Airlines need partnerships to ensure their distribution strategies are effective as new technology fundamentally changes the landscape, shifting customer expectations when they are booking flights, write Alessandro Borgogna, Aditya Agarwalla and Stefan Stroh of Strategy&, part of the PwC network, and Ivan Jakovljevic of Google

New distribution models and technologies are disrupting the airline industry, forcing carriers to rethink how they sell to their customers. The threat in the evolving environment is that aircraft seats become commodities, eroding airlines’ margins. The opportunity, however, is to become more service-oriented and deliver improved, personalised and exclusive products to customers.

To achieve this, airlines will need to change their ticket distribution strategy in a holistic manner. They will need to do this across both direct channels – their own websites – and indirect ones. They will also need to partner with content, technology and channel players, and enhance their internal capabilities.

Rethinking organisational strategies is key to the transformation of the distribution business model. Airlines will need to organise around their customers in a manner that is enabled by technology, allowing them to take into account all available channels in each market, as well as the data from bookings, social media and loyalty programmes.

Globally, three trends are eroding the connection between airlines and their passengers: changing retail and business consumer behaviour, new sales dynamics in direct and indirect channels, and advances in digital technology.

The way travellers search for and book flights online is making airlines’ relationship with their customers less exclusive. Leisure travellers now control all aspects of the search and booking process themselves through a host of online options from multiple devices, with mobile technology rising in importance. For example, by mid-2015, 15% of travellers in the Middle East had searched and booked travel arrangements using only their smartphones. The Google Consumer Barometer expects consumers in such emerging regions to make the transition from offline directly booking to mobile/tablet bookings, skipping desktop-buying altogether.


Consumers research their journeys by consulting airlines, online travel agencies (OTAs) and metasearch sites. It is important to note that metasearch sites cater to these multi-device travellers better than many airline sites. Online channels are very effective at creating sales; in developed markets, more than 90% of consumers who shop around for tickets book them this way.

Social media also plays a prominent role. Travellers, especially the younger and the more digitally astute, use social media to share their booking and travel experiences – information that then informs the decisions of other consumers. Some airlines have already integrated social media into their sales and service channels. KLM passengers, for example, can use Facebook Messenger for check-in, flight information and travel changes.

The other major change in consumer behaviour is the way that travellers are using loyalty programmes to communicate their needs to airlines. Customers are letting airlines know their preferences on booking arrangements, meals and rewards such as reduced travel costs, lifestyle memberships and other benefits. These interactions provide airlines with important and cheaply-acquired insights.

Business travellers expect similar levels of flexibility, convenience and affordability. Unsurprisingly, travel management companies (TMCs) are expanding their offerings to companies seeking efficiency savings.

The two fastest-growing sales channels are airlines’ own sites and OTAs among indirect channels. Direct channels are the cheapest way for airlines to sell. They also allow airlines to cross-sell other travel content, and provide opportunities to personalise their connection to travellers and thereby increase customer loyalty. For OTAs, the advantages are that they are easy to navigate, they have powerful brands, and customers say they have the best prices.

One of the challenges is that indirect channels use global distribution systems (GDSs), which makes it hard for airlines to differentiate their products. Instead, customers tend to choose flights largely on price – precisely the trend to commoditisation that airlines must resist.

Other changes in sales channels are affecting traditional travel agencies (TTAs) and TMCs. TTAs are losing ground, but have opportunities in niches that require strong customer support, such as older travellers, the wealthy, special travel requirements (for example adventure holidays and honeymoons), and emerging markets where passengers want human interaction with an agent.

TMCs have a continued role in the business travel segment, especially if they continue to embrace digital technology that improves efficiency and better connects with corporate employees. Some TMCs have started to adopt direct connection tools to allow corporates to search and book their flights, while controlling the travel costs.


Digital technologies offer marketing and sales opportunities in direct and indirect channels. One effect of this is that sales and marketing channels are becoming hard to distinguish. For suppliers this means greater contact with customers at different points on the journey between research and booking, which means more chances to sell products.

In direct channels, digital means airlines can better connect with customers, thereby enhancing revenues. Digital also allows airlines, in direct and indirect channels, to sell more and cross-sell. Moreover, they can exploit big data to personalise offers to travellers. The most important digital opportunity comes from loyalty programmes, which provide an airline with considerable amounts of customer information and an important potential differentiator from rivals.

Understanding these trends is vital for airlines as they seek to transform their distribution strategy. They need a holistic approach supported by technology to take advantage of the data they have on their customers – information that can help airlines reorganise based on their customers’ activities. Gulf airlines are in a strong position to achieve this transformation because the availability and sophistication of online suppliers in their domestic markets is relatively low. They are also less constrained by legacy thinking, making them more open to innovation.

There are three focus areas to this strategy: transforming travel distribution business models; partnering with channel, content, and technology players; and enhancing internal capabilities.

Airlines have to change their travel distribution business model in all channels. The initial step is to identify and prioritise the key operating cost and revenues issues by cabin, country and channel. These include sales, yield, load factors, commissions, marketing and promotion, and other cost of sales items by cabin, country and channel. Airlines must then analyse the travel distribution channels – direct and indirect – available to them in each market, to optimise their offering and improve their commercial performance.

It is important that airlines make the direct channel the option that leisure and business travellers find the most appealing. For the leisure travel segment, this means displaying products and services and using big data to create targeted, personal offering across platforms and devices. For sales to small businesses, airlines need to use portals that connect directly to small firms and avoid GDS, or develop apps that connect the corporate employees directly with the airline and abide by corporate travel policies.

The challenge for airlines in indirect channels is that GDS is likely to endure. They should therefore create partnerships with GDSs to develop technology solutions that offer an improved ability to merchandise and personalise products, so that they can cross-sell and sell more. Airlines should also work with TMCs to introduce technology that allows corporate clients to do bookings themselves. These self-booking mechanisms, along with pricing agreements with corporate clients, can push companies to prefer a specific airline and help them to comply with their own travel policies.

Loyalty programmes are an important component in the transformed distribution business model for leisure and corporate travellers alike. Airlines can deploy these programmes to understand their customers better than ever before – selling them the right products tailored to each passenger’s specific needs, which keeps them coming back. Loyalty programmes will be most effective in direct channels.

The second strategic focus is for airlines to look for synergies with distribution players to help them to distinguish themselves in the marketplace, allowing them to retain control over their own prices and deepen their relationship with leisure and corporate customers. Of course, such arrangements with channel, content and technology players must be organised around consistent strategic aims. The airlines’ distribution partners can derive advantage from the strength of airlines’ brands in some markets, using those carriers’ customer bases to target markets, for example.

Partnerships could include equity arrangements with TTAs aimed at wealthy sub-segments in such regions as the Middle East – customers who are willing to pay for high levels of quality service. One method is directly to connect TTAs with the airline’s own inventory system. This will cut GDS costs, cut out consolidators who erode prices, and let airlines differentiate their products and services. Equity deals with TMCs mean that airlines can penetrate deeper into the valuable corporate travel market.

Partnerships with OTAs are a way for airlines to enter multiple parts of the world where there are high-growth segments, such as emerging markets. As with any partnership, airlines should always ensure that they resolve any strategic travel distribution problems and serve both the airline and its OTA partner.

The third branch of the strategic focus is achieving significantly improved internal capabilities – vital for airlines to take advantage of changes in travel distribution and build the personal connection to their customers. These internal capabilities are also critical because of the need for airlines to form partnerships with online channels. Without strong internal capabilities, the partnership will not be a marriage of equals and airlines will simply be handing over customers to their online distribution partners.


Airlines need to put considerable time and money into building five internal capabilities. The first, customer knowledge, means creating a complete view of each customer based on all the information available. The second, commercial capabilities, means turning this knowledge into products and services that are targeted to each individual and lead to sales.

The third, digital channel capabilities, involves having easily accessible, attractive offerings in all channels. Customers should have personalised products and services, accompanied by travel information and accessible through each individual customer’s favourite social media outlet. The fourth, loyalty offering, means using high-value loyalty products that connect to customers so well that they start to prefer doing all their travel bookings with the airline.

The fifth, technology environment, means having a set up that allows the direct and indirect channel to be used without hindrance. This can be particularly challenging for airlines with enterprise architecture that does not support customer-centred direct channels or has outdated or insufficient applications and platforms.

Airlines need an operating model, organisational set-up and culture that bring all these internal capabilities to bear in a manner that is focused on the customer. This will replace the usual approach at many airlines, where functions do not co-ordinate or co-operate in a way that is optimised to please customers.

The organisational aspect has three features. The first is a customer-centric organisation. Marketing, sales, distribution, pricing, data analytics, strategy, IT and loyalty programmes need to work together in an operating model that seeks a complete understanding of each individual customer.

The second is a coherent customer strategy across the organisation so that all of the airline’s staff grasp they have a role to play in understanding their customers.

The third is a customer-oriented service culture – a desire by an airline to please passengers. This is reinforced when the airline uses the data and internal capabilities at its disposal to gain more understanding of its customers.

A changing travel distribution environment need not be a threat to carriers, and airline seats do not have to become commodities in the way that has happened to so many other products and services. Airlines can avoid this fate by partnering with other distribution players to protect the carrier and its customer base.

Airlines need to get to know their customers in a way that provides deep insight into their needs and preferences, so they can offer differentiated and personalised products. Airlines also need to reassess themselves so they can fill holes in their internal capabilities and build their organisations around their customers.

FlightGlobal is organising the Technology and Innovation in Airline Distribution conference, which takes place in Bangkok on 17-18 May 2017, and where airlines will be sharing insight on how they have adapted to digital distribution. Get involved in the conversation, join us here.

Source: Cirium Dashboard