2 Visions for Airline Distribution

Travel Tech Briefing

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Let’s talk airline distribution, contrasting two perspectives.

• Tom Klein, senior managing director at Certares, used to be the CEO of distribution giant Sabre for many years. Klein is skeptical that significant change will come to airline distribution.
• Alice Ferrari, the co-founder and CEO of tiny startup Kyte, argues that her company belongs to a wave of tech vendors facing profitable opportunities to reshape airline distribution.
• Comparing their perspectives can help you gauge the state of airline distribution today.

Klein spoke with Skift CEO Rafat Ali on-stage at Skift’s 2022 Megatrends event last month. Ali asked him about distribution.

• Klein said structural barriers in the airline industry discourage significant change in distribution.
• Airline executives care primarily about running their operations safely, efficiently, and with military-grade precision.
• For executives at the typical airline, distribution isn’t a top priority or passion.
• “Distribution gets talked about in the board room maybe once a year, at best,” Klein said. “That means it’s hard to change.”
• “What has changed is that the business model has evolved quite a bit, even in the five years I’ve been out of it,” Klein said. “But the stickiness of the process hasn’t changed much at all.”
• “Things are running through the same pipes,” Klein said. “The data moves around kind of in the same way. At the end of the day, the core piece of it, the contractural piece of it, looks exactly like what I left five years ago, which also, five years ago, looked exactly like it did 10 years prior to that.”
• (Watch Klein’s full interview here.)

Contrast that skepticism with the positivity of Alice Ferrari. The CEO of Kyte believes there are significant sums of money to be made in disrupting and reforming airline distribution. She has big ambitions, despite having fewer than 10 employees.

• Ferrari named a half-dozen well-known airlines that she said have signed to use Kyte’s services, though she said the airlines hadn’t given permission yet for her to name them. She also hinted that her startup is in the middle of a significant equity fundraising.
• Ferrari’s not alone in her optimism.
• Kyte joins other next-generation distribution organizations including Accelya, Aeronology, Air Black Box, Air Gateway, Air Retailer, airline-owned ATPCO, Atriis, Biztribution, Duffel, Gordian Software, Hitchhiker, Infiniti Software, Interes, ISO Travel, JR Technologies, PKFare, Sqiva, Skywide, TPConnects, Travel Planet, Verteil, Wooba, WorldTicket, and many others in attempting to reinvent how airlines sell tickets through third parties — though each one tackles different slices.
• Online travel agencies have also acquired technologies that play in this space, such as Priceline’s acquisition of Flyiin and Trip.com Group’s ownership of Travelfusion. Established travel tech vendors Amadeus, PROS, Sabre, Travelport, and TravelSky (owner of OpenJaw) also have ramped up their next-gen efforts.

The pandemic has shifted many airlines’s build/buy/partner frameworks.

• Airlines are hemorrhaging talent. In particular, many technology professionals feel mistreated by layoffs and see they can garner higher salaries at non-travel companies, thanks to the travel labor crunch.
• “Even at those airlines that had that syndrome of ‘if it’s not made here, we won’t use it,” we see a few that are starting to think, ‘Well, we have to probably collaborate with externals because we just do not have the resources and the knowledge in-house to do digital transformations,'” Ferrari said. “So many airlines who’ve either built their own apps or APIs [or application programming interfaces, or modern ways of communicating] are having to look elsewhere.“
• “We’ve seen quite a lot of movement among the API providers in the industry,” Ferrari said. “I don’t want to name and shame, but there’s, you know, traditional big API providers that people are moving away from and going to players such as Amadeus, and vice versa. The pandemic crisis has reshuffled the supplier-customer relationship, and there’s a lot of renegotiation going on.”

Kyte’s products tackle two key pain points in airline distribution. The first pain point is overcoming chaotic, inadequately standardized capabilities as companies try to communicate with each other.

• Airlines are in different stages of development of next-generation distribution. So are travel resellers such as travel management companies and online travel agencies. (Travelport’s Tom Kershaw made this point in a Briefing last month.)
• Kyte offers a platform that transforms airline data from their web services into structured data that’s readable by sellers who, in turn, are using varied communications standards. She calls it a Shopify for airline retailing.
• Think of it like a voltage converter you might use to connect your electric devices to the electricity grid in a foreign country.
• Other providers such as ATPCO also offer this service.

Here’s the second pain point: Some airlines can’t hire or retain the technical talent they need to build the data connections they want.

• Kyte is joining other external vendors in aiming to create APIs on behalf of airlines.
• “There’s a huge gap in the market where there are brilliant providers of NDC [new distribution capability] APIs, but they charge high costs to airlines and haven’t resolved many key challenges,” Ferrari said.
• “What we’re doing is basically addressing that by offering a more modern, end-to-end API that has all the principles and technical concepts for next-gen distribution,” Ferrari said. “We’ve built ours from scratch to be more appropriate to today’s best online retail practices for presenting products to buyers. We believe our pricing is competitive, too.”

Here’s part of Kyte’s elevator pitch. It’s an example of the many companies tackling aspects of distribution.

• “Every airline has interpreted the technical standards in their own way and differs in what they offer in bundles and so on,” Ferrari said. “If you want to unify that rich content, you need to transform the data into a stream and pipe that third-parties can tap for reselling.”
• “Aggregators are one type of vendor that have appeared on the scene to handle this problem,” Ferrari said. “They typically take APIs from different airlines, merge them, and then provide a single output to resellers. But to do that fast and at scale, they typically have to compromise on the quality of what’s delivered. Maybe they can’t support all the different products and functionalities.”
• “The aggregator business model also tends to be to charge the airline per booking,” Ferrari said. “That means they’re not incentivized to boost total transaction value by encouraging upselling,”
• For more on the aggregator model, see my earlier article: “The Startup That Could Bring Airline Ticket Shopping to Amazon.”
• “At Kyte, we work for the airline upstream as an outsourced vendor creating a full-featured API that third-parties can consume the way you want,” Ferrari said.
• “We do deeper integrations to make sure that every travel reseller integrating with your airline’s API has done all the work to access all of your different functionalities,” Ferrari said.

It’s still unclear whether Klein’s skepticism or Ferrari’s optimism will prevail in airline distribution in the next few years.

• Klein’s longevity and success in the travel sector lend authority to his views.
• “It’s still true that airlines should focus a bit more on distribution,” Ferrari conceded when I ran Klein’s views past her for a response.
• “Many executives are focused on network, which is your product, and fleet, which is how you deliver it,” Ferrari said. “They haven’t paid enough attention to distribution, which is the proverbial shop window.”
• “That said, I’ve found it eye-opening to see a larger appetite for distribution fixes now at several airlines that wasn’t there before the pandemic,” Ferrari said.

Advances in computing power are driving change across all businesses. But the travel sector has been lagging in adopting some of these practices.

• The rare airline group to highlight distribution in its annual report is Lufthansa Group.
• But even the German group’s emphasis has been on discussing distribution with investment analysts as a cost-containment exercise.
• The company talks less about the opportunity to grow products by learning from online retailers — despite its industry leading push on distribution changes.

Will the pandemic prove to be a catalyst for airlines and tech vendors to jumpstart true modernization and sell like retailers?

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