Connecting with the Customer: How Airlines Must Adapt Their Distribution Business Model

December 20, 2016

Post image for Connecting with the Customer: How Airlines Must Adapt Their Distribution Business Model

Alessandro Borgogna, in conjunction with Stefan Stroh, Andreas Hilz, Aditya Agarwalla from Strategy&, PwC’s strategy consulting business, and Ivan Jakovljevic, Google

As we head into the busy holiday travel season, PwC’s Strategy& took a look at the three global trends are reshaping travel distribution business models and threaten to weaken the connection between airlines and their customers: (1) shifting customer behavior on both retail and business sides, (2) changing dynamics within direct and indirect sales channels, and (3) the rise of digital technologies. Consumer trends involve an increasing use of online channels for search and booking, the use of multiple devices, and the growing popularity of social media. Changing dynamics within direct and indirect sales channels — online travel agents, traditional travel agents, and travel management companies — offer opportunities and pitfalls for airlines.

Airlines can only benefit from this if they undertake three major initiatives within a holistic strategy enabled by technology: transform their travel distribution model in both direct and indirect channels; pursue closer partnerships with channel, content, and technology players; enhance internal capabilities (operating model, processes, skills, and technology) to capture the opportunities of the new distribution trends and so become centered on customers in their organizational setup. In particular, they need to adeptly manage digital innovation and use these technologies to improve such business areas as direct channel sales, marketing, cross-selling, and pricing and inventory management.

Transforming the travel distribution business model

Airlines need to redefine their travel distribution business model for direct and indirect channels by first identifying the key challenges (e.g., load factor, yield, and cost of sales) by cabin, by country, and by channel, and then clearly understanding the travel distribution environment in each country. Armed with this information, they can address gaps in revenue performance and set priorities across direct and indirect channels as well as loyalty programs, in order to use distribution as a targeted tool to overcome weaknesses in their commercial performance.

Airlines need to focus on making the direct channel very attractive for business and leisure customers. In the leisure segment, airlines need to showcase their products and services, and exploit big data capabilities to deliver personalized and seamless service across multiple platforms and devices. In the SME segment, airlines need to deploy direct connect portals to bypass the global distribution systems (GDS) and showcase tailored products and fares.

In the various indirect channels, airlines should assume that GDS will remain integral for the foreseeable future given the fragmented nature of intermediaries, the access GDS provides to inventories across multiple suppliers, and the significant investment in GDS many travel players in the industry have made. Thus, airlines should partner with GDS and develop technology solutions that improve their merchandising and personalization capability to cross-sell/up-sell through GDS-enabled indirect channels, and thereby avoid product commoditization. In the managed travel segment for large corporate clients, airlines should partner with travel management companies to deploy corporate self-booking tools.

Airlines should also use loyalty programs, in both the leisure and business segments, as a distribution tool for targeted offers, as a means of getting to know customers’ travel needs exceptionally well. They can use loyalty programs also to avoid commoditization by keeping customers engaged and loyal.

Pursue deeper partnerships

A key element of the transformation is partnerships. Traditional commercial arrangements between airlines, channel players and travel content providers often lack opportunities to exploit synergies and align strategic objectives. In the future, airlines will need to craft partnerships that differentiate them and help them enhance their pricing or passengers volumes, and develop a stronger bond with retail and corporate customers. New distribution models will involve strategic partnerships with channel, content, and technology players that purposefully identify and leverage synergies and align objectives. Distribution players can benefit from those partnerships by taking advantage of the airlines’ brand awareness and quality in certain markets, as well as access to the airlines’ customer base, especially those who are loyal customers.

For example, airlines can form equity partnerships with traditional travel agencies to target niche markets and customer segments in markets such as the Middle East, which remains a high-touch and high-yield market.

When possible, the airlines should link agents with the airlines’ inventory system using direct connect technologies. In addition to reducing GDS costs, this will help bypass low-yield consolidators and allow an airline to showcase its products and services to differentiate itself.

Meanwhile, equity partnerships with TMCs give airlines access to profitable corporate customers.

Airlines can also leverage self-booking tools for corporate clients help enforce corporate travel policies, and dynamic pricing capabilities help establish the airline as a company’s preferred choice.

In addition, airlines can partner with technology providers to stay abreast of evolving trends and be responsive to new technologies.

Airlines can also partner with online travel agents to gain access to high-growth customer segments across multiple geographies. Of course, airlines should carefully plan any partnership decision and base it upon the intent to solve strategic travel distribution issues.

Enhance internal capabilities

Only those airlines with sufficient capabilities within this new world of airline travel distribution will be able to seize these opportunities. The others will experience increasing challenges and will find it harder to retain meaningful interaction with their customers outside of the immediate day of travel, and will struggle to maintain sustainable profit margins. A capable airline will need the right level of investment in the following capabilities:

  • Customer knowledge: Integration of all pieces of customer data into a holistic view of the customer, allowing personalized offers, products and distribution services
  • Commercial capabilities: Ability to transform customer insights into the appropriate customer products and services — and market them successfully
  • Digital channel capabilities: Market leading digital offerings, across all direct channels, that link product sales and information with far-reaching access to relevant travel information and preferred social media channels — all characterized by ease of use
  • Loyalty offering: Attractive, value-adding loyalty offerings that keep customers engaged so that they alter their booking and travel behavior in favor of the airline
  • Technology environment: A technology landscape that enables the effective use of direct channels without major constraints — which means moving away from the wrong enterprise architecture and old, or inadequate, technology platforms and applications

Of equal importance, however, are the right operating model, organizational setup, and culture. Success depends upon a customer-centric organization, a coherent customer strategy, and a customer-oriented service culture.

Airlines can benefit from the disruption of travel distribution only if they build these capabilities and execute them in a holistic way with a smart usage of leading technology. Those airlines that master the new environment will be closer to their customers and will sell more in less competitive, direct channels than ever before. Such proximity to the customer will minimize the risk of dropping off the customers’ radar and losing them to the emerging travel distribution disruptors.

For more information, please visit:


©2016 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

Print Friendly, PDF & Email

Previous post:

Next post: