Airlines are fighting to survive in a digital world, with rules and processes designed in an analog era.
Increasingly, digitally savvy customers have been trained to expect a new level of service from online retailers and airlines stand to lose out when it comes to discretionary spend.
These were the conclusions of Alex Cruz, former
British Airways CEO, who believes customers will increasingly reject those rules and processes.
Speaking at the CAPA Live event this week, Cruz adds that the systems at the heart of airline operations, such as PNR databases, reservation and inventory systems and some flight operation systems, are becoming increasingly unreliable and will break more often because of their age.
“Airline IT platforms are basically very old. Most at the heart of airlines are, at best, 10 to 15 years old and, at worst, over 50 years old - there are very few exceptions to that. We live in a world of fare classes, six digit PNRs and complex threads of connections between these airlines.
“Thousands of software plasters, band-aids have been added over time, which are managed by a convoluted mix of internal and external partners. It’s no wonder that light cyber-attacks bring those software to their knees.”
Cruz says that while the pandemic has “turbocharged or digitalized and increased our expectations of providers,” airlines cannot live up to digital expectations.
“We’re simply not ready - we have a technology and mindset barrier," he explains.
Focus on the fundamentals
Most airline executive mindsets, he says, are based around pushing technology providers for a better deal or how to compete better.
“The industry is now distracted by NDC, One Order, renegotiation of GDS contracts, fine-tuning really old revenue management systems and trying to use all this data we have on our customers. That means non-travel retailers are going to take a large share of the retail wallet because it is all the same discretionary spend.”
Cruz adds that this doesn’t mean the industry should abandon initiatives such as NDC but that the industry needs to be making retailing more digital while addressing the need to modernize systems.
He acknowledges that it will be a mammoth task for airlines, hampered by a poor industry track record of developing new systems but that it needs to be balanced with the threat of losing customers and becoming obsolete.
Responding to a question on why giants such as Amazon and Google, which both hold huge data on consumers, haven’t moved in more actively on the airline industry, Cruz says: “There are other verticals they have seen as more attractive because of the volumes or the disruption opportunity was more visible or possibly because incumbent players were easier to have a go at.”
However, he believes companies such as Google want to “dominate flight information” and could conceivably do a better job at pricing in the future because of all the data that they have access to.
“Google has access to pricing curves for just about every flight, access to inventory, it knows how much each flight is being priced at each minute of the day. Some even say it knows the load factor or can at least estimate it. If you think about having the price curve and the load factor of every flight that goes, you have access to the revenue line of any airline.”
Elaborating on this thought process, Cruz says that if Google was to add the flight information to the consumer information it already has, it could improve pricing and achieve a better margin and the airline industry could be in “real trouble.”
“I don’t think that’s a short term threat, but the time will come when these guys will go heavily after the travel vertical.”
*Check out with interview with Cruz, recorded for the How I Got Here podcast in May 2021.
How I Got Here, episode 65 - Alex Cruz of British Airways