The Richard Eastman Column

Published March, 2003

 

WORLDSPAN and Orbitz have signed a new long-term agreement under which the CRS will continue to provide transaction processing for air and car reservations on the airline-owned site unless suppliers have direct connect agreements with Orbitz.


In addition, Worldspan hotel technology will be used for the first time for hotel bookings on Worldspan since it became Orbitz's preferred CRS when Orbitz launched last June.


The key words in this announcement are:"unless suppliers have direct-connect agreements with Orbitz."


That suggests that Orbitz is implementing a platform that would evolve into a direct-link gateway. The early "hub-bub" about airline ownership, etc., seems to have matured to a level of general acceptance and Orbitz sees the need (accurately, in my view) to evolve their platform further with a higher-speed, lower cost GDS by-pass solution, where applicable.


Direct-connect solutions are a "must" for any on-line travel or agency vendor expecting to survive in the hyperarchy of interactive real-time integrated electronic travel-product packaging and offering. This is not just a phenomena of the U.S, but is equally true in Europe and Asia as the airline-owned Orbitz-like sites come on-line.


It isn't that being airline-owned is particularly significant as a distribution mode, but rather, that to participate in these platforms; each airline must evolve the internal technology to enable and support interactive direct-connect IP (Internet Protocol) technology gateways.


IP technology is structurally different from the legacy polled and command-line driven seriatim architectures used for 40 years by the airlines and the GDSs.


Thus, as the airlines adapt the new IP gateways, totally new electronic interactive travel-packaging opportunities become possible.


That brings us to the concept of what does the typical travel buyer purchase. The airlines would have you believe that it is transportation from one airport to another airport (i.e., LAX JFK or NRT, LHR). Such is the product that airlines sell on their web sites and through the distressed outlets like Hotwire and Priceline.


But the traveler is really buying travel from his home/office! meeting place to some destination home/office/meeting place. Today the traveler does his own "packaging" of home to airport ... airport to meeting place ... or turns to a travel agent that facilitates the "independent" packaging into a "whole" that is acceptable to the traveler.


It is the "packaging" that will become automated ... in realtime, interactive, bi-directional communications between multiple vendors and suppliers - packaging automatically against business-rules derived from corporate and/or agency and/or personal buying needs and integrated vendor contract agreements.


Thus, the LAX JFK or NRT LHR trips become home to meeting with inclusive ground and lodging packages created interactively "on-the-fly" to balance interactively demands of the buyer and traveler with the integrated availability of multiple vendor offerings.


Such interactive product packaging is probably five to seven years off. But the reality of these solutions become more apparent as the key transportation vendors evolve direct-connect type gateways that go beyond talking to themselves via GDS portals.


Galileo has announced it has completed its next-generation GlobalFares system. The new system is UNIX-based and will enable Galileo to update its fares and rules within minutes, rather than hours.


"the reality of these solutions become more apparent as the key
transportation vendors evolve direct-connect type gateways that go beyond talking to themselves via GDS portals."


As a UNIX-based system, Galileo's GlobalFares is an overlay on top of the core Galileo distribution architecture - or said a little differently, it reflects the reality that off-platform business solutions can, in fact, provide lower cost, more flexible, and faster processing. Note also the "time" issue - from hours to minutes!


In a real world interactive bidirectional electronic packaging "community", even minutes are going to be too slow!


The hyperarchy of information in travel distribution is, in reality, a virtual interactive electronic negotiating community of multiple providers seeking to collectively serve the needs of each individual buyer within the buyer's time need.


As the hyperarchy evolves, buyers are not going to wait "minutes" ... and thus, sellers do not have "minutes" to update fares. Thus, all the more reason for direct-connect type tools. And it does lead one to ask ... did Galileo invest a lot of money in this new GlobalFares tool and if so, is it designed to serve the evolving networked distribution environment as well - or is it solely a legacy platform front-end? Somewhere in that answer, lies the strategic intention of Galileo's new owner - Cendant!


A growing number of companies have found in the last year or two that customized self-booking software programs, which link a traveler directly to the Internet, have become easier to use. Even more important, companies are looking harder than ever for ways to save money on airfares, which have remained distressingly high for many business trips, despite the sharp downturn in travel over the last 12 months. The self-booking programs are helping shave air-travel costs, often in surprising ways.


American Express, the world's largest travel-management company, reported recently at a briefing for the media that its corporate clients in 2001 made five times as many reservations using online booking systems as they did in 2000. Reservations made online constituted 6 percent of all Amex business-travel bookings, a number that Amex officials expect will be about 12 percent this year and 20 percent or more in 2003.


Depending on who one talks to in any large corporate travel agency - one hears the "pro's and con's" of on-line booking. To give some equal time to the con's of on-line booking - the cost savings were not as dramatic as most of the on-line proponents were claiming because, until very recently, on-line bookings typically required multiple human-intervention service calls to clean up details.


At an average rate ranging from $15 to $25 a service call, the marginal cost benefits between agent created bookings and self-service on-line bookings depended greatly on the willingness of corporate travel managers to enforce corporate travel policies. The slowed economy has driven home the need to control travel. The on-line booking technologies have improved significantly. But perhaps the greatest impact has come from increasing acceptance of the Internet medium as a use-able tool. The Internet is no longer a "search" tool, but increasingly a place where accurate transactions can be effected under the control of the user.


But one has to wonder ... 6% this year? ... 12% next year? For an "old-line" agency like American Express, this is a probably a significant number - and one they are fighting at every step of the way.


After all, most corporate travel contracts are linked disproportionally to the per-transaction high costs of human-intervention services. Few corporate travel agencies have yet come to understand and implement the kind of buying, mark-up, and interactive packaging that buyers continue to seek - and, as Belden implies, driven by corporate mandates to gain control of pricing, packaging that buyers increasingly expect.


One of the enduring outcomes of last year's economic meltdown is a reluctance among IT organizations and the corporate execs that bankroll them to invest in huge, expensive software projects that require them to rework business processes just to accommodate the software.


Not many companies are eager to revamp their entire supply chains just because a vendor wants to sell them a boatload of software... This more rational approach ... will ultimately yield a healthier industry with expectations that are more closely aligned with the results that value chain projects can actually deliver.


Herein lies the dilemma that confronts the airline industry. The economic meltdown has spurred corporate executives to reassess restructuring of their inventory solutions.


But the older legacy architectures cannot support the demands of the higher-speed and more efficient information and distribution processes spawned prior to the meltdown.


And the knowledge conflict is significant. Airlines and airline systems people think in terms of highly centralized mainframe processing. Business processes are seriatim* silos of information needing human intervention at critical decision points.


The central host polls all human data in/out ports and transactions are a compilation of serially indexed data points.


"The Internet is no longer a "search" tool, but increasingly a place where accurate transactions can be effected under the control of the user."


The logic is based on the industrial age supplier-driven hierarchal business structures that airlines used for management some 40 years ago.


People supporting the hyperarchy of information, on the other hand, think in terms of distributed node processing. Business processes are integrated relational date models with "fuzzy logic" rules to minimize human intervention. It is the person's job to manage the "fuzzy logic" rather than intervene to make decisions.


Unlike the centrally polled queries, distributed data is passed via message packets directly to receiving nodes. The logic reflects the widely disparate needs of businesses that must respond interactively to buyer-driven demands or expectations. The industry has come to a point where it is not the new distribution solutions that are causing the bulk of the problems -but rather, it is the inability of the airlines themselves to respond operationally to the needs of the new user/buyer expectations! Airline managers, at least, those that make decisions with respect to investment in new IT infrastructure, are confronted with an entirely different "knowledge base"; for which they have virtually no basis for understanding. These are typically very intelligent and knowledgeable people. But their knowledge base is tied to their experience; and their experience is tied to systems that were designed 40 years ago to serve an entirely different business structure and objectives.


And the system was so well designed that, for the ensuring 40 years, there was never a real need to change it. The need for change has only evolved in the past 10 years ... as buyers begin to learn how to provide immediate "feed-back" via digital communications tools.


Today's airline managements and their technologies still operate in terms of independent "functions" (i.e., silos of sales, distribution, planning, accounting, frequent flier programs, etc.) — when they need to operate in terms of integrated "processes" (delivering a traveler from home to meeting, connecting multiple distribution channels with buyer-specific pricing that concurrently balances demand with resource, etc.).


Airline managements need to ensure that those "processes" serve each individual buyer's needs rather than continuing to operate the current self-serving independent "functions" that separate operations from sales and finance and isolates individual distribution channels.


Investors in airlines should seek to identify those that are transitioning from the "function" mentality to the "process" mentality for these are the ones that will survive the next decade.