too bad now. That's been a big piece of it. That's been a big 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 Harbison:Right. And I'll give you the final word, Adam, just as you had the first word as well. With this expansion, and I assume that in fact we will go from 17% to 20% to potentially 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 Tulich:Yeah, look, traditionally they don't distribute via a GDS platform, and they have all the reasons for that, and that's their business model. I mean, what we 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 wins over the years in the US, here in Australia with that. But that's what we just have to do. They've got— that's their business model. But I think what—

Peter Harbison:Do you have a proposition as to It's a growth strategy proposition.

Adam Tulich:The bigger that you grow, the scope and reach that you need, the infrastructure that you're on just won't handle it.

Peter Harbison:And the more they want to be in the corporate market, is that a driver?

Adam Tulich:Yeah, absolutely. I think one thing though to point out is that, you know, it's low-cost carrier, but for who? You know, certainly on a, on a, you know, on On the fulfilment side, in a TMC environment, it's not exactly low cost. It's actually quite high cost because it's out of the realm of efficiency. But it's just ongoing negotiations with them.

Peter Harbison:Changing world. Rapidly changing world.

Mike Mannix:Yeah, sure.

Peter Harbison:Okay, gentlemen, thank you very much for that. I'd like to have talked a lot more, but interesting conversation. Thank you.

Mike Mannix:Thank you.

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