In this series of blogs on NDC Shopping Analytics we have taken a closer look at the:
-Emerging Traveller / Airline customer relationship
-Customer journey to conversion
-Value of analysing searches as well as bookings
-Role that PNR analytics can play in customer personalisation
We conclude this series with a brief look at Electronic Miscellaneous Documents (EMDs) and how they are helping to unleash the full potential of ancillary sales. Paper tickets and miscellaneous documents:
- Are more costly to produce and administer (lower productivity)
- Create headaches for passengers and airlines when lost or stolen
- Opens up revenue leakage for services provided but not collected
E-tickets and now EMDs are designed to get rid of those inefficiencies.
Moving on from there, IATA’s New Distribution Capability (NDC) initiative is all about helping airlines give travel agents and TMCs that use the GDSs access to the full range of unbundled tickets and ancillaries that they sell on their own websites. This of course means that the agencies and the airlines need to be able to process these selected ancillaries – which may or may not be sold at the time as the flight. Enter EMDs. In my reading on EMDs, I am struck by the thought that EMDs, like the origination of the e-ticket before that, is another example of IATA being instrumental in dragging airlines (and their technology providers i.e. the GDSs) into the electronic (ie. paperless) age. Since the legacy systems of full service airlines were built to be journey focused and not customer focused, the facility to unbundle the seat from ancillaries within the systems generating e-tickets just isn’t there. In contrast, LCCs were created with the mission to unbundle the core airline product into seat and extras as much as possible with often the extras making more money than the seat. LCCs have thrived unemcumbered by legacy systems or complex interline / codesharing arrangements.
Today, all airlines want and need to be able to sell ancillaries to the passenger long before he arrives for his flight. Indeed the case for ancillaries being the salvation source of revenue for many airlines cannot be understated. You just have to look at the IdeaWorksCompany/CarTrawler analysis to get some real insights. Their most recent study showed that airline ancillary revenue exceeded $38 billion worldwide in 2014 up by 21%. Once the mechanisms and systems are in place enabling those airlines that want to sell unbundled services to be able to do so, this number will continue to rise dramatically I am sure.
Airlines adopting the NDC model of distribution are able to create their own offers and they will have the opportunity to get immediate feedback on the update – i.e. did the customer buy or not. This is also gives them the analytical opportunity to assess how their offers are being received and make improvements as they go along. This is a major change to how the airlines distribute today in the indirect channel with virtually no feedback on offers until someone actually buys something. Being able to analysing EMD data as part of this offer/purchase feedback loop vill prove invaluable to airline marketers in future product development.
EMDs – unleashing the power of unbundling
E-tickets were not designed with unbundling in mind and are not able to accommodate the extra information that is required when ancillaries such as bags, extra leg room or onflight meals, are unbundled from the seat fare. On their own e-tickets constrain airlines in selling ancillaries through the indirect channel. Recognising the constraint IATA introduced EMDs as the anwer. EMDs are basically the equivalent e-ticket issued for all those extras that a passenger buys. Each EMD has its own number, and multiple EMDs are needed per ticket if more than one ancillary service is purchased such as a checked bag or preferred seat assignment. EMDs will play a vital role in allowing travel agency and airline accounting systems to process ancillary revenue in a manner similar to e-tickets
IATA recognised that the old practice of selling ancillaries using paper-based ‘Miscellaneous Charges Order (MCO) documents was not only constraining but also inefficient and costly. From the travel agents perspective, it was becoming increasingly cumbersome to sell these ancillary services thus restricting their market access to the full offerings an airline wanted to sell. This is of course something that the New Distribution Capability (NDC) initiative is also addressing.
EMDs seemed to be the missing link, but since e-ticketing has been the norm since 2008, it’s taken a long time for EMDs to join them. The EMD path from conception to early implementation seems painfully slow according to a four year-old TNOOZ article. This charts the journey of the very first US EMD issued in August 2011 for an American Airlines Preferred seat sold by a small travel agency using a Farelogix desktop. The story shed interesting light on how much functioning EMDs were needed to unblock the ancillary pipes and unlock their potential. The Europeans (Amadeus/Finnair) were ahead of the EMD game, but only by 6 months.
Today, it is imperative for airlines to have systems and processes in place to handle EMDs, not only to comply with an IATA mandate but also to help them further unleash the revenue potential of their ancillary selling strategies. Within IATA’s Billing and Settlement Plan (BSP), EMDs have replaced all those miscellaneous paper documents that used to record and settle ancillary transactions. EMDs have helped airlines make further progress towards paperless transactions. A BSP is the central point through which data and funds flow between travel agents and airlines. It saves every agent having to build individual relationships with each airline by acting as a consolidated hub for the necessary information exchange. The Airline Reporting Corporation (ARC) acts in a similar way in the US.
What are EMDs bringing to the table?
Although EMDs had a slow early take-up rate, without a doubt they are reducing the complexity of ancillary sales and making it easier for the agency channel to sell them. EMDs give airlines the ability to maximise their ancillary merchandising by offering:
- Flexibility to sell the same ancillaries regardless of direct or indirect channel
- Better access to data and the scope to analyse it in order to:
— Manage routes by yield and ancillary contribution
— Have more transparency & accountability of ancillary revenues
— Enhance the customer experience by using real-time information about customer preferences and needs to return more relevant and targeted offers
In response to a growing trend in airlines wanting to get ownership of their customers and customers in turn wanting more customer recognition, many airlines have begun leveraging information gleaned from their EMDs— both to improve the customer experience and loyalty, as well as boost profitability.
There are currently two type of EMDs. EMD-A (associated) which is tightly associated to a flight coupon with add on services related to the flight such as the pre-paid bag or any in-flight services. Then there is the EMD-S (standalone) which does not have to be directly associated with the flight such as pre-paid lounge passes or any subsequent changes to the trip.
Benefits of EMDs
According to IATA EMDs have clear benefits for everyone involved in the value chain:
- Able to sell more ancillaries and get paid for them faster)
- Less processing time, more accuracy and faster revenue collection for ancillaries
- Real time access to the status of all ancillary documents associated with e-tickets
- Lower costs due to simplified revenue accounting and back office processing
- More access to ancillaries regardless of buying channel used
- Easier billing for services bought
- Complex itineraries involving multiple airlines making interline/alliance travel smoother
- Single document (ticket) for all services
- Opportunities to sell additional services with associated customer service
- Easier fulfillment for sales of ancillary services
- Capability to issue and track EMDs via their own systems providing increased productivity, market intelligence, and more efficient corporate billing and control
Both IATAs NDC and EMD standards are part of the organisation’s strategic ‘Simplifying the Business (StB)’ Programme – aimed at implementing industry standards to achieve two principle objectives:
- Improve the passenger experience
- Save the industry money.
In the case of EMDs IATA estimates $2.9 billion in costs will be saved by the industry by streamlining the process and cutting out the paper trail. This is a similar to $3 billion savings made by the move to the 100% adoption of e-tickets according to IATA. Improving the travel experience is particularly important when it comes to “interline” ticketing and EMDs (in other words, tickets for a journey involving more than one airline). This is usually trickier because it requires different airlines’ databases talking to each other. Fortunately airline alliances and partnerships on particular routes facilitate much of this information exchange.
Future IATA Improvement Initatives
So now all industry eyes are on IATAs current initiative to streamline processes for the sale of ancillaries through agency channels. NDC is making progress, but as e-ticket and EMDs have illustrated, the complexity of airline systems and processes and the dependency on legacy architecture means that the NDC revolution cannot happen overnight and is going to require commitment to change as well as investment in new processes, systems and, of course, analytics platforms. But although not specifically mandated by IATA the reality is that many airlines are already piloting NDC with positive results and many more are seriously looking at how they can get involved. You could say IATA has pushed it far enough up the hill for NDC to begin to pick up its own momentum. So what next. NDC is by no means the end of IATA’s StB road. To deliver the change the airline industry needs, IATA’s StB intends to become even more ambitious.
The next piece in the simplifying business puzzle relates to serious streamlining of not just the Offer Management, but also the whole Order Management of selling airline products with notable impact on how the reservation is recored and accounted through payment and fulfilment. The new initiative already being dubbed One Order is one that we will all hear much more about next year, once IATA Board agreement is obtained. It aims to build on NDC message standards in order to develop one complete set of XML schemas capable of handling transactions end-to-end among all parites concerned from initial ‘Shopping’ right through to ‘Customer Servicing’. This would significantly simplify the multiple booking, ticketing, delivery and accounting methods in use today and replace them with a single flexible ‘order management process’. A flyer would only have one reference number / document (regardless of the complexity of the itinerary), airlines could dispense with the costly reconciliation process between E-tickets, EMDs and PNRs and travel agents have an easier way of accessing all airline products, delivering customer after care and reconciling payments. IATA firmly believes the future benefits of a streamlined process far outweight the costs of implementation and will bring the airline industry in line with the e-tailing capabilities of modern day e-commerce.
The airline industry led a wave of innovation back in the late 1970s and early 1980s in areas including revenue management, loyalty management and operational analytics. But then innovation dried up and the industry has become a laggard especially when compared to retailing. Although travel decisions and journeys are often more complex than other forms of retailing and often a more expensive purchase, the industry collectively seems to have either dragged its heels or been handstrung by legacy technology. Progress, and ther has been some good progress, seems to have been achieved at a painfully slow pace.
IATA’s StB initiatives are all about bringing this complex industry and its selling, distribution and accounting practices into a customer focused 21st century. The program, with all its different areas of focus, has been active for over a decade The next steps will be aimed at making it easier for partners and customers to do business with airlines in ways that also deliver value to the travel industry as a whole. The focus will be on fostering collaboration across the entire air travel value chain: airports, ground handlers, system providers, travel agents, and governments.
This will be accomplished by StB continuing to push for the development of new industry standards and supporting the industry in the implementation of these standards.