Attempting to Manage the Unknown in Travel Distribution

Article Published in Business Travel Executive

The travel industry is undergoing significant change, both in the way it distributes product to buyers and in the way products are packaged. The following offers a brief insight as to why this is happening.

The current airline distribution system was designed and created in the late 1950's and early '60's. It was the first e-commerce. At the time, there were no computers in business. Further, airline fares and the federal government governed airline route structures. Thus, these systems were developed for inventory allotment and financial control of pre-sold, virtual seat, products. The systems were centralized and self-contained. As depicted at the right, airline seats were inventoried at each airline site (top), distributed through the GDS/CRSs (left) to travel agents (bottom) that interfaced with the buyer. Travel agents, in turn, settled payment on behalf of the buyer through ARC (right), who distributed the money back to the airlines (top). Actual inventory, risk, and settlement, was a self-contained "Holistic" loop.

As computer systems evolved in the late '60's and early 70's, computerized business solutions became independent, and self-contained. Business computer solutions typically contained multiple processes on a single computer. In the travel industry, these were often minicomputers. A tour operator's system might contain inventory control, accounting, and even word-processing. In the 1980's, the microcomputer evolved, which enabled individuals to program spreadsheets or word processors for individual management tasks. Both mini and microcomputer systems of this time period were designed to serve the needs of the existing manufacturing and distribution structure. This structure has been called "hierarchal" by economists (depicted to the right), and is representative of the evolution of mass production and marketing.

A major problem with both models described above is that information is very restricted, controlled, and efficiently flows only one-way - from the supplier to the buyer. A second significant problem evolves in the relationship between holistic airline structure and the hierarchal business distribution processes that evolved in later years - in that the airline systems were (and are) 6-bit, unstructured, command driven, architectures while contemporary conventional hierarchal business solutions are 8-bit, more structured, and applications driven. The costs to integrate the two are great.

The evolution of the "hyperarchy" of high speed digital communication has effected two major changes in the current distribution models - leading to a third change, one in the economic fabric of society.

First, the ability to distribute information at very high speed without being limited to the physical distribution channels noted above, enables buyers to compare offerings from suppliers across channel lines, and chose alternatives as appropriate. The hyperarchy also enables suppliers to accept instantaneous "feedback" from prospective buyers, and to modify product offerings interactively to meet buyer needs. Effectively, the hyperarchy of communication separates the need for information to move through the same channel as the physical good (as depicted to the right). In the airline industry, the ticket has represented the "physical good" for the past 30 years ... with the travel agent passing the "physical good" to the buyer for subsequent presentation to the airline. E-Tickets are breaking this link. Separating the "physical good" from its relevant information is difficult to implement in the holistic structures of the airline and GDS architectures. While less costly, it is also an expensive separation in the hierarchal structures of most computerized business solutions built within the last 20 years. But the hyperarchy is forcing this evolution on all businesses, including travel in all aspects or segments.

Second, information in the hyperarchy can be, and is, distributed to users or buyers as appropriate to their respective needs. It is no longer necessary to "centralize" buyer information, processes, or even inventory in a single site -- as was/is required by the airline and Global Distribution Systems (GDSs). Thus, it is important to recognize that in the distribution process perspective, the hyperarchy removes control of information from the supplier or the physical distribution channel -- and enables the buyer to assume desired power over what information is, or is not, appropriate to his/her needs. "Branding" becomes an information "navigational" tool for the buyer, rather than a "push" marketing tool of the supplier. The hyperarchy of information will, over time, change the role(s) of many intermediaries that exist in for the purpose of linking information with or for control of "physical goods", traditional GDSs and agencies being among them.

These two change elements in the hyperarchy of information are forcing a new economic dimension in society - one never experienced by any businessman living today. That is -- a "buyer-driven" society. Early first-generation examples are clearly reflected in the and other auction-type sites. The last 100 years of commerce have been "supply-driven" - where price of product was primarily a factor of supply relative to demand. Oversupply drove prices down ... under-supply drove prices up. Suppliers, through manufacturing levels and distribution channels, controlled supply and thus, prices. The original airline CRS systems were automated because of the need to control "supply-driven" inventory of seat distribution.

But in an era of virtually unlimited access to information about alternative supplies ... enhanced by the supplier's ability to respond to buyer needs interactively ... buyers can interactively select among multiple alternatives - balancing "needs" and "desires" to fit the current specifics of a purchase. In such an environment, commerce becomes "demand-driven" - not "supply-driven".

Contemporary managers, travel or otherwise, have virtually no experience with a "demand-driven" economy ... and enter periods of attempting to "manage the unknown". The key to management in the hyperarchy will be linked to one's ability to manage information - to access widely disparate information sources and turn that information into knowledge specific to the needs of the user or buyer. The function of transaction processing will become transparent ... to be replaced by the function of knowledge management in navigating the widely expanded information paradigm.

But the reality remains ... managers are attempting to manage in an era for which they have no prior sustained reference points with little precedence to guide them. It is little more than an attempt to manage the unknown in travel distribution.