In the first part of this analysis, we examined the developments that have and are continuing to take place in the world of airline distribution.
Consumer game-changing technology (such as voice) and the evolution of the industry will have a profound impact on how airlines sell tickets and how intermediaries may rise and fall as a result.
We now look at a number of outcomes that the sector and its partners could face as we leap into the third decade of the 2000s and fly headlong to 2030.
Let us explore each of them individually to see what risks and opportunities might arise and who could hold the winning hand.
Scenario 1: Game, set and match for Google
The year 2030 marked a milestone in Google's travel domination plan, funneling over 70% of the airline transaction volumes through its ecosystem, excluding Asia. Hotels, car rentals and in-destination activities have suffered a similar fate.
Google locks in the user across the entire travel journey, although the touch points have significantly evolved from what they were back in 2019.
A typical user starts searching on their virtual-reality handset for travel inspiration, booking the services using a combination of voice and hologram projections during their self-driving car ride and ordering an in-flight lunch service on their mobile device while their virtual assistant automatically preorders an airport transfer.
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Previous discussions around Google becoming a travel agency or not are meaningless in this world.
By owning the customer data, sourcing all content via its NDC-compliant ITA booking engine, hosting the airlines' passenger service systems on its cloud solution, powering most of the airline business units with its machine learning applications and offering the most comprehensive marketing platform solution, Google owns most of the layers in the airline distribution value chain.
The making of a travel colossus
Early signs of Google's unstoppable rise to industry domination were already visible during the previous decade.
The search giant nailed the flag of its travel masterplan with the acquisition of ITA software back in 2010 - a product that became the backbone of Google Flights.
During the following decade, a slow but steady stream of product enhancements, combined with increasing search visibility and a gradual integration into the rest of its products (Maps, Gmail, etc.), allowed Google to grow its presence and become the largest traffic driver for airlines in the United States by the end of the decade.
Google's travel plan hit a pivotal moment in 2018. The search giant not only pushed the gas pedal of product improvements on the shopping front for Google Flights and Hotel Ads, but also showed its cards for its Grand Masterplan: offering an end-to-end ecosystem where the connected traveler never has to leave Google.
A few examples:
- The launch of voice-command capabilities for check-in with airlines on Google Assistant.
- The announcement of offering proactive flight status updates on Google Assistant by siphoning the booking data from a customer's Gmail.
- ITA being granted the highest NDC certification approval, putting in it a pole position for the sourcing of next-generation air content.
At the beginning of the next decade, European Commission watchdogs tried to tackle Google’s increasing dominance in travel, but the initiative was too late, too timid.
Using the blueprint from the 2017 Google Shopping case was a recipe for failure. Search result changes that Google made to comply with the ruling didn't even make them blink.
With the addition of digital touch points during the decade, regulating a few sponsored links in the traditional search result page became even more pointless.
Fears turns into a nightmare
Airline executives scratch their heads wondering how their vision could turn so sour. Bypassing traditional intermediaries meant handing the keys of their distribution to an infinitely more powerful player.
Cost of sales have shifted from global distribution system fees and agency incentives to a cost-per-acquisition model (derived from clicks, voice or any other interaction) ruled by Google's bidding system.
Actual distribution costs have increased by fierce competition on one unique platform to around 6 to 8%, as opposed to the 4% at the end of the previous decade.
In another ironic twist, NDC, the projected enabler for a more personalized and profitable connection with the end-user, paved the way for Google to put its massive wealth of data to work in a modern API ecosystem.
Airlines have indeed achieved the flexibility to tailor its products and prices but live under the tight grip of the search titan dominance.
Online travel agencies and global distribution systems struggle for life
Excluding Asia, leisure OTAs and metasearch engines suffer a Darwinian-type process of extinction in the airline space, shifting all of their resources to other travel products.
Travel management companies manage to protect part of their top corporation businesses thanks to specific needs around duty of care, expense management and data protection of travelers.
The GDSs saw the distribution business shrink and concentrated their focus instead on servicing the corporate travel business and enlarging their technology footprint into new areas for airlines and airports, such as loyalty programs, expense management, check-in and baggage-handling solutions.
Airlines and airports see the GDSs as valuable technology providers in their increasingly complex technology stack and a strategic alternative to Google's full domination of the value chain.
Scenario 2: Airlines are the new mobility brands
In this scenario, large airline holdings are the winners of the market disruption.
They have not only massively increased their direct sales channels but enlarged their service portfolio and transformed themselves into lifestyle brands around mobility.
The 2020s saw the consolidation of airlines into cohesive groups with multiple brands catering to different audiences, similar to large hotel groups.
These alliances have pushed digital transformation into the core of their operations, paving the way for a truly digital experience for the connected traveler.
Airlines go all digital
In a world of ongoing flight disruptions, due to air traffic and airport congestion, airlines start to solve the real pain points of the flying experience by digitizing the entire travel experience.
Customers receive, in the case of flight disruptions, automated rebookings. Airline bots rearrange airport transfers and get compensation such as food orders or overnight bookings offered via the traveler's smart device.
By delivering a seamless service to its customers during the entire journey, loyalty levels shoot up and travelers increasingly shift towards airline direct channels for the entire experience.
Less is more
On the retail front, airlines understand that less is more. Technology allows them to slice and dice the flying experience into dozens of separate fees and services - but the consumer appetite for customizing its flight experience is simply not there.
Airlines revert to the "unbundling" trend of the previous decade and revert to a more simple, all-inclusive product logic where users can finish transactions quickly via any connected device combining voice, text and gestures.
Airlines embrace augmented reality, allowing users to virtually test their seat and business lounge beforehand, as well as minimizing potential pain points such as visualizing airport routes to their boarding gate.
Smaller, independent airlines, unable to keep up with the pace of digitalization, become franchise partners of the larger groups to benefit from their technology stacks.
Airlines get a thumbs-up from regulators
Old GDS- and OTA-led lawsuits against airline channel discrimination are eventually turned down by competition watchdogs, and the old CRS Code of Conduct becomes obsolete in the new distribution world.
Airlines are free to selectively distribute their prices and products per channel, massively favoring the direct touch points with the end customer.
Still, on the data privacy front, stricter regulations both in the U.S. and Europe during the 2020s become a major roadblock in Google's ambitions.
The tech giant is forced to limit the breadth of data collection and its commercial use, as well as restrictions on services provided via Google Assistant. This represents a blow to its capability to monetize the travel vertical and ensures a neutral access for other Google Assistant-type players to tackle transactions and services.
The epic battle between two tech giants
Amazon smells blood and, having a less ad-driven model than Google, finally decides to take the long-awaited step and blasts into the travel space with a row of acquisitions at the beginning of the 2020s.
TripAdvisor provided it with a massive travel audience, while Hopper and HotelTonight gave it a cutting-edge booking engine technology in the airline and hotel space.
The mix of acquired technology, audience and industry know-how, combined with Amazon’s brand, a massive Prime membership base, virtual assistant Alexa and its unmatched retail expertise, quickly shape the travel landscape into a formidable duel between two tech giants.
Airlines, as well as other travel suppliers, watch Amazon’s arrival with a mix of fear and hope, but ultimately it serves them well to counterbalance Google's market dominance at the top of the funnel.
Airlines need Amazon and Google to reach users through their storefronts and increasingly through their virtual assistants, too. Tech giants need the airlines for their content and operational data to feed the ecosystem.
The lost decade
OTAs and metasearch engines focused on flights suffer a similar bloodbath to the previous scenario, squeezed between the rise of direct channels and the grip of two tech giants on the funnel.
TMCs face a similar fate since large airline groups partner directly with big corporations and the needs of smaller businesses are essentially covered by Google and Amazon's end-user interfaces. GDSs have given up the traditional travel agency business and focus on diversifying into other travel verticals and expanding their technology portfolios into other areas of the airline and airport technology stack.
Although Google and Amazon provide technology solutions in hosting and machine learning, industry-specific technology applications around loyalty programs, payment and settlement solutions are serviced efficiently by GDSs.
Airline distribution in 2030, part 1: Gravitating towards airlines, intermediaries or tech giants?
What are the developments in airline distribution that have got us to where we are now?
Scenario 3: OTAs and metas reinvent themselves into airline content brokers
In this scenario, the large OTAs and their metasearch sister brands survive the competitive forces of the industry and carve a new niche in the airline distribution ecosystem.
The 2010s marked the emergence of a duopoly in the West between Booking Holding and Expedia Group.
They eventually sweep up most of the regional OTAs and metasearch engines left in Europe and Latin America, only challenged by Chinese player Ctrip. Scale and owning a portfolio of strong brands allows them to successfully stand against the tech giants and the direct ambitions of the airlines.
The rise of airline content brokers
Owning both transactional (OTA) and advertising (metasearch) technologies, these groups increasingly merge their value proposition for flights into a hybrid platform.
By 2030 what happened "under the hood" of a flight purchase in terms of ticketing, payment, etc., is irrelevant for a traveler who only cares about receiving updated flight information in the most convenient way, be it voice, screen or hologram.
The distinction between OTA and metasearch has lost its meaning and brands have morphed themselves into being airline content brokers, delivering users a neutral and comprehensive overview of the airline offer, either fulfilling the transaction themselves or allowing the airline to complete the booking, since economic units are similar and the user experience remains unchanged.
At the beginning of the 2020s, as NDC becomes ready for mass adoption, two large groups start to shift volumes to the new standards. The move comes with a loss of revenue from GDS incentives but allows them to reap the benefits of a richer and more flexible retail experience.
The new OTA-meta hybrids are powerful air content brokers, sourcing from a large diversity of APIs and leveraging the insights of their huge customer bases to provide a relevant and comprehensive overview to flight shoppers in an increasingly fragmented price and product world.
Competition watchdogs level the playing field
OTA groups and the GDSs find a helping hand on the regulatory side thanks to court rulings against airline channel discrimination and an in-depth European Commission review during the decade of the old CRS Code of Conduct that now marks in stone the principle of equal and non-discriminatory access of all airline content across all possible end-user touch points.
This landslide victory for the intermediaries has a profound impact in the airlines' NDC strategy: the capability of price personalization, applying users attribute-level customization has to be shared with distribution partners, giving them access to the customer data that the airlines were sitting on. It also ensures price parity between the distribution and the airlines direct channels.
The NDC and One Order standards also allow OTAs to digitize and automate post-booking functions such as self-service tools for boarding, rebooking and cancellations (previously the exclusive domain of the airlines).
Competition authorities also learn the lessons of the Google Shopping case of 2017 and take more decisive action against Google at the beginning of the 2020s that has a far-reaching impact in the travel industry.
Google Flights is not only forced to create a fair playing field for advertisers in its traditional search results to avoid monopolizing the top positions with their products, but also has to open the rest of its touch points in the ecosystem to competitors like OTAs, both for shopping and post-booking services.
Elsewhere on the regulatory data front, more restrictive rules are enforced in the West, reducing the capacity of the tech giants to monetize the travel audience. Policymakers also take inspiration from the finance regulatory framework, forcing gatekeepers to share their user data with other players in the ecosystem.
Airline retail dreams get a reality check
During the 2020s, airlines get busy ramping up their NDC-powered retail experiences, but results are disappointing, to say the least.
Airlines' focus on maximizing unit revenue based on load factors and basic corporate vs. leisure segmentation is deeply ingrained in their culture, and NDC and other sophisticated machine-learning algorithms only add fuel to the fire.
Instead of embracing customer-centric retail techniques, integrating factors like customer lifetime value or Net Promoter Scores to their pricing strategy, traditional revenue management principles are applied to the new technology standards.
This results in a tariff jungle where air shoppers feel trapped in an opaque market of highly volatile prices and countless, non-distinguishable ancillary services.
Airlines are never so far from a truly simple and frictionless retail experience, and air shoppers increasingly shift back to airline content brokers providing a simpler and more comprehensive offer.
GDSs - a new golden era
GDSs, reinforced by the new CRS Code of Conduct, keep playing a critical role as a key connector between airlines and OTAs, ensuring full content guarantee to its partners.
NDC has changed the unit economics by erasing the GDS incentives for travel agents and allowing intermediaries to build direct connections with airlines, but most intermediaries in the ecosystem keep sourcing a significant chunk of their content through these old technology powerhouses, being one of the most cost-efficient and comprehensive pipelines.
Scenario 4: Fragmentation everywhere
By 2030, competitive forces of the distribution ecosystem have seen less dramatic changes than expected, and the power balance between the different players remains fairly stable.
Tech giants keep ruling the top of the funnel, airlines have gradually expanded their direct footprint but large OTA groups have managed to survive in the post-NDC world by leveraging their in-depth consumer and technology know-how.
Lost in translation
One of the most distinctive evolutions is the increasing complexity and fragmentation of airline content enabled by NDC and by the airlines' arms race in unbundling, personalizing and adding new digital services to the user.
The airlines have been successful to a certain extent, allowing them to reduce their distribution costs, increase their ancillary revenue and expand direct sales channels. However, airlines may have won the customer's pocket, but not their hearts.
In the gold rush for ancillary revenues and hyper-personalized pricing, revenue maximization wins over user experience, and the lofty goals of becoming Airbnb-style digital lifestyle brands are quickly shelved. Customers are forced to find their way through dozens of possible fare combinations based on different product attributes and ancillary services.
The personalization efforts of airlines to provide more relevant offers remain rudimentary, to say the least, despite all the machine learning power put behind them.
The low shopping frequency in travel and the multifaceted nature of travel motivation simply do not allow airlines to provide the dream Amazon-style level of personalization.
Intermediaries lose the content battle but win the gatekeeper war
On the legal front, GDSs and OTAs lose the content parity battle against airlines, allowing carriers to discriminate channels and favor their direct sales.
On the other hand, Google's ambitions to conquer the entire airline distribution value chain are held back by a new regulatory framework limiting the commercial use of user data - a massive blow to the heart of its business model.
Google is forced to create a level playing field for airlines and intermediaries alike to become source providers across the different touch points of its user ecosystem.
Lawmakers decide to not go one step beyond allowing brands to share user data within the ecosystem, as is the case in the banking world, allowing airlines to avoid sharing their user data with the rest of the ecosystem.
NDC, a double-edged sword
The expansion of NDC during the 2020s turns out to be a mixed blessing for OTAs.
Airlines gain control on channel pricing, and the loss of GDS incentives in the NDC model also shaves away a key revenue driver for OTA air ticket sales.
On the bright side, NDC standards ease content integration efforts and allow airlines to step up their retail experience. The increasingly complex nature of prices, products and services on airline websites is also in OTAs' favor, since a majority of airline shoppers still want a neutral comparison of all flight options from A to B.
As a result, despite airlines increasing power over the distribution and the end consumer, the large OTAs manage to stay relevant in the ecosystem thanks to their strong household brand, massive customer bases and technological prowess to adapt to the changing user behaviors.
The GDSs have lost a significant share of their distribution business in an increasingly fragmented ecosystem and a lack of full content guarantee.
On the corporate side they manage to protect their position thanks to a range of technology solutions covering the end-to-end needs of TMCs and their large corporate clients. Similar to previous scenarios, they strongly expand into other travel products and expand their technology to service a wider range of applications of the airline and airport technology stack.
A final word
It seems fair to say that the tectonic shifts the airline distribution landscape will face in the coming decade will be deeper and more far-reaching than what we have seen in the history of aviation so far.
I have tried to identify the main game-changing trends that will impact on the heart of the ecosystem and outline four scenarios where the industry might be heading to in the future.
Be conscious of Chinese poet Lao Tzu's wise words: "Those who have knowledge don't predict; those who predict don't have knowledge."
I will not bet the house on any winning scenario, but simply lay back and enjoy watching how events unfold in the next decade.