Is corporate travel a sexy sector now? Maybe to investors, but new technology is doing less to change the status quo than you may think.
Corporate travel is attracting a lot of interest from investors and the tech world due to emerging players with high valuations.
At the Global Business Travel Association’s (GBTA) annual conference in Chicago this week, it was business as usual for established industry players, with a few new twists.
The somewhat unexpected news that Southwest Airlines is looking to revamp how it works with business travelers made perhaps the biggest waves.
Southwest Airlines, which is notorious for avoiding dealing with global distribution systems, has cut deals with Amadeus and Travelport to bring content for business travelers to agencies next year.
Southwest last month indicated it had joined NDC Exchange as well to help further modernize its distribution strategy.
“Southwest had never made the investment in [the corporate travel ecosystem],” said David Harvey, vice president of Southwest Business. “We’ve listened to customers, and now you can use us on your channel of choice. Because we’ve never invested, we’re still putting the finishing touches on the [technology part].”
Southwest Business has added more than 100 employees to its staff over the last year in an effort to engage with corporate clients, travel management companies, and more. For what it’s worth, Harvey insisted that bookings on the global distribution systems won’t be in play for consumer travelers going forward. Southwest has also revamped its Swabiz online booking portal to make it more consumer-like.
“Over the years, we’ve been intentional about not building a relationship with TMCs (travel management companies),” said Harvey. “Now we’re building relationships with each area.”
It’s easy to see why Southwest has many fans among U.S. business travelers; no change or bag fees, along with a robust route map, make it an easy choice. Southwest’s reluctance to use global distribution systems, however, meant many business travelers would book outside policy, creating friction and creating what is basically an unnecessary obstacle for Southwest’s growth in corporate travel.
NDC Changing Power Balance, Just Not How You’d Think
The mind-numbing buzzword at the last few GBTA conference has been new distribution capability (NDC), the attempt by airlines to shift the technology behind how bookings are made.
Last year was notable for the major travel management companies and global distribution systems teaming up through a bevy of partnerships to explore the technology. In the interim, a countless number of airlines and travel management companies have proudly announced they are new distribution capability level 3 certified and have placed bookings using the technology.
The only problem is that these announcements have mostly been stunts; placing a booking using the technology has no major impact on the sector and is more for public relations positioning than anything else.
This year, top executives across the sector had the same message; forget the marketing, we’re trying to do this for real.
“We’re trying to put it in software, not press releases,” said Egencia President Rob Greyber, laughing at the rat race the new technology has engendered. Fair enough, but it’s worth a reminder why this is all so important for the future of the sector.
For decades, selling flights through global distribution systems has been heavily limited by technology. Due to how fare codes work using letters, there are only so many different fares that can be offered. With airlines diving deep into ancillaries, dynamic pricing, and packaging over the last decade, the legacy systems don’t really cut it in the age of basic economy.
In 2012 the airlines, through industry group IATA, announced the new distribution capability standard to use XML and enable direct connections with travel sellers which would include ancillaries, bundling, loyalty perks, and more outside the traditional global distribution system setup. The unstated goal was to dis-intermediate the global distribution systems that take a commission on each sale, giving airlines more control over costs.
Something funny, though, has happened in the last couple years. After resisting the new standards for selling flights, the global distribution systems have taken a pivotal role navigating the complexity created by the rush to build this new system. Each airline has built its tech in a different way, using different versions of XML and embracing different commercial goals, and the need for a standardized display for all the rich content has proved a difficult problem to solve on a case-by-case basis. This is what happens when airlines stipulate a standard that doesn’t necessarily make sense for all parties in an ecosystem.
Amadeus, Sabre, and Travelport are acting as a tech provider connecting the airlines and travel management companies in this sphere like they always have in air distribution, helping agencies navigate this new complexity. The age old green screens for agents are being replaced by new interfaces that parse the complexity of selling flights with add-ons. Executives pegged airlines like Lufthansa and Qantas as outliers among the hundreds of global airlines that still would like to play ball within the existing power structure.
The greatest roadblock to the adoption of this technology, though, could come through the end-user. How does all this added confusion and complexity make life easier for the travel manager and their business traveler?
Right now, it really doesn’t. Many travel managers will simply avoid the new technology, afraid of the risks involved in empowering travelers to book add-ons with their flights. If your travel program works fine right now, it doesn’t make sense to introduce risk with this new technology, particularly before it matures.
Big Money and Big Risk
Historically, corporate travel has killed off new entrants by acquiring the companies or limiting access to content in order to eliminate any true disruptive threat. The new wave of travel-management-as-a-service startups like TripActions and Travelperk, though, seem to have found their niche in the sector.
TripActions, with its sky-high valuation, has become a new obsession among the sector’s leaders. As the company scales and moves to land bigger clients with more traditional corporate travel expectations, it will have to not only build new features but become more similar to the companies it has tried to disrupt.
There’s also the question of what TripActions will do with its enormous war chest after raising another $250 million in June. Multiple sources outside the company suggested TripActions is in the hunt to acquire a traditional global travel management company which can help serve the needs of the bigger clients it wants to land. The company announced a new division offering data-based consulting to larger companies looking to improve their travel programs this week.
TripActions executives had no comment on the speculation, but it’s easy to see how such a move would make sense. It would also fly in the face of the company’s blitzscaling strategy, with a major integration likely slowing down the work it’s doing in other areas surrounding the business travel experience. In the past the company has partnered with traditional agencies to service some bookings, so it is no stranger to bringing in outside help to support its users.
Some new blood in the sector is challenging the incumbents to improve their digital systems, and the increased investor focus on the sector will prove to be good for corporate travel in the long run.
“If TripActions is worth $4 billion, imagine how much we’re worth?” asked a CEO of a top-five travel management company.
With investors circling the sector, we’ll probably find out soon enough.
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Photo credit: An attendee at the GBTA Convention 2019 in Chicago. Skift