travel-industry-changes

The Travel Industry: Only Those Open To Change Will Reap The Rewards

From a technological point of view, the travel industry is not the hunter, but the hunted. Innovations are neither fostered nor developed to the necessary extent. Suppliers, distributors, travel management companies, but also technology providers are partially to blame for this. However, new concepts can help the travel industry to reduce costs, master crises and offer better products.

The long term future of the travel industry is secure. Due to progressive globalization, the demand for mobility will continue to grow in the future as well, and video conferences will not change this. However, the travel industry must live with various setbacks: terrorist attacks, epidemics, the financial crisis and thus the questioning of the global market economy are responsible for serious phases of weakness. Up to now, the travel industry has always recovered from these crises, even though each of these changes required great sacrifices, such as those of the many airlines that came and went fairly quickly in the past.

A more in-depth analysis and a look behind the scenes reveal the fragility of the travel industry’s stability. One of the reasons for this is that the travel industry is not using state-of-the-art technology. Technological progress is not an integral part of the travel industry, whereas other industries set the standards in this regard. The travel industry is hardly making use of any of the potential that would make it more resistant to future fluctuations and result in new, attractive products and processes.

The travel industry is clinging to the status quo

There is a distinct lack of enthusiasm for innovation. Why do so many travel agencies around the world still work with cryptic commands on obsolete interfaces? According to a study of the market research company PhocusWright, 80 percent of the travel agents in the United States are older than 45. Why is this? Instead of developing new perspectives, the travel industry is clinging to the status quo. Claims are often defended, while innovations are regarded critically or even actively prevented. Proprietary goods are closely guarded; openness and cooperation are not practiced.

Some players in the travel industry are marking time with regard to technology. They are pursuing a strategy of defending obsolete equipment and processes and burying their heads in the sand. They apparently want to preserve the status quo in defiance of changing times. Consequently, the travel industry is at risk of losing its future survival capability with regard to technology.

Why is it so slow to embrace innovation? What are the reasons behind this? It looks like the industry is having difficulty in dealing with change. There’s no question about it: the travel sector has undergone numerous upheavals in recent years. Market structures that have been in place for decades are currently breaking up, while the Internet has created brand-new distribution and communication channels. The market is undergoing an unprecedented transformation. These influences are external and are forcing the industry to take action. It’s like an earthquake lasting for years and shaking up the industry over and over again.

Some lose their previously firm footing in such a situation. Many players in the travel industry are being assigned new roles which have overwhelmed them and for which they are unprepared. It’s difficult to work in these new capacities immediately. People make mistakes and end up trying to turn back the clock, although just the opposite would be the better course of action, namely taking the offensive and encountering these challenges with innovation. State-of-the-art technology is one key to this.

The changes are forcing the industry to take action. Take costs, for example: sales and marketing costs, fuel prices, material costs, raw material costs. Today, no company can afford to bear any redundant costs or deal with them negligently. Reductions in services and higher prices for customers are inevitable. On the one hand, low-fare airlines have created a new, simpler cost structure, but new additional costs and the removal of previously included services (such as baggage transport) have resulted in new complexity from the customers’ point of view. This creates the paradoxical situation that the Internet and new technologies have made price comparisons easier than ever – in earlier times customers had to depend on a travel agency or the service providers themselves.

However, these comparisons have become considerably more challenging because services are becoming more complex – just think of the booking restrictions that have to be integrated in any serious price comparison these days, for example. In summary, years ago the industry engaged in some truly creative thinking about the services to be included in future travel, such as door-to-door services and simple options for making reservations. Today insiders call it “a messed up industry” and travelers experience rather less than more service.

More affordable processes for everyone

The solution to this problem is not far off. Technology can help to manage the new complexity and give travelers a better experience. Renowned representatives of the industry rightly complain that no other sector of the economy works with so many different processes and systems. State-of-the-art technology would be the key to simpler structures, simpler and more affordable processes for everyone involved, and a new clarity.

The distribution struggle in the travel industry is not exactly conducive to innovation, either. For example, airlines want to prevent third-party systems from booking their Web rates. They do not provide global distribution systems (GDS) with full content, or charge additional fees for GDS sales, which are passed on to customers sooner or later. Global distribution systems appear to have particular difficulty in coping with the pressure to innovate. They successfully and efficiently operated large pricing databases for 30 years, but today their use of classic database models is putting their survival at risk: service providers, brokers and travelers are all trying to find ways to cut out the middlemen. It is clear that they will lose market share. Furthermore, the global distribution systems are battling each other for market share.

At regular intervals Sabre and Travelport expect decisions from the European Union regarding the ownership of airlines in Amadeus, claiming a conflict of interest. Meanwhile Amadeus sued its part owner Lufthansa for not providing them with some fares. Fearful of losing further terrain or giving away their expertise, GDS restrict collaboration with independent third-party technology providers. They overestimate the risk of losing power in the market to competitors or to another member of the supply chain. The market participants who insist on preserving the status quo do not see the opportunities that accompany collaboration with third parties. The added value that could be generated has been ignored up to now.

However, it is easy to see how they could position themselves in the future: if the players (such as GDS) opened up, let in new ideas and cooperated with innovators, they would also benefit from the latter’s input. A modern global distribution system brings together the industry and third-party providers and collaborates with them on developing models for the innovative sale of travel products in the future. During this process, business models are created that will secure market share for global distribution systems in the future as well.

A global distribution system has to develop added value, communicate its advantages and communicate plausibly to the customer why paying for these services is worth it. In some areas, a GDS must be prepared to accept shrinking markets. That’s business. Over the past years, global distribution systems have not rejected progress, but they have not decisively pursued innovation. Others set the pace and the standards – and the GDS are suffering from their lack of innovation now.

What the large companies cannot do, the small ones can usually do better. Small companies are often the drivers of innovation – to the benefit of major players in every industry as well. The prerequisite for the development and propagation of progress is openness. The open-source scene in the software industry is an example of the dynamism that such openness can bring. An ecosystem of products and applications has grown up around the open-source software systems that eclipses the innovative potential of any individual company.

Former near-monopolists such as Microsoft will not be able to ignore this development and individuals will remember the days when they were small entrepreneurs who changed the world. Why did the United States develop so well, for instance after the Second World War? Because they opened up the country, let immigrants in and benefited from the latter’s ideas and innovative drive. A counter-example to this is Cuba.

One size fits it all?

With regard to the reasons behind this development, the technology providers also need to take a critical look at themselves. In the past, technology providers kept the technical architecture of their products as simple as possible. They wanted to force a standard product on the industry in accordance with the slogan “One size fits all”. For back-end solutions (e.g. Multi-GDS), this makes sense in some cases, but it is not the right answer for the human interface to agents or for the business processes of a company. Existing processes are too well-established and what may work for one provider in Country A may not be at all suitable for another provider in Country B.

Attempts were made to dictate a standard process to the players in the mobility industry instead of reflecting the individual needs, existing processes and desires of the clients with flexible software solutions. This approach resulted in non-acceptance, so that many market participants developed individual “island” solutions that were expensive and very difficult to support. Market participants have realized that technology can be a unique selling point, but concluded that they had to develop this technology themselves.

Modern companies in the travel industry use a different method. They recognize that technology development is not part of their core expertise; after all, large law firms do not develop their own software for client processing, nor do industrial companies build their own ERP systems. Smart travel companies work on improving their products. This is a worthwhile investment that pays for itself, provides direct advantages for clients and creates added value. The do-it-yourself attitude is not appropriate with regard to technology, because the market supplies everything required.

If a company wants to do things right, it purchases standard modules in the market and/or has technology developed by third parties who possess this expertise as their core competence. New software architectures (e.g. SOA/MDA) also facilitate flexible, customized solutions. The price for such systems remains within the range of that for a standard solution, as standard product lines and reusable components are used. Such solutions can be customized to the point that unique selling points are created – those who desire even more customization make use of additional consulting services. In other branches of industry, this is par for the course.

The global roll-out of a graphical agent user interface of an airline from the Middle-East failed in the US at first because the US agents “preferred lines over graphics and pictures” according to a spokesman. On the other extreme countries such as India or Russia, welcomed progress and the product became a big success there. Did the most prosperous countries lose ground and acceptance for innovation? Where will this lead? President Obama would probably say: “But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions – that time has surely passed.” For a “change”, every individual of the travel industry no matter which party he or she belongs to, could tell him or herself: “Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking [the travel industry]”.

Third-party providers supply the technical expertise needed to develop functional, state-of-the-art applications. For instance, at PASS Consulting there are seven business units that set trends and that are always two steps ahead of the game in technological development. In this way, companies in the travel industry also benefit from the experience and developments in other sectors. Technology is found not only in the travel industry. The travel industry has its own idiosyncrasies, but much of what the financial services sector needs can also be very useful to the travel companies.

It is not necessary to reinvent the wheel. The PASS Consulting Group in particular, with its broad industry expertise and model-based software development, can provide valuable ideas to the travel industry. This expertise should not come exclusively from that sector; a large part of it must come from the technology sector itself. If clients are willing to share information, PASS Consulting can provide valuable experience from other sectors. Clients who buy solutions from PASS can own and maintain these themselves; this is guaranteed by the new business models at PASS. Thus, PASS Consulting complies strictly with its corporate motto: “We take care of the technology – you take care of the business.”

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