For aviation to be successful, many complex airport operational tasks must be accomplished efficiently and on time. Given today’s staff shortages, this is even more critical. Equally important are sustainable airport operations to achieve overall aviation sustainability.
The sheer number of tasks and inherent market volatility make this goal extremely challenging. The right resources must be in the right place at the right time. Real-time operational decision-making is paramount when there are unexpected disruptions. The most advanced technologies are needed to make the right decisions while concurrently addressing “what-if” scenarios.
Today, ubiquitous airport systems, the Internet of Things (IoT) and much-increased computing power enable airport processes to be digitalized in detail. Going forward, even more data will become available for analysis and utilization. According to Moore’s law, computing power will continue to increase exponentially over the coming years, while computing costs will decrease significantly.
From an Operations Research (OR) standpoint, this facilitates the simultaneous use of two algorithmic principles, each highly efficient when applied alone. This powerful parallel approach is called “hybrid AI”. It combines the benefits of “data-driven” (AI) and Machine Learning (ML) with “know-how-driven” algorithms such as Mathematical Optimization and Fuzzy Logic.
Hybrid AI supports airline, airport and ground handling operations across broad areas, above and below the wing, for example, in aircraft maintenance or cargo. Hybrid AI allows for better resource management of staff, ground support equipment, bays, and terminal resources, from strategic planning to the day of operations. Furthermore, Hybrid AI provides powerful decision support for managing disruptions.
Optimizing scenario planning and predictive disruption management
The past few years have been game-changing for aviation. We have seen the accelerated adoption of technology. The pandemic also provided a valuable learning lesson. Planning for the unexpected in aviation is more crucial than ever. Balancing “typical” day of operation needs with the ad-hoc resource demand created by unexpected disruptions requires sophisticated planning and decision-making. Gut feelings and repeating “yesterday’s” decisions are no longer suffice.
By applying data-driven AI and the underlying predictive modelling, planners use real-world data to forecast the right staff and ground support equipment demand. They correctly predict expected volumes, passengers, PRM, baggage, or cargo. Furthermore, disruption probabilities are considered.
This data enables them to effectively prioritize staff and equipment resources and physical assets to mitigate disruption impacts. Long-term, mid-term and short-term resource planning scenarios can be developed to enable more stability regarding potential operational changes using what-if analyses. All airport operations benefit from this optimized planning.
For example, if a weather-related disruption, fog, or ice storm occurs, hybrid AI-driven software will support effective staff scheduling by automatically learning from the past and considering previous, similar scenarios. Additionally, rule-based specifications (i.e., qualifications, preferences, SLAs) are applied. IoT helps by providing the real-time context, for example, in monitoring ground support equipment locations. The result is heightened situational awareness and automatic prioritization of tasks and resources. In this way, sophisticated decision-making support tools help planners minimize the effects of such disruptions and mitigate their impacts on flight schedules, operational costs, and passenger experience.
Optimizing cargo operations
The same predictive modelling is also applicable to cargo airline operations, addressing supply chain disruptions and facilitating the best decisions. With optimization software, integrating data from multiple sources (i.e., flight, truck, cargo, staff, GSE locations) and applying Hybrid AI, cargo airlines can identify the best plans and real-time tactics to maximize efficiency, customers’ SLAs, and sustainability simultaneously.
Optimizing workforce management
Successfully managing the workforce must consider such criteria as demand requirements, workplace regulatory mandates, individuals’ qualifications and preferences, and schedules. Integrating digitalization into workforce management, facilitated by optimization software incorporating sophisticated technologies, enables planners to better align demand fluctuations and operational needs with staff capabilities, scheduling preferences, and increased productivity goals.
Optimizing line maintenance
Leveraging aircraft data, hybrid AI and the IoT is helping airlines achieve enhanced line maintenance operations. Historical data and Machine Learning algorithms enable sound preventive line maintenance decisions, informing a LM Technician or Engineer proactively where to replace parts or make preventive checks to deter malfunctions. Additionally, hybrid AI helps to forecast the duration of various checks and replacements in LM for better resource schedules. In turn, this reduces flight delays, costs associated with unplanned overtime, expedited shipping costs for parts, and potentially stressful, rushed and, subsequently, inferior quality.
New aviation sustainability goals and requirements regularly occur within the industry and across regional governments. While sustainable airline fuels are not yet available in sufficient quantities, airport operations can significantly reduce an airport’s carbon emissions. For example, today, mixed GSE fleets are already in use. The numbers of electric and hydrogen GSE are rapidly increasing. Using advanced AI and predictive analytics, airlines, airports and ground handlers can optimize their planning of such mixed GS fleets to reduce fuel consumption and related CO2 emissions, while guaranteeing operational stability simultaneously. Reducing emissions by better planning applies to driver-based vehicles similarly as autonomous GSE.
The questions to ask today
The aviation industry is at a critical crossroads. Business as usual won’t suffice. We all learned this during the crisis. Software solutions must provide advanced technologies and a mature aviation model. They are crucial to supporting optimum aviation operations. The industry must adopt new solutions that help companies become more proactive in addressing the wide range of situations that disrupt static plans, moving away from pure reactive handling of such cases.
It is more urgent than ever that aviation companies find answers to critical questions such as:
How can we fully optimize, increase productivity and plan resources to meet our operational promises?
How can we build greater employee satisfaction?
What will be the keys in 2023 to driving maximum efficiencies and cost reductions?
What measures should we take to protect our earth now and in the future?
Advanced technologies will be central in answering all these questions and will be the essential building blocks to the aviation industry’s successful go-forward strategy.
I keep hearing the same concerns about the perceived speed of the transition to airline digital retailing, whether I speak with airlines, sellers and travel tech companies who have embarked in the transition, or with other players who have chosen to wait and see.
Understanding the good and bad reasons for the lack of speed (compared to expectations) is helpful to find ways to accelerate the transition. It will be even more valuable to plan for the next transition, towards order management.
What are the expectations?
Having one airline implementing one distribution API is fast. Air Canada had a distribution API before NDC started. easyJet had an API connected with one GDS before NDC started. An airline group called Open Axis even had a standard for API distribution before NDC started. If this is all we know, NDC should be implemented globally in a couple of years, right?
On the other hand, airlines, travel agents and GDSs have been working hard for the past 50 years to build a global interconnected platform allowing any customer to find in real-time the best itinerary and best fare to get from A to B anywhere in the world. Even after 50 years of hard work, using pre-internet technologies, the platform does not support the latest innovations in dynamic pricing and ancillaries. Upgrading this entire platform, with new processes and technologies, should take at least 50 years, right?
A reasonable expectation lies probably in the middle. Implementing NDC worldwide has clearly not taken 2-3 years (this was only the time necessary to get the US DOT approval). But hopefully upgrading the distribution infrastructure of the air travel industry won’t take 50 years. For a program launched in 2011, the transition will be completed for the first players in 2025 and probably for the rest of the industry by 2030.
What are the key remaining challenges for implementation?
The initial challenges were typical of a major digital transformation program, except for contractual and business models issues, which are specific to the status of this industry. Challenges included: awareness, business case, funding, skilled resources, contractual restrictions, technical solution, innovative partners, incentives, on-boarding, and differentiated content.
Awareness: I’d be curious to see the results of an awareness survey, showing how many travel distribution professionals have heard about NDC and can define it.
Business case: While many airlines have figured out a business case, including revenue generation from ancillaries, cost reductions and enhanced customer experience, there are still many players still scratching their heads. Indeed, selling the same product, to the same customer, via the same channel, won’t create value even with a new technology.
Funding: Any project requiring investment in the current environment is a challenge. The pandemic crisis has cut the cash resources for most airlines and travel agents. Despite the crisis, some airlines and travel agents keep investing because the new distribution channels, enabled by NDC, are more profitable.
Skilled resources: The transition to digital retailing first required a mindset shift from the management. Then the training or recruitment of staff able to manage API distribution and create new offers across multiple distribution channels. Last but not least, sales teams briefed and equipped to engage the travel agencies about partnership and value creation.
Contractual restrictions: Airlines and travel agents have signed distribution contracts with GDSs, which may contain restrictions or incentives preventing the implementation of alternative channels. Although the European Commission recently closed their 2018 GDS investigation about “possible restrictions in competition in the market for airline ticket distribution services”, such restrictions may remain a challenge today.
Technical solution: With the most advanced airlines having shifted 50% of their indirect bookings on NDC, the technical questions (scalability, look-to-book, polling, caching, etc.) are identified and discussed within technical industry groups. There is still a lot of progress and improvement to be made, i.e. innovation opportunities.
Innovation partners: A key benefit of an open standard for air travel distribution is that it allows new entrants to enter the market, to innovate and partners with existing players. Today there are NDC API providers, NDC aggregators and other NDC service providers (post-booking, etc.).
Incentives: Airlines have designed various distribution strategies and travel agents have elaborated content sourcing strategies to take advantage of the new content and fares. The current transition shows a mix of incentives, ranging from carrots (commissions…) to sticks (surcharges…). After the transition, value creation should become the driver between partners.
On-boarding: Airlines who have built their “distribution platform” are on-boarding travel sellers, either directly or through aggregators. This process takes time and will accelerate over time.
Differentiated content: The purpose of NDC is to enable a new distribution channel, for airlines and travel agents, capable of supporting any kind of airline offers. This channel adds value to partners once content is differentiated, i.e. more than “airline code – origin-destination – date – fare”. Dynamic offers, where the product and the price are constructed dynamically, will leverage the channel and create even further value.
There are more challenges ahead. They reflect the ambition of the modernization of air travel distribution, the opportunities for new services and new entrants, and the reasons underpinning the time the transition takes.
Although I wish the transition moved faster, the current pace is probably right. NDC was launched as something that will and must happen, regardless of the timeline. Knowing that it would happen, the challenge was to make it happen as quickly as possible, but also as robustly as possible in case it lasts for another 50 years.
The next phase of the transition is about order management. The question is not “if” but “when”. The travel industry needs to accelerate the transition to order management if it wants to capture the full benefits of digital retailing. Or we may soon hear “Why is ONE Order taking so long?”.
One Order: The proof of the pudding is in the eating
NDC has transformed airline distribution. Well, while that particular statement can be debated for many hours, one thing that can be said is that it has changed the vocabulary of airline distribution.
The mindset of airline distribution has genuinely been transformed to think in terms of “offers” and “orders”, about APIs and dynamic bundles and so on. Indeed, many airlines are implementing these concepts in their distribution landscape.
But what has really changed, beyond some terminology? Well, for certain, airlines are thinking much more like retailers. They are thinking about the customer (purchasing) experience, products, bundles, segmentation, and they are thinking about how to get these into their distribution channels as offers – through NDC and their digital direct channels. The transformation of an offer into a sale of products is resulting in the creation of orders. However, most orders still rely on a system which also uses legacy artefacts such as PNRs, tickets and EMDs.
“Airlines become more retail-focussed, more confident in their capabilities as retailers and more well-equipped…”
As airlines become more retail-focussed, more confident in their capabilities as retailers and more well-equipped with tools to enable this, the more creative and ambitious airlines will become. More products in bundles, different products in different markets, integrations with providers of travel-related services that see the market developing as the technical obstacles of legacy artefacts are steadily removed from the equation. This gentle transformation is also driving changes elsewhere throughout airline organisations, as the knock-on effects of these begin to be noticed. Orders created within an order management system provide a vehicle for simplified settlement processes between sales channels (retailers) and the airlines as sellers. While the full complexity of airline revenue accounting, proration, BSP and other settlement flows cannot be eliminated overnight, the ONE Order accounting standards are enabling change. As the maturity of NDC distribution increases and orders become more prevalent, airline IT providers are presented with opportunities to bring further simplification, leveraging NDC and ONE Order. Providers of Order Management Systems (OMS) are now able to integrate directly with airline accounting systems in real-time, bypassing much of the legacy complexity associated with PNRs, tickets and EMDs.
However, there is more to being a successful airline retailer than creating offers, converting them into orders and feeding the fruits of these sales into the airline’s financial systems. At some point in time, there will be a customer who has expectations based on their wider retail experiences. The retail possibilities that airlines are now becoming exposed to go far beyond their own domain. While the additional bag will (hopefully) be visible at the time of check-in, and the lounge may be run by the airline, what about the pre-booked parking, fast-track security or the express train to the airport? The airline is unlikely to be the entity responsible for delivering the service in these cases, but the expectations of the customer are the same as when they present at the desk to drop off their bag – it should just work. However, interacting with all these new parties to ensure “it just works” is unchartered territory for many airlines. More and more, this involves pushing an order notification to the external service provider via the OMS to fulfil a service. Interactive two-way messaging related to order fulfilment is new. And, in the envisaged world where the PNR and ticket are superfluous, even the interactions with the check-in providers need to be brought into the era of APIs and open integration standards.
“IATA has anticipated this and has developed a set of standards within the ONE Order framework to enable the delivery of services using orders…”
In conjunction with airlines, vendors and other industry stakeholders, IATA has anticipated this and has developed a set of standards within the ONE Order framework to enable the delivery of services using orders. These messages can be used by an OMS to trigger the delivery by pushing information to the responsible party or can be used by delivery providers to pull the necessary information proactively. They can track consumption of services as well, which is key to triggering accounting and settlement processes. However, certification for ONE Order capabilities is still very light compared to NDC. While the certifications only may only be taken as a loose measure of maturity, it would appear that there may be a vast gap between what airlines can now sell and what (or rather how) they can deliver.
The reasons for this apparent mismatch are manifold and varied in their nature (technical, process-related, commercial), and some may be easier to resolve than others. What is more concerning though is the apparent lack of awareness of this mismatch among the broader industry. Great focus has been placed on promoting the need for modernisation in how airlines define and sell their products and services. However, there is still one key component that will become a challenge sooner rather than later – where the customer gets to seamlessly experience all those products and services that the airline invested so much effort in to get the customer to purchase.
The collaboration between airlines and their OMS partners is, generally speaking, mature, collaborative and based on a common understanding of business value and goals. The relationship between airlines and their ground handling partners is of a very different, operational nature and is often very cost-driven to extract the maximum value at the lowest cost. On the other hand, the relationship between OMS providers and ground handlers is non-existent in most cases.
Planning and executing the smooth delivery of products is key to being a successful retailer. Achieving this requires close alignment between all stakeholders: airlines, their OMS providers and crucially, the ground handlers and other partners, in and around the airport, in the air or wherever else they may be. So far, the focus has been on the selling aspect of retailing and increasing revenue and airline wallet share. However, if airlines are really to succeed as retailers, customer satisfaction will be determined by what, and how, they deliver. The proof of the pudding is in the eating.
Whilst we see the light at the end of the runway in regards to the COVID-19 pandemic, there are still many barriers and challenges to overcome to fulfil the pent-up demand of travel. With many domestic markets showing strong signs of recovery, certain international markets are now dropping testing requirements making for stronger demand as we head into the busy summer season. ACI World forecasts a return to 2019 traffic levels in 2024 which highlights that we need to get to work now in order to handle the growth from today.
Airports are currently undergoing many challenges during the recovery phases of the pandemic. Across many of the world’s airports, queues are starting to become the norm at check-in, security, and immigration processes due to a lack of staff, or new staff undergoing essential onboarding and lengthy training programmes. As airports cut down staff during the first wave of the pandemic in line with depleted traffic levels, many front-line workers who left the sector are not returning at pace due to the uncertainty of the industry moving forward and opportunities in other sectors. These operational challenges are beginning to hamper smooth, efficient passenger journeys.
ACI’s World Airport IT Standing Committee recently discussed the topic of staffing and diversity on their quarterly IT initiatives meeting. Airports are experiencing the ‘great resignation” and are not being able to offer as competitive opportunities as some of the larger technology players in the market. With airports under an era of digital transformation, this is particularly problematic as airports digitize processes and have an overwhelming reliance on different technologies. The challenge is market wide and begs the question of how we bring more IT talent to the buzzing environments that are airports and airport technology providers.
Whilst airports are seen traditionally as infrastructure companies, technology is at the heart of everything we do. Some examples of technology use cases include:
Air traffic control management
Security wait time monitoring
Concessions and developing non-aeronautical revenues
Therefore, lots of IT roles are encompassed in these technologies from software developers, IT technicians, maintenance engineers, data scientists, project managers and cyber specialists to ensure there is sufficient capacity, user friendliness and security across all airport technology. With it being the 21st century, there are many tech companies attracting talent away from aviation. Airports should be thinking of the future generation and leaders of IT at their airport and within the supply chain. Ideas to attract future talent include:
Software development courses
Partnering with local schools and universities
Offering recognised qualification courses for new recruits
Whilst attracting IT talent is key moving forward to grow and develop the workforce of the future, diversity, inclusion, and equity need to be at the forefront of every airport. Diversity includes attracting talent from a range of different social and ethnic backgrounds as-well as of different genders or sexual orientation. Being diverse doesn’t mean that you are inclusive. Inclusivity should provide equal access to opportunities and resources for people who might otherwise be excluded or marginalized. Similarly, this doesn’t necessarily lead to being equitable. Airports should deal fairly and equally with all employees. The three pillars need to go hand in hand when airports think about their company culture of the future. ACI World and the IT committee are continually focusing on attracting diverse talent as the future CIOs of the aviation industry. Airports should think about their culture and workforce, providing a dynamic, challenging role where opportunities can be discovered to progress. A sense of belonging and engagement is critical in this era versus traditional motivation objectives.
As airports struggle with staffing levels, now is the time to act and make changes to reap results in the years to come. ACI World has launched its first cross committee collaboration, to produce a workforce of the future whitepaper due to be published at the end of the year. This area will become a much-needed focus for the industry to continue its recovery in years to come.
Airbus has announced an ambitious strategy to decarbonise the air transport industry, with the ZEROe project—which explores zero-emission technologies for a future aircraft—playing a significant role.
Hydrogen is one of the most promising zero-emission technologies to reduce aviation’s climate impact, and airports play a pivotal role in enabling the transition to a climate-neutral aviation ecosystem.
Airbus Hydrogen Hub at Airports
In 2020, Airbus launched “Hydrogen Hub at Airports”, which aims to jumpstart research into infrastructure requirements for future hydrogen aircraft, as well as low-carbon airport operations, across the entire value chain. Various airport authorities, airlines and energy providers are already signing on to get involved.
“Airports have a key role to play to enable the transition to a climate-neutral air transport ecosystem,” said Lionel Cousseins, Airbus ZEROe Market Development and Airline Relations Manager. “Hydrogen Hub at Airports enables us to collaborate with partners to define needs today, so we can pave the way for hydrogen adoption by 2035.”
There are benefits to Hydrogen Hubs for airports that go beyond powering future sustainable aircraft. For example, ground transport, including buses for passenger transport to and from aircraft, and heavy-dutylogistical vehicles – such as aircraft tugs and cargo trucks –could also be powered by hydrogen in future, contributing to a reduction in airports’ overall emissions. Airports can also improve their environmental impact by using hydrogen for cooling and heating the airport facility.
“The on-site production (and liquefaction) of hydrogen could also be a promising option for airports to meet their individual energy needs. This solution would eliminate the need for transport to and from off-site hydrogen production facilities, which would further reduce emissions. In doing so, airports could also become future energy ecosystems with liquid hydrogen production at their core,” Airbus suggests.
Airbus expects to produce the first hydrogen-powered aircraft around 2035. The European aerospace company has been encouraging airports to prepare facilities for the supply of hydrogen to power the new greener aircraft.
Changi and Incheon
In February, Airbus signed a Cooperation Agreement with Changi Airport Group, global industrial gases and engineering company Linde and the Civil Aviation Authority of Singapore (CAAS) to study building a future hydrogen hub in the city-state.
Sabine Klauke, Airbus Chief Technical Officer, Han Kok Juan, Director-General of the Civil Aviation Authority of Singapore, Yam Kum Weng, Executive Vice President of Changi Airport Group, and John Panikar, Executive Vice President, APAC of Linde, signed the agreement at the Singapore Airshow.
The partners aim to leverage their expertise in support of the aviation industry’s commitment to decarboniseand achieve net-zero carbon emissions by 2050. They will examine how hydrogen can be transported, stored and delivered to aircraft at existing and new airports.
Airbus will provide characteristics on aircraft configuration and fleet energy usage, insight on hydrogen-powered aircraft for ground operations, and data on the estimated hydrogen aircraft ramp-up at airports.
“The Asia-Pacific region will play a key role as we work towards making climate-neutral aviation a reality,” said Sabine Klauke, Airbus Chief Technical Officer. “By partnering with Changi Airport and with Incheon Airport, Airbus will leverage the operational and technical expertise of two of the world’s leading hubs. The studies we will carry out together reflect the need for a cross-sectoral approach, including manufacturers, airlines, regulators, airports, energy providers and academia. We need bold and coordinated action to achieve our goals.”
The agreement will focus on a series of feasibility studies aimed at developing a hydrogen refuelling hub for non-aviation use in the short term and developing infrastructure for hydrogen use in aviation in the future.
“With this agreement, SEA has taken a concrete step forward in enabling important solutions for the decarbonisation of airports and the entire industry,” said Armando Brunini, CEO of SEA. “We are going through an important transition and have chosen to be at the forefront of it, together with our partners. Innovation is in the DNA of aviation and, also thanks to Airbus, is moving towards a transformation that was unimaginable up to just a few years ago. We are proud to be part of it.”
With Milano Malpensa and Milano Linate airports, SEA is among the European airports that will achieve Net Zero carbon emissions by 2030, twenty years earlier than the 2050 deadline set by the European Green Deal.
SEA is part of the European Commission-funded project “OLGA, hOlistic & Green Airports,” committed to decarbonising aviation. This project will significantly contribute to the complex challenge of CO2 reduction while improving energy efficiency, air quality and biodiversity. SEA’s strategic plan for rapid post-pandemic recovery focuses on environmental and sustainability-related transitions.
The partners chose the airport of Lyon-Saint Exupéry Airport (VINCI Airports’ centre of excellence for innovation) as the pilot airport, with the first installations as early as 2023.
The implementation of this project includes several phases:
From 2023: deployment of a hydrogen gas distribution station at Lyon-Saint Exupéry airport. This station will supply both the airport’s ground vehicles (buses, trucks, handling equipment, etc.) and those of its partners, as well as the heavy goods vehicles that drive around the airport. This first phase is essential to test the airport’s facilities and dynamics as a “hydrogen hub” in its reach area.
Between 2023 and 2030: deployment of liquid hydrogen infrastructures that will allow the provision of hydrogen into the tanks of future aircraft.
Beyond 2030: deployment of the hydrogen infrastructure from production to mass distribution of liquid hydrogen at the airport.
By 2030, the three partners will study the possibility of equipping VINCI Airports’ European airport network with the hydrogen production, storage and supply facilities needed for use on the ground and onboard aircraft.
“This partnership illustrates the partners’ shared commitment to decarbonising air travel and is a major step forward for the development of hydrogen across the airport ecosystem,” Airbus stated.
VINCI Airports has 45 airports in 12 countries, which will help create a robust supply network as this technology takes off.
During the Aviation Festival, London, Guy Johnson, News Anchor, Journalist and Aviation Enthusiast, Bloomberg, David Neeleman, Founder JetBlue, Azul and Breeze Airways, and Robin Hayes, CEO, JetBlue Airways, discussed what it takes to grow in new market conditions and build a more sustainable industry.
Neeleman explained the opportunities which inspired him to found Breeze Airways and launch during these challenging times for airlines. “I just saw trends that were developing in the United States, where the smaller and medium-sized cities you had to go through a hub on most all of these cities if you want to go anywhere. But, at the same time, the cities were growing. And especially in the post-COVID era, a lot of people want to go live in cities like these. They don’t really want to live in the big cities anymore. They can telecommute. So a lot of these cities are vibrant and growing, but they just lack air service. That affects the quality of life. Just for people to go to Florida or get to the mid-Atlantic region and different places they want to go, we can see that traffic.”
“..there’s a great market out there if you can do things that can simulate traffic with low fares and convenience for people to travel.”
As Neeleman elaborated, “If you go to a market and say five people are flying this route every day, can we take it to 100 people every day. We’ve seen that. We’ve seen some markets go up 20 times what the X-day was because of traffic stimulation. So we’re looking at 400 routes today. You know, when Ryanair started saying, ‘we’re going to go from 40 million people to 60 million people to 100 million,’ I thought that’s insane. But obviously, Wizz does it now. So, you know, there’s a great market out there if you can do things that can simulate traffic with low fares and convenience for people to travel.”
Hayes agreed. “To me, it made perfect sense because, with all the consolidation that’s happening over the years, so many cities have lost direct service. It’s all being hubbed. So here’s a business model that is almost infinite in size that allows an airline like David’s new airline, Breeze, to take advantage of that. I think it’s terrific, and I think it’s going to be a great success.”
“We’re going to see the actual effect on the planet. As we go ahead the next five years, ten years and 15 years, we can make adjustments.”
Johnson also asked the CEOs about the ambitious sustainability commitment the airline industry had made for 2050, net-zero carbon emissions, and whether it was achievable. “I think so,” Neeleman replied. “I mean, you look at what’s happened in technology over the last 25 years, and you project that ahead for the next 28 years, I think there’s no doubt that we’ll figure out how to solve this problem. And then, as we go along the continuum, there are a lot of other examples of cutting down carbon production. We’re going to see the actual effect on the planet. As we go ahead the next five years, ten years and 15 years, we can make adjustments.”
Hayes noted that airlines must remain financially sustainable while meeting climate sustainability targets. “I think airlines are going to have to—in addition to solving the segment sustainability challenge—they’re going to have to figure out ways of making money doing it. But again, the industry has shown so much creativity over the years in doing that.” Hayes said JetBlue is looking for those opportunities through JetBlue Ventures. “For example, travel products—that’s going to do $100 million EBITDA next year. You know, it was pennies on the dollar just literally two or three years ago. Airlines will have to figure out other ways to drive margins and revenue because I’m not sure consumers will accept higher fares. Why? Because at the end of the day, it’s going to, it’s still going to be a very competitive industry. You’re going to have airlines like David’s Breeze starting up. You’re going to have low-cost carriers growing. You’re going to have JetBlue and airlines like JetBlue, right. All of us will still build a business model around low fares. So, to sit there as an airline and say, ‘I can get higher fares from this in future because there’ll be a willingness to pay,’ I don’t think we can make that assumption. Certainly, the challenge I set out for our team to accomplish this goal. I want to protect margins, and I don’t want to increase fares doing it. Now, some would look at that and say, ‘You can’t do all of that.’ But I think we have to think big and think outside the box to find how we can do all of those things at the same time.”
“For example, in the US, at the moment, is I think there’s a great opportunity for sustainable aviation.”
Hayes also said that these airline sustainability targets would need broader support than the airlines alone. “I think that the industry has to demonstrate a global commitment to this, right? Because governments get the upper hand when they can quite rightly point to a problem. We must take a leadership position now. Where I think governments can help is by providing an incentive. For example, in the US, at the moment, is I think there’s a great opportunity for sustainable aviation. Still, it needs some form of tax incentives that allow producers—allows people—to make investments. There’s lots of money out there. The banks and other financial institutions want to point at sustainable technologies. So the money’s there, but you’ve got to create an incentive structure that allows that pick-up in demand in the early days.”
“This industry has shown a remarkable ability to adapt; whether fuel prices are $50 or $100, airlines have figured out that they can make money.”
Hayes continued, “This industry has shown a remarkable ability to adapt; whether fuel prices are $50 or $100, airlines have figured out that they can make money. We are used to very big swings in energy costs…I mean, look at how much efficiency and how much cost airlines have taken out during COVID… We’ve already gone through a lot before, yet we could do more. I’m not saying it’s going to be easy. We will have to get very creative in driving other revenue streams. You know, at JetBlue, we’re talking about all these people flying on vacation. We’ve got a very little share of wallet beyond their flight. That should be relatively straightforward to convince people to spend more money with us. Now we’re able to drive support. You know, we’ve got a much higher revenue stream for the same capital base. That’s going to help fund some of these sustainability investments.
By Marisa Garcia
Keynote JetBlue and Breeze Fireside Chat: What will be the longer term effects of the last 2 years and how can we effectively respond to rebuild a more sustainable industry?
During the Aviation Festival in London, an expert panel of airlines and payment services providers discussed some of the challenges of retailing and payments during the COVID pandemic. They shared their views on payment strategies to encourage more people to fly while keeping up with the industry’s financial challenges.
The experts tackled how airlines can keep up with the power shift towards customers and offer more flexibility to give consumers that “Uber experience.” In the process, they provided an overview of the current marketplace opportunities and some predictions on trends that will take hold in payments over the coming years.
“Now we’re looking forward to shaping a new way of interacting with customers at different touchpoints”
Thomas Lindner, Senior Director IT Distribution, Payment and Order Management, Lufthansa, said of adapting to new technology trends: “With the time to reassess what change of behaviour the customer will see, and demand from us, and especially as an airline supported by state aid, we had to make up our mind so we’ll be able to repay those billions in loans. Therefore, we came up with more creative ways to offer services to the customer. On the overall industry side, we had issues in acquirers having risk-aversion to that exposure with the airlines. We had a multi-acquirer strategy to juggle that, but that, of course, was a shift in the styles as well. Now we’re looking forward to shaping a new way of interacting with customers at different touchpoints.”
Frank Gubba, Product Manager Loyalty and Payments, Icelandair, agreed with Lindner on the challenges of keeping up payments during COVID. “The problem was suddenly that refunds were higher than transactions. You went out also to have good discussions with our acquirers, looking into things and how can we bring this to a turn-around. We had a financial restructuring, then, in the latter part of 2019. And we were getting everything involved in negotiations with all the key stakeholders. What helped us was to look more strongly into the reporting to understand the new normal for airline travel. It helped to be upfront and very transparent with our partners. For us, the risk mitigation part moving forward is very critical—having various providers in place and the recalibration of our mix for forms of payments. Not be so much dependent on credit and debit cards. Looking ahead, for us, to ensure like a frictionless journey, being close to the customer.”
“I will tell you—buy now, pay later, or whatever name you want to give that flexibility option was nowhere on our radar two years ago.”
Keith Wallis, Senior Director Distribution and Payments, Air Canada, suggested that many solutions were already in the marketplace though airlines were slow to adapt. “I would say the pandemic just massively accelerated everything. As being in charge of payments in Canada, I will tell you—buy now, pay later, or whatever name you want to give that flexibility option was nowhere on our radar two years ago. And it is rapidly becoming the thing that our customers are very excited about. For something like travel, which is aspirational, inspirational, and typically has a larger than average cart size, I can’t believe that buy now, pay later options weren’t already in our industry. But some vendors approach us with solutions that I don’t believe had travel on their radar two years ago.” Wallis pointed out that consumers have built a habit of online purchasing during the pandemic and have new expectations of what merchants need to offer. “I think as an industry, we need to do better. If you didn’t have one of the three major cards, you weren’t doing business with us five years ago. I’m proud to say that’s not the case now, but our customers expect even more than that. Geographically, it’s different. By customer segment, it’s different. People want flexibility and choice in a frictionless experience. We need to do much better than we’ve done historically.”
Michiel Kossen, Partnerships and Business Development in Airline, Travel & Hospitality at Adyen, said the company had helped airlines manage those high refund balances caused by the lockdown. The company is focusing on flexibility as the market reopens. “We took the opportunity to start projects that have been on the shelf for a long time. We’re expecting that there will be differences in how customers are dealing with the situation. And [we’re trying to define] how, as an ally, we can be flexible—adding new payment methods in different markets.”
Chris Fendley, Executive Vice President, Enterprise Partnerships, Mastercard, suggested the pandemic has called attention to the importance of collaboration in finding new solutions which ensure greater flexibility on payments.
“As an industry, we’re now looking and seeing real change around how passengers are dealt with, how the different partners in the industry work together, transparency of data..the whole ecosystem and managing things like access to credit, which is key”
“As an industry, we’re now looking and seeing real change around how passengers are dealt with, how the different partners in the industry work together, transparency of data…the whole ecosystem and managing things like access to credit, which is key. Also, things like customer service, where you need customer chargebacks, we all learn how painful it was when the whole system got shut down. There are legacy payment systems that are not fit for purpose. They need to evolve, and the industry needs to work together. At MasterCard, we have some solutions, but it needs to be done collaboratively with everybody.” Fendley offered some examples. “We’ve been on a bit of an education campaign on virtual cards for B2B flows. In the last 12 months, we’ve found that the agencies are looking for protection around the payment flows. Traditional VSP cash doesn’t provide the same level of protection for them or the consumer at the end of the day. I’m fully supportive of multiple solutions…But however this evolves, you need to have protection on both sides of the fence.”
In terms of B2B transactions, Air Canada’s Wallis said, agencies’ preferences in different regions affected their ability to deal with the shutdown’s financial impact.
“In North America, my experience is those travel agencies are very keen to pass through the customer’s card and allow the airline to be the merchant. They’re not interested in the fees. They’re not interested in the liability. They just want to pass that through and let us do the work. In Europe, we find that agencies are much more interested in owning that customer experience. They will take the customer’s card and be the merchant of record, assuming the costs and liability to own all aspects of that customer relationship, including the payment. I think the pandemic highlighted that many agencies who didn’t do that were very much at the mercy of travel suppliers and whatever policies we had on refunds. They were struggling to get a refund from 10 or 20 different suppliers. Those who had decided to own that aspect of the relationship were completely in control of what they could do for their customers. So, sure there’s a cost. But it’s an interesting discussion now around what is the value you can generate as an agent by owning everything, including the payment aspect.”
“..half of the millennials and all of Gen Zed, that segment is very different. Cards are not nearly as important to them.”
Wallis also pointed out that the consumer preference for credit card payments is generational. That’s true even in North America, where credit cards are widely entrenched and encouraged by points earning schemes. He advised planning for the needs of the up-and-coming consumer.
“If you look at the data in time segments—so what has happened in the last 12 months—you can see the changes in consumer segments. The bottom half of the millennials and all of Gen Zed, that segment is very different. Cards are not nearly as important to them. They pay direct when they pay online. And buy now, pay later solutions are very strong in those segments. Those are the future buyers. That’s the segment we need. I don’t need to devise new solutions for people in my age bracket—we have to understand what’s coming and be prepared for it. So it’s really about finding out not what you need to do now, what you need to start now for what [is coming up over the next five] years.”
By Marisa Garcia
Panel: How can airlines keep up with the power shift towards customers, and offer more flexibility to give that Uber experience?