Digitalization has revolutionized the way airline products and services are merchandised, marketed, and distributed. Today, airlines and travel agencies have improved tools to sell and distribute their products to tech-savvy consumers, delivering on the industry’s promise of a modern and personalized flight shopping experience.
Recent retailing agreements have given a new lease on life to the airfare clearinghouse. “The immediate impact of the deals is that it’s a flashing signal to the industry that airlines have finally reached an inflection point in how they distribute airfares and related products and services,” said Sean O’Neill, travel tech editor for Skift.
These modernization efforts are further supported by IATA’s New Distribution Capability (NDC) program and ATPCO’s Next Generation Storefront (NGS) which play a critical role in ensuring that airlines and agency systems can seamlessly interface, ensuring agencies will soon be able to widely provide differentiated, rich content and competitive offers to their travelers.
But despite all the progress that’s been made to transform the airline digital retailing space on the customer-facing side, a looming problem threatens to limit the potential benefits of this innovation for travel agencies. That’s because the back-office business processes surrounding incentive programs supporting this new digitized airfare retailing and merchandising model remain surprisingly analog. In fact, many travel agencies still rely on spreadsheets and manual entry of transactions, limiting their ability to monitor revenue and impacting profitability.
Why is this analog record-keeping process such a problem in this new era of digital retailing? And what solutions might travel agencies use to address it?
Maximizing Profit Margins While Keeping Airfares Low
Many travel agencies thrive on a combination of commissions and incentive offerings when selling airfare, and in some cases, this can be up to seven times more than what an agency may make via fees from clients. Airlines’ sales incentives based on sales targets or market share growth are also one of the primary vehicles for travel resellers to obtain this revenue. For travel agencies, these incentives are important and can have a considerable impact on their profit margins on an annual basis.
These programs also often include collateral support in the form of funding for marketing, along with access to special flight amenities like preferred/priority access, upgrades, waivers, and favors. In fact, these programs are a key component in helping most travel agencies keep their fees and charges to clients and companies at reasonable rates.
Here’s an example of how the incentive process between an airline and agency works: A travel agency might have an incentive agreement with the airline that provides a payout of two percent of sales and access to marketing support if their overall revenue target of $5 million in tickets is achieved over the course of a calendar year.
With the right tools to monitor progress toward this $5 million goal, the agency can continuously reassess throughout the year, making small but timely changes to ensure it hits the goal. This might include internally increasing the visibility of products that count toward their revenue target, or running promotional campaigns with current and prospective clients as well as employees.
Unfortunately, the travel agencies’ current process for monitoring their progress relies on spreadsheets and paper forms, a largely manual system that does not update with new information in real-time. This makes it even more challenging for travel agencies to effectively track and monitor their performance toward goals.
The challenge of keeping track intensifies as carrier-agent programs become increasingly complex, with airlines incentivizing different types of products at varying levels, and more so with the rise in ancillary sales. Different push actions related specific RBDs (the reservation booking designators or booking classes), or market share and annual or quarterly targets, are helping to make contracts more dynamic and flexible. But travel agencies continue to work with decentralized and disparate systems and processes with limited capabilities to track target reach or measure performance in a timely and efficient manner.
“Tracking airlines’ sales incentives today is not only hard, it’s virtually impossible – a travel agency typically gets hundreds of varying terms across agreements from tens of airlines, each with a different structure, conditions, dates, numbers and RBDs. This also changes from the different types of agencies between the TMCs and OTAs,” said Mickey Haslavsky, CEO of Avian, a software solution provider.
It is ironic that at the moment when the consumer airline distribution marketplace is undergoing a massive revitalization, the travel agency methods, technology, and systems which drive and support this revitalization feel frozen in time. At best, agencies may receive digital reports from some airlines. Even then, they must visit different portals and attempt to compare conflicting programs. With new standards on how performance is calculated and measured across carriers, this can be very challenging.
Haslavsky said: “Some still adhere to gigantic excel sheets and manage everything themselves without having any proper system or hub to capture accurate data. Technology has been widely accepted in nearly all aspects of the travel industry with regards to client facing interactions. However, it has been very neglected with regards to internal agency usage for managing incentive programs. By the end of the day, no matter how many excel sheets you have, tracking flown and market share incentive plans requires technology ”
New Technology to Improve Commercial Communication
One firm helping to change this travel agency status quo is Avian, a technology company that provides new incentive contracts analysis technology to allow travel agencies greater insight and control over their incentive contracts with airlines.
The online software platform allows travel agencies to easily scan airline incentive agreements by means of a simple drag-and-drop experience with no manual filing. It also connects agents to the BSP (IATA’s Billing Settlement Plan), ARC (Airlines Reporting Corporation), and the GDSs (Global Distribution System), making it faster and easier to get a real-time overview of their revenue and performance from airfare commission and incentive programs.
This solution also makes it easier for travel agencies to forecast complicated calculations like the company’s flown revenue (a net revenue from consumers who bought their tickets from a travel agency, got on board, and actually flew). Flown revenue is recognized as a key metric to manage performance versus program targets in a timely manner. Yet tracking flown revenue using manual calculation methods is often cumbersome, highly inaccurate, time-intensive and costly.
Haslavsky said: “The flown data is processed via revenue accounting standards, stored in an airline’s database, and filtered per travel agency, so it takes time for the airline (from 15 to 90 days) to update the agency on their true performance. Even when airlines do provide reporting, agencies must process each one individually to get a holistic view of performance across their business.”
Profit Margins Affected Due To Delayed Reporting
In the old analog model, critical performance data never reached the travel agency in time, leaving them unable to make meaningful pricing or marketing decisions based on the insights. This forced many agents to rely on guesswork to determine whether they would hit or miss their sales targets. With incentives being such an integral part of their agency revenue, it’s surprising that this process remained unchanged until now.
But now, new digitized incentive tracking solutions like Avian are helping travel agencies optimize the process they use to track flown revenue in real-time and manage contract variables. Best of all, AI algorithms like those developed by Avian can go one step further, helping recommend strategies agencies can use to further improve revenues from incentives and increase profits.
“The system allows them to pinpoint specific sales targets, track performance, and steer sales into an upward curve by making sales predictions and our API will allow any OTA and TMC to optimize their revenue from incentives and commissions,” Haslavsky said.
“It is often difficult to keep track and organize this vital piece of our business and Avian has been a tremendous help with this. They have made back-end and upfront incentives tracking sync with their unique software. It lets us know exactly when and what we need to know relating to any of our contracts at any time with a few clicks of the mouse,” said Steven Borukhin, chief business development officer of DownTown Travel.
“This technology brings real innovation into the airline-agency relations by applying the idea of a free marketplace to the formerly exclusively bilateral field of commercial agreements,” said Ondrej Cikanek, vice president of content at Kiwi.com.
The software can also help agencies gain new insights into their supplier relationships and ROI/negotiations for airfare sales. Avian does this by presenting all airline incentive plans in one place with a standard format to compile their different terms and conditions. Having a centralized and consistent view of these plans’ terms will help travel agencies better monitor their different revenue streams, reach their sales targets, and increase profit margins.
With digitalization transforming the airline distribution landscape, Haslavsky said Avian aims to bring deep technology into revenue optimization for travel agencies to ensure that agreements are optimized and their business continues to meet the challenges of the ongoing digital transformation.