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Airlines have begun to reassign responsibilities for technological development across the organizations they control. One efficiency move came Tuesday when airline-owned ATPCO, formerly known as the Airline Tariff Publishing Company, said it had bought a fare management system from SITA (Société Internationale de Télécommunications Aéronautiques), a tech provider that is also run by the airlines.
The organizations did not disclose deal terms.
ATPCO is taking over the product and customers for Airfare Insight (AFI). About 20 airlines use the system to manage the setting of fares in response to shifting market conditions.
A majority of customers, including Singapore Airlines, Cathay Pacific, Emirates, Qantas, and Virgin Atlantic, support the product’s move to ATPCO. None of the others have yet said no, according to ATPCO.
The deal signals a broader refresh. This month, Alex Zoghlin became president and CEO of ATPCO, filling a position vacated when Rolf Purzer retired late last year.
“The airlines have over many years built a lot of industry utilities, not just ATPCO,” Zoghlin said. “There’s IATA [International Air Transport Association], ARC [Airlines Reporting Corporation], Airlines Clearing House [ACH], UATP [Universal Air Travel Plan, a payment solutions provider], and SITA.”
“Over time, there’s been some overlap among some of these,” Zoghlin said. “This particular [acquisition] is a really good example of all of us getting together to see how we can all work more efficiently and consolidate some of these capabilities.”
For decades, SITA has provided communications support for nearly every airline and airport. It has also built software tools to process baggage, track passenger flows, run boarding gates, and identify passengers.
“For the last few years, we have focused on simplifying our portfolio to deliver more value for customers,” said Barbara Dalibard, CEO of SITA, in a statement. “This deal represents the latest step in that journey.”
Airlines have looked at ATPCO instead as a clearinghouse to file fares and track price changes by competitors. More recently, the organization has been helping airlines smooth out other fare distribution and settlement tasks.
Today’s tech acquisition signals that airlines want to consolidate some of the airfare-related data work at ATPCO. In July, ACH (Airlines Clearing House), another industry-run organization, “picked” ATPCO to build a cloud-hosted settlement services system.
“Historically, the company [ATPCO] has thought of itself as this giant database of fares and rules and the standards bearer related to all that information,” Zoghlin said.
“But moving ahead, the industry’s most important asset is data,” Zoghlin said. “So how can we help the entire ecosystem take better advantage of their data? How can we do it faster, do it cheaper, and do it in ways that really help all the players — not just some of the players? I think that’s the opportunity for us.”
SITA built its fare management system to solve an industry problem. Years ago, airlines had some bad tools in the marketplace and had trouble making sure that every airfare was correctly priced. Before the system, airlines typically compared fares with competing carriers using the base, filed fares. But what consumers ultimately pay includes all taxes, fees, and charges on top, and airlines don’t file some fares.
The Airfare Insight tool helped airlines reduce errors.
“The errors cost a lot of friction in the industry,” said Thomas Gregorson, chief strategy officer at ATPCO. “It’s hard to correct the errors, and in the meantime, other airline systems react to the errors by generating fares that also don’t reflect market conditions. We see this system as a way to help the industry as a whole.”
The tool also helps airlines with workflow management. Suppose an airline has local, regionalized pricing and needs to go through many layers or steps to get approval. In that case, the Airfare Insight tool aims to provide an efficient and automated process for that.
ATPCO plans to more tightly integrate Airfare Insight into its pricing tool called Architect, which it launched in November and has been adopted by a few carriers such as LATAM and Icelandair.
Architect similarly tracks the prices consumers actually pay for fares, branded fares, and options rather than what is filed. It also aims to normalize the display of “web fares,” and speed up distribution, among other services.
Can these tools accommodate so-called continuous pricing and dynamic pricing, which airlines like Lufthansa and British Airways began using in earnest in the past few months?
“There are several different levels of flavors of dynamic pricing, and many of them we support today, and some of them we’re exploring on how to support the industry in the future better,” Gregorson said. “This tool will help them manage all of their price points. So if they have continuous pricing that they want to have and expose, we can ingest that similarly.”
Competitor products to SITA’s and ATPCO’s fare analysis technology include tools built in-house at airlines and a product from Sabre called Fares Manager with Contract Manager.
In 1999, Zoghlin founded Orbitz. A few years later, The Chicago Tribune dubbed him “the bad boy of online travel” for bringing an entrepreneurial chutzpah to airfare distribution. Zoghlin went on to create an airline direct connect company called G2 Switchworks, which Travelport bought.
In his longest professional stint, Zoghlin worked at Hyatt Hotels, most recently as executive vice president, global head of strategy, innovation, and technology.
So what will Zoghlin do at ATPCO? He wants to enhance its role as “an honest broker, a standards body, and a technology provider” by helping it “work even more effectively than it has before” at reducing the “complexity, cost, friction, and barriers to entry for new and existing airline customers.”
He said the organization also needs to work more flexibly with distribution giants such as Amadeus, Sabre, and Travelport as well as travel management companies.
“One of the first messages I got on my first day on the job was from a partner, who said, ‘So excited you’re there…Here’s the problem I have and what we want to do different.'” Zoghlin said. “My response is that this is a really good customer of ours. We’re going to have to figure out how we can better serve their needs.”
When asked to provide a more plain-English explanation, Zoghlin gave the metaphor of baking a cake.
“Let’s say you want a cake,” Zoghlin said. “We don’t give you a cake. We don’t even give you the ingredients. We give you the raw material. So here’s the wheat. You might need to grind it here. Then we might give you a set of rules on how to put it together. And those rules are 300 pages long.”
“It’s time for us to realize that not everybody wants what’s the raw wheat,” Zoghlin said. “Some people might want the flour, and some people might just want the cake. We as an organization have to be more willing to meet customers and to meet the industry where their capabilities are.”
“My joke inside the company is you can work with ATPCO any way you want, as long as it’s the single way we do it,” Zoghlin said. “That has to change. We have to act more like a technology company than a data broker.”
Zoghlin can talk about innovation all he wants. Do the pandemic-ravaged airlines that back ATPCO also back his vision?
One signal that they support him is that they hired him instead of the proverbial manager from Wharton School of Business who might cram down measures in the organization to wring out costs without investing for the long-term. Zoghlin has always been a builder. He wouldn’t be the right one to strip-mine an organization.
Here’s another promising sign: Due to the pandemic, the revenue crisis may have given some airlines a renewed appreciation for how they could offload some of their data-based tasks. Some airline executives may consider centralizing duplicative efforts in a common utility player like ATPCO or SITA.
Another encouraging sign is that Zoghlin has had experience adapting to different organizational types and finding ways to boost innovation where he could.
Zoghlin began his career in the Navy.
“In the military, I learned two things that I have taken with me everywhere since,” Zoghlin said. “The first one is how to work within a crushing bureaucracy, and that it’s true you can maneuver within it — and you can even do interesting things.”
Zoghlin noted an example that he would work on projects to solve problems for commanders needing more efficient ways to use their multibillion-dollar submarines.
“The second lesson was that action drives outcome,” Zoghlin said. “The subtle related point is that I found in the military that it’s more important for everybody to be aligned than to try to get the ‘perfect’ strategy.”
“I’ve since seen in the private sector many companies that continuously try to refine their strategy, but there is no alignment of the executives,” Zoghlin said.
“So even if I don’t agree with a decision, I will say, ‘I disagree, but I commit,'” Zoghlin said. “Because I know we are much more likely to be successful if we are all committed to its execution and success than each of us trying to figure out or optimize for what we think might be the best solution. It’s amazing how many companies don’t get that.”
“The other important lesson at place after place I’ve worked is that ‘culture eats strategy for breakfast,'” Zoghlin said. “As a leader, I have adapted to the culture rather than tried to adapt the company’s culture to me.”
“I’ve watched other executives come into a company and think they were going to bend the company to their will,” Zoghlin said. “It’s fun watching what will break first because, I promise you, it’ll always be the executive.”