As many airlines and most system providers either have implemented a solution or have a plan towards digital retailing, several players have not decided a way forward yet. The main reasons for “doing nothing” about digital retailing include a lack of compelling business case, a lack of funding or simply competing priorities.
The business case for the transition to airline digital retailing
The business case for the transition to airline digital retailing is well defined at industry level. The last example comes from IATA who published a document in March 2023. The document covers key findings about potential savings from NDC and ONE Order implementations, as well as the cost of not implementing.
Since 2019 McKinsey published a report on the value of airline retailing, estimated at $40Bn by 2030. They added a new report in 2022 exploring the benefit of payment innovation, to address the $20Bn annual costs of payment.
BCG has published a series of articles about the “Airline retail revolution”. In an October 2022 report, they focus on the airline organization required to undertake the transition to digital retailing, around: Revenue Management, Offer Creation, Ancillary Products, and Marketing.
Not only the business case is here but the solutions are here too. In June 2023, Threedot published an article about Order Management Systems available in the market, listing 9 vendors and their respective solutions.
Funding is also here after a profitable year for airlines, as reported by IATA in June 2023. The latest forecast is $9.8Bn for 2023, which is still low compared to revenue but a positive sign of recovery.
If the business case, the solutions and the funding are there, why do some players opt for “doing nothing”? Is there a business case for “Wait & See”?
The short-term consequences of inaction
Let’s imagine we had to get a business case approved for the “Wait & See” strategy. The three pillars of this strategy would be:
- Missed opportunities in ancillary sales
- Delays and costs in changes and refunds
- Lack of integration with multimodal partners
Each pillar has small consequences in the beginning, which may justify the inaction. We miss opportunities of selling ancillaries via travel agents, compared to direct sales, but we don’t know how much, so it doesn’t hurt. We have delays in changing booking and refunding customers, but we don’t know how upset customers are and we cannot measure their frustration, or the impact of frustration on lost business. Finally, we cannot do business with rail partners seamlessly, but we don’t measure the impact on our business and our carbon emissions, so it does not matter.
When assessing the short-term consequences of inaction, we can justify “doing nothing” for another year or two.
The long-term impact of not-transitioning
As more partners and sellers get on with NDC, the new normal will be API connectivity, somewhere between 2025 and 2030. The cost of “doing nothing” will keep growing and include for example:
- No personalization of offers
- Inability to implement continuous pricing and dynamic offers
- Double cost of infrastructure: Direct + Legacy indirect
The business case of inaction will include the growing complexity of innovating on legacy platforms. Every new requirement for the coming years will be developed on old systems that will be decommissioned soon, meaning that every development will have to be done again. The sooner the transition the cheaper.
In summary, the more the industry will move to digital retailing, the more missed opportunity will pass by.
In most cases, the cost of “doing nothing” is not measured, although we can assume that it is growing every year.
The good news for “Wait & See” strategy is that there will always be a bridge to phase out legacy processes and systems. There is no train leaving the station and a risk of missing the train.
Even better, in 2030 (or before) there might be a radical new way of selling airline products which makes NDC obsolete and digital retailing can be leapfrogged (although I cannot imagine yet what this would like, maybe a decentralized platform).
In any case, “doing nothing” when it comes to digital retailing has a cost, a growing cost, and sooner or later, after a system failure, a major business requirement, a cyber-attack or else, the remaining player will embrace the transition and get the benefits of a modern, customer-centric, retailing experience.
 IATA Modern Airline Retailing – A Business Case: https://www.iata.org/en/publications/newsletters/airline-retailing-hub/modern-airline-retailing—a-business-case/
 McKinsey Airline retailing : How payment innovation can improve the bottom line https://www.mckinsey.com/industries/travel-logistics-and-infrastructure/our-insights/airline-retailing-how-payment-innovation-can-improve-the-bottom-line
 BCG Reshaping the Airline Organization for the Future of Retail https://www.bcg.com/publications/2022/airline-retail-revolution-demands-reshaping-airline-organization
 Threedot Overview of Airline Order Management Systems https://threedot.io/overview-of-airline-order-management-systems/
 IATA Airline Profitability Outlook Strengthens https://www.iata.org/en/pressroom/2023-releases/2023-06-05-01/