Part 1: Why Airlines Are Structurally Hard to Sell To
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Jim Barry
So airlines are some of the largest consumers of technology in the world, making them a big prospect for technology providers. However, airlines are some of the toughest technology clients. Our blog today will dive into the whys behind this reality for airline tech providers. So first off, Jill, why are airlines often viewed as some of the hardest customers in any industry?
1. Legacy Tech Built the Maze You're Selling Into
Jill Surdek
Gosh, where to start? I do think that has to be true. And when I think about why it's so complicated, first of all, the technology is sitting on legacy mainframe systems, and over the years we've created all of these innovations where we're creating apps and middleware that sits on top of it. And so we've created this system of tools which make things complicated.
That's first. Second, I think we're one of the rare industries where our customers sit in the center of our operations, right? And so because of that, they experience everything as well. And so because of that, there's a low tolerance for risk with good reason, right? Safety, regulatory, our customers have high visibility. Governments, regulatory environments have very high visibility. And so when you put all of those things together, we have a low risk tolerance as an aviation industry. Valid reasons. But the unintended consequence is we become resistant to change, a little hesitant to change, more slow-moving on that risk.
And so we set up high barriers to change, which, even though I think we're open to innovation, it's harder to do, and we make it harder. So for all of those reasons, I think airlines are more challenging.
Jim Barry
Very good. Bridget, what do you think? How would you add to that?
2. There's Always Competing Capital, and You're Not First in Line
Bridget Blaise-Shamai
I would add, you know, there's this reality of a lot of tech debt. And there is another reality that there's a lot of competition for that capital. So there's lots of needs and lots of constraints on the capital, and the same on the human side. You can never get enough tech. Even in the most profitable companies, you can just never get enough, and that is wildly true in the airlines, which is a big consumer of tech all the time. So those are two more things I would certainly add.
I think it's also important to recognize that the expectations of customers aren't informed or influenced by the airline industry in terms of the experience, it was shaped many years ago by players outside the industry, notably Amazon. So when you've got this expectation of one-click checkout making its way into the airline space, with all the things Jill listed out, it just becomes very difficult for a provider working with airlines, because there's almost a lot of conflict in simply trying to enable the business through technology.
Jim Barry
Very interesting, Bridget. Something you just mentioned that technology providers, which is where I came from, are not aware of is the competing capital. You may think you have the greatest value proposition, you may think it's easy to implement, you may think labor won't have to touch this. But there are so many other competing demands on the savings you're generating. Be interesting to see what counsel you guys would provide for a company in that situation. But let's get to Patrick before that. Patrick, why is it so darn hard?
Patrick O'Keeffe
Yeah, I think what Jill and Bridget said is absolutely true. I guess fundamentally, our business is incredibly complex, and I think every industry believes that about themselves, but I think it is particularly true in the airline space. We have very complex business processes that have evolved over time, and yet we also operate within industry standards because we don't sell all of our products. We have partners that sell. We sell our partners' products as well. So we don't always get to do things exactly as we'd like or adopt the latest technology, because there are industry standards that need to evolve to embrace that technology. And as Jill said, not only does American move perhaps more slowly than we'd like, the industry moves even more slowly because you're trying to corral the interests and capabilities of many, many airlines.
We also have some unique attributes about our business. We don't sell all of our product, so we need to make sure all of the other entities that sell our product can consume the solutions we're creating, online travel agencies, corporate travel agencies, our airline partners, our codeshare partners. They all have the ability to sell our product, so we need to make sure their upstream systems can consume all the technology we've created, because ultimately they or we have to service those products and services.
The airline industry also has this unique thing about disruption. So right as we're about to deliver our product, lots of things go wrong, some of them out of our control, whether it's the government or weather. And again, we have to service and care for customers in very challenging environments. And as Jill said, and Bridget commented on, our customers have a lot more access to information, and so their expectations of our solutions, the speed of our solutions, have only increased over time. Then to make matters worse, we're a low-margin business, so we can't just throw endless amounts of money at our problems because we don't have that kind of margin to sustain that kind of investment.
Bridget Blaise-Shamai
I think Patrick raises a good point, some of our tech partners can be the pacing player in bringing things to market. Notably our distribution partners, who are as old in their tech as the airlines, are in a world of commerce that has gone to personalization and one-on-one, and they still have only anonymous shopping. The airline doesn't know who the customer is until after they make the purchase. In a world at point of sale, most brands know exactly who their customers are and can present offers that make sense and are relevant. So I think that's a really important point.
Patrick O'Keeffe
And because those global distribution systems serve so many customers, they're not necessarily interested in helping you provide the one unique attribute you want to provide to your customer base, because they need to make sure they can market it to a vast array of their customers. So they tend to do a lot more commodity-based solutions than a lot of the airlines are interested in.
Jill Surdek
And just to take that point Patrick and Bridget are making and bring it to operations, the examples we're giving were on the commercial side. Operationally, all the same things apply. The innovations you want, you've got to be passing on to the vendors that are supporting you. So whether it be your caterers, your cleaners, your fuelers, your de-icers, innovation you're doing in technology will likely hit a wall if you're not able to pass that innovation on to one of the vendors supporting your delivery.
Bridget Blaise-Shamai
And again, this is how it can get metered out to the lower common denominator, way outside of your environment. But I do think it's important we don't come across as listing a bunch of excuses, because I promise you everybody on this call has worked hard as hell to influence that. It's just a set of realities that we do our very best to make the most out of.
Jim Barry
Very good. Very much of a corollary question, would you generally say most technology providers are unaware of certain things when approaching an airline? What are some things you feel they're just missing?
Patrick O'Keeffe
If they haven't sold into our sector very much in the past, I think it goes back to Jill's first point. We have a ton of legacy technology. We implemented Sabre in nineteen sixty. That is super cool. The downside is some of that technology is still in the environment, that's not so cool. And if you don't have experience interacting with that and understanding what those constraints are, then you're probably not going to successfully sell into an airline.
Bridget Blaise-Shamai
Well, I find often you have a pitch based on a solution that we don't have a problem for. And that is more common than one may think. All of us on this call have, I'm confident, been pitched solutions by very promising providers that look amazing and sexy and make you feel cool, and have a pro forma, whether you believe it or not, of all this upside, and yet it is not a darn thing that's anywhere close to your priority. So you're not going to move forward, even though it's slick and cool. It's just not where you are today.
Jill Surdek
I'd just add a corollary to that, which is they give you a really cool idea, and maybe the assumption is no one's thought of that before. The reality is there are thousands of great ideas. There's the prioritization on how you get it done and where it fits, and if they can't deliver an incredibly strong ROI, it's nearly impossible to have a turnkey solution in the airline industry. But the closer they get to turnkey, the more likely it is, because we just have too many competing business and technology priorities. So I'd call it naiveté that a great idea alone is enough to clear the hurdle.
Bridget Blaise-Shamai
Yeah, and Patrick and Jill, we also experience a bias to build over buy. That's another part of the culture.
Jim Barry
Well, you come from American, right? And American will err toward build versus buy.
3. Build vs. Buy Isn't a Preference, It's a Track Record
Patrick O'Keeffe
I think it depends on scale. Certainly the largest carriers in the US have a build mentality, but once you get outside the US and get to middle or small carriers, or low-cost carriers, none of them have the resources or appetite to build. They just want to use a commercial off-the-shelf solution. American has had a legacy of building technology, and that's another thing I think a lot of people who come to pitch us don't understand. In some cases, they're pitching us a solution we've already built internally, very customized to our needs, and therefore probably more capable than what they're pitching. So understand that before you come through the door and say, "we've got a reaccommodation tool for you." American's been building reaccommodation since the '90s, so ours is probably better suited to our needs than what you've just developed.
Bridget Blaise-Shamai
And no one understands our data better than we do. That's a big point too.
Jim Barry
It's difficult to imagine a more informed customer than the one you're selling to. They have more data than you do, and we've given that exact guidance to a lot of people. You won't have better data than the people you're selling to, and they have their own data they can apply to everything as well.
