1、 2022 Boston Consulting Group1Reshaping the Airline Organization for theFuture of RetailOCTOBER 31,2022 By Gabriele Ferri,Alberto Guerrini,Marcelo Cirelli,Yanik Hoyles,Olivier Hours,and Sebastien TouraineWhat does the airline retail revolution mean for leaders?Transformation isneededand opportunity

2、awaits.This article is the second in a series,coauthored by BCG and the International AirTransport Association,on the airline industrys transition from revenue management tooffer managementa new approach to retailing products and improving the customerexperience.2022 Boston Consulting Group2An airli

3、ne retail revolution is underway.To retail their products differently,carriersare transitioning from revenue management to offer management.This journeyentails an organization-wide transformation,though,and airlines are finding thatthey have to build new teams and capabilities,reconfigure their proc

4、esses,andadapt their employees roles,responsibilities,and ways of working.Making this transition constitutes a big leap for carriers,but it can boost top-linegrowth and significantly improve customer engagement and satisfaction.(See“TheAirline Retail Revolution.”)Those who move the fastest and most

5、effectively willlead the industry.For many years,airlines operated with advanced ticket distributioncapabilities,but these systems do not meet the expectations of todays e-commerce consumers.Offer management is a new capability that can helpairlines sell a wider variety of products and services,and

6、some of its keyelements are gaining ground today.The International Air Transport Associations New Distribution Capability(NDC)has played a major role in making this advancement possible.Supported by the travel industry,this new data transmission standard,combined with the progress in artificial inte

7、lligence and machine learning,is modernizing the way airlines products are sold to travel agents,businesses,and consumers.While many of todays existing distribution systems compare airlinesmainly on price and schedule,the NDC enables carriers to provide a widervariety of products,greater pricing tra

8、nsparency,and real-time evaluationof shopping requests.Airlines are increasingly aiming to generate and sellcontextualized offersproducts that are customized and priced in real timeand combine ticket fares with ancillary products,such as in-flight mealsand priority boarding.Savvy carriers are focuse

9、d on customer lifetime valueand recognize that the ability to retail at the level of the individualTHE AIRLINE RETAIL REVOLUTION 2022 Boston Consulting Group3customer is essential to their long-term success.Its no longer necessary nor advantageous for the industrys players to bebound by discrete pri

10、cing models,static offers,and other legacy features.The ability to provide the right product mix at the right time and priceacross all distribution channels is the backbone of the airline retailrevolutionand it represents a tremendous opportunity for airlines andtheir customers.To better understand

11、airlines progress,we recently interviewed and surveyedsenior and C-level leaders across full-service and low-cost carriers around the globe.The leaders included chief commercial officers,as well as heads of offermanagement,revenue management,ancillary products,distribution,andinventory teams.Collect

12、ively,we spoke with more than 40 leaders from over 25airlines.These carriers account for more than 40%of global revenue passengerkilometers and over$340 billion in revenue.Our conversations yielded critical insights into the steps airlines are taking,thechallenges they face,and what it will take to

13、overcome them.Theres a lot toconsider,but one priority is crystal clear:CEOs should be ready to mobilize theirorganizations immediately and be ready to lead through the retailing transition.Current AmbitionsIndustry watchers oen assume that the companies transitioning to offermanagement know where t

14、hey are headed.But many leaders say managers andemployees do not have a full understanding of what they are trying to accomplishand how to get there.One likened the effort to bringing a big group together tosolve a large puzzle.Further complicating matters is the fact that no airline hasmade enough

15、progress to serve as an example for others to follow.Nevertheless,leaders across the industry remain ambitious about the airline retailrevolution.The general consensus is that the required organization-wide 2022 Boston Consulting Group4transformation will be worth the effort,even if it takes time.Am

16、ong the leaderswe spoke with,nearly 90%expect the transformation to take three years,at least.(See Exhibit 1.)About half expect their distribution-cost savings to be at least 25%,and some even believe that by changing their overall approach to retailing,theycan eliminate distribution fees entirely.A

17、 majority believe that their passengerrevenues will grow by more than 3%,and the most hopeful anticipate that they willexceed 5%.BCGs analysis suggests that will be the case.Early ProgressWhile most airlines around the world are trying to improve their retailingcapabilities,some are moving faster th

18、an others.Our research suggests that airlinesare either acting quickly to be among the first movers or adopting a wait-and-seeapproach.Those in the latter category are hoping for a firmer proof of conceptbefore committing significant resources.They believe that the whole industry mustmove in the sam

19、e direction before any real value can be extracted.Even the mostadvanced airlines cant get very far by themselves,the argument goes,because of 2022 Boston Consulting Group5their dependence on interlining,legacy pricing processes,codeshare agreements,and third-party partners and providers with limite

20、d retailing abilities.Early moverswhich have dedicated teams and investments to jump-start thejourneyare already seeing positive results.Most have come in the form ofdistribution-cost savings,which have been as much as 50%for some airlines.Additionally,a few carriers have already felt a greater impa

21、ct in terms of revenueupli,which generally takes more time to realize.They have seen passengerrevenue per available seat kilometer(PRASK)increase by 1%or more.By and large,early movers(most of which are based in Europe or the Middle East)have focused their initial efforts on improving their technica

22、l capabilities.Some arerelying on external vendors;others have acquired custom-made systems ordeveloped technology in house.Regardless,having access to enhanced technicalcapabilities has allowed them to do the following:Some early movers have already seen savings of asmuch as 50%in distribution cost

23、s.Transform product distribution.First movers are adopting the InternationalAir Transport Associations New Distribution Capability and shiing traffic todirect channels.This standard is making it easier to collect customer data;ultimately,it can help distribute richer products.These airlines are also

24、implementing new commercial models with distribution partners topotentially reduce booking fees and offer a wider variety of bundles andpersonalized offers.Some have already entered into new agreements and seentheir distribution fees drop to nearly zero.2022 Boston Consulting Group6Still,even among

25、industry leaders,these efforts have been uneven.A carrier thatdedicated funding and resources to getting comfortable collecting customer datawill start offering new retail bundles in the next three to six months.However,other airlines are still trying to figure out how to upgrade and consolidate leg

26、acysystems.One carrier had to modify more than 200 systems to implement its newcabin product,according to an executive.Another executives“eyes were opened”to the retail constraints imposed by old systems.Technical capabilities are critical,and we expect most players to continue makingprogress on thi

27、s front.Nevertheless,our experience suggests that leaders should bemindful of the 10-20-70 rule of thumb:to achieve success,focus 10%of thecompanys attention on algorithms and data science,20%on technology,and 70%on people,processes,and organization considerations.Reshaping the OrganizationMaking th

28、e most of an organization-wide transformation will require a carrier tobecome a bionic organizationone that combines the best of its human expertisewith the latest technology.To reach this end state,an airlines leaders will have toaddress many questions regarding capabilities and the structure of th

29、e organizationgiven its starting point and unique context.For example:Who should sponsor thetransformation?Which new functions and role types will be required?Who owns Enhance pricing models.Early movers are offering dynamic bundlesinstead of standalone fares and ancillary optionsand continuous pric

30、ing.This improvement is enabling them to shi away from fares tied to reservationbooking designator systemsa change that allows carriers to more preciselyprice according to customers willingness to pay for a specific product.Leverage data and technology.First movers are learning more about whatmatter

31、s most to customers.For example,one leader who we interviewedconfirmed early in the pandemic that flexibility and insurance,not bargainprices,were what mattered most to customers.2022 Boston Consulting Group7these new capabilities,channels,and data?Where should they sit within thebroader organizatio

32、nand how do they work together?What new processes areneeded to support them?The carriers that have already made progress have shared that they are determiningwhere teams should sit on the basis of their companys context,and its clear thatno one-size-fits-all approach exists for codifying these capab

33、ilities in theorganization chart.But these leaders generally agree on which capabilities areneeded for the future of retail.In addition,they are beginning to organize theirteams around commercial and technical capabilities,and they are adopting newways of working.(See Exhibit 2.)The following isnt a

34、n exhaustive list;rather,itincludes some of the key competencies that airline executives are focused on today.Offer Creation and Management.Some airlines are building a dedicated team tocreate and price bundles,real-time contextualized offers,and other products andservices and to sell them to the mo

35、st relevant customer segments.Such offer 2022 Boston Consulting Group8creation and management teams are evolving their traditional pricing practicesand developing a stronger data-driven customer focus and product orientation.But questions remain.Airlines are asking where they should place the offerc

36、reation and management team within the organization.Nearly 50%of the leadersinterviewed and surveyed said that this team should be part of the existing revenuemanagement function.Others think that offer creation and management shouldstand alone as its own function.In both cases,though,leaders are as

37、kingthemselves which skill sets are needed(should they be related to data science ormarketing,for example),which synergies can be unlocked,and how existingpricing and revenue management processes will be affected by the transition.Revenue Management.Regardless of whether airlines are planning to ass

38、emble adistinct offer creation and management function,they are still considering what aretail transition means for their current revenue management function.It is poisedto evolve from ticket revenue optimization(based on fixed capacity)to totalrevenue optimization.Indeed,our conversations suggest t

39、hat revenuemanagement teams will have an expanded and more prominent role in the nextfew years,though many leaders are still determining what the new roles for pricingand inventory management teams will be.Most leaders agree that revenue management teams will increasingly have toorchestrate data ana

40、lytics and customer insights to support offer creation.Becauseof their established position at many airlines and strong understanding of demandand price elasticities,in many cases these teams are best poised to help theorganization realize its retail aspirations.Ancillary Product Management.In recen

41、t years,many airlines have assignedthe responsibility for managing and pricing ancillary products to the e-commercefunction.As leaders increasingly realize the value of ancillary products and holisticoffers,however,they are asking themselves where the ancillary product teamshould sit.2022 Boston Con

42、sulting Group9Many leaders are discovering that ancillary product responsibilities should be partof the revenue management function.This placement makes it easier to determinethe right pricing strategies for bundles and other dynamic offers and to maximizerevenues as part of a broader retailing stra

43、tegy.Marketing.The success of offer management relies in no small part on aneffective marketing function and company-owned marketing channels.Marketershave a critical role to play in helping their organization get closer to its customers.Using personalized communications,loyalty programs,and social

44、media,forexample,marketers can create opportunities to engage outside the traditionalbooking funnel.Rather than focusing on products and pricing,marketers shouldleverage customer data platforms and customer resource management tools todistill insights that make it possible to generate personalized o

45、ffers to the rightindividuals at the right time.Technology.The future of airline retailing depends on increasingly complexdigital,IT,and technological applications that need to work seamlessly.Some airlines are decentralizing their technology capabilities across theorganization,moving technical tale

46、nt to functions such as revenue managementand marketing.Situating experts in different functions allows carriers to connectthe dots among business objectives and move with greater speed.Other carriers are taking the opposite approach and building a centralizedtechnology function that assigns talent

47、to other functions as needed.Many of thecompanies moving in this direction are focused on extracting customer insights tofeed offer creation.Having a centralized technology function also makes it easierto direct investments,integrate systems,and ensure clear decision rights.Thedrawback is that membe

48、rs of this centralized function are less exposed to thespecific needs of other functions and their business objectives.Data Science.Few airlines have a data science function in place,a situation thatwill inevitably have to change as leaders look to implement AI,machine learning,and other technologie

49、s that enable more sophisticated personalization and offer-2022 Boston Consulting Group10creation capabilities.Taking a customer-first approach to retailing depends first andforemost on understanding the customer,which in turn depends on the extractionand deciphering of data.This makes it possible t

50、o determine customerswillingness to pay,price elasticities,and nuanced product choices.Agile Squads.Most of the leaders we spoke with recognize that the future ofairline retailing depends on enhanced collaboration among functionsand aconcerted change management effort to accomplish that goal.A handf

51、ul of airlineleaders are therefore establishing and empowering cross-functional agile squads:project-based teams that operate autonomously and adopt new ways of working toexperiment and achieve quick wins.Several global players have successfully deployed such squadswhich includeexperts from revenue

52、management,IT,distribution,and other parts of thebusinessto oversee the carriers broader transformation.In some cases,thecommercial leadership team reviews the squads progress monthly and updatessenior leadership three or four times annually.Addressing the ChallengesTo successfully implement a compa

53、ny-wide transformation,airlines must alsoaddress a few interconnected challenges.The Battle for Talent.Like many companies,airlines are struggling to hire andretain the people they neednamely,data scientists,technologists,and individualsSome leaders are empowering cross-functional agilesquads becaus

54、e they recognize that airline retailingdepends on enhanced collaboration.2022 Boston Consulting Group11with the critical commercial skillsto stay competitive.Almost all the leaders wespoke with said that they are losing potential employees and current ones tohigher-paying sectors and startups that o

55、ffer well-defined and appealing careerpaths.Losing recently hired employees to other employers is especiallydisheartening.Given the long-term nature of a transformation,keeping employeesfor two to three years,at least,is essential to ensuring continuity in the changeeffort.As a director of revenue m

56、anagement put it,“We have good data andprogrammers.But its difficult to find out what we should charge for new products.How do you combine experience with analytics?”Even those airlines with accessto the right data and technical capabilities require people who can use their skillsto develop effectiv

57、e retail capabilities.All of this poses a sizable challenge forhuman resources,as well as learning and development functions.Solving it willrequire a step change.Legacy Mindsets.When we asked about the challenges airlines face in trying toadvance their retailing capabilities,most leaders ranked thei

58、r organizationsresistance to change as the greatest hindrance.Legacy mindsets are stymieing the move to a new commercial approach.Organizations strongly resist thinking of themselves as digital retailers that operatein a world driven by e-commerce.Employees also pushback when asked to adoptnew ways

59、of working.Leaders should therefore focus their attention on building cultures that embrace atest-and-learn approach,growth,and adaptation.Lack of Top-Down Inspiration.Only 40%of airline transformation programs areled by the CEO.That means many carriers are missing a big opportunity,considering the

60、potential value and chance to edge out the competition.To successfully carry out their retail aspirations,airlines need a structured vision.CEOs are in the right position to set the context and drive change.An area where 2022 Boston Consulting Group12the CEOs involvement is invaluable is getting buy

61、-in across the organization.Theyare uniquely positioned to set ambitious targets and build a roadmap to success.But above all,they can inspire teams to embrace this opportunity.CEOs can alsoempower teams to act on this transformation,directing the needed investments,resources,and decision rights to

62、effect change.Achieving a Customer-First Mindset.Customer centricity lies at the heart ofoffer management.Moving in this direction requires airlines to understand whatmatters most to their customers and to implement the organization structures,systems,and ways of working required to deliver accordin

63、gly.Customers willquickly notice which airlines are able to offer them the widest selection of productsand services,and theyll inevitably move away from those airlines that are less ableto meet their needs.It may seem like the early days of this retailing transition,but the window ofopportunity is n

64、arrow,and laggards will lose out if they fail to act.The gapbetween forward-looking and traditional organizations will continue to widen.From a long-term perspective,few items are as worthy of being at the top of aCEOs agenda as the transition to offer management.Undertaking thetransformation requir

65、edone of extensive breadth and depthis no small feat.But those leaders who act boldly,make the needed investments,and instill theright accountability and mindsets across their organization will find themselves ina materially better position than the competition.We would like to thank the leaders who

66、 participated in our interviews and responded toour survey for sharing their insights,which were critical to the creation of this article.2022 Boston Consulting Group13AuthorsGabriele FerriManaging Director&PartnerMilanAlberto GuerriniManaging Director&Senior PartnerMilanMarcelo CirelliProject Leade

67、rIstanbulYanik HoylesDirector,Distribution,International Air Transport AssociationOlivier HoursHead,Distribution Strategy,International Air Transport AssociationSebastien TouraineHead,Dynamic Offers,International Air Transport AssociationABOUT BOSTON CONSULTING GROUPBoston Consulting Group partners

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