How digital data is giving airlines the power to sell you the fares they want

There is a behind-the-scenes tug of war going on between airlines and customers over the vast amounts of data people generate when they search for and purchase tickets.

And whoever best exploits this information in coming years will gain an advantage – even as artificial intelligence begins to rewrite the rules of the game again.

To understand this shift, you have to understand how flight booking systems have mirrored the internet’s growth.

Thirty years ago, during the dotcom era, the emergence of online ticket sales gave an edge to low-cost carriers like JetBlue in the US and Virgin Blue (today’s Virgin Australia). Passengers, empowered to book their own fares and compare prices, disrupted the old business models of travel agents and the airlines themselves.

“Online booking moved the work to the customer,” said UNSW senior aviation lecturer Ian Douglas. Since those bookings required immediate payment, the “practice of the airline holding the reservation pending later ticketing pretty much vanished.”

Today, online habits have spread from desktop computers to phones and social media. The troves of personal and consumer data online are a rich source of marketing information that airlines can layer with insights from loyalty programs to build nuanced profiles of customers.

During the late 1990s, companies like Expedia, Travelocity, and Booking.com (all founded in 1996) allowed savvy and patient consumers to find and book their own tickets, cutting out travel agents. Passengers were incentivised to show up for the flights they purchased and the risk of empty seats for airlines “significantly reduced”, Douglas said.

The boom in low-cost carriers, with passengers in their seats, helped drive up industry average load factors — the number of passenger miles on global flights as a share of available seat miles. They jumped from about 68 per cent in 1998 to about 83 per cent in 2020.

Then, in 1998, Webjet joined the fray, selling cheaper fares directly to consumers, allowing passengers to bypass expensive ticket-selling processes based on the global distribution system (GDS) that underpinned the Amadeus, Sabre and Travelport booking systems that agents relied on.

“[Business] must make the system work for everyone but at the individual level, the lone, savvy consumer only needs to score a win for themselves.”

Travel futurist Carolyn Childs

At the time, GDS had “green screen” interfaces (which weren’t always green) with complex text-based codes that were incomprehensible to the average person. “Fare buckets” existed with codes like F or A for full-fare first class. Discounted economy tickets were coded K, L, or Q.

Airlines in the US were among the first to create apps for the iPhone, and they soon established direct business-to-consumer relationships through their own company apps and websites. The website-based online distribution model “really fostered low-cost airlines”, Douglas said. JetBlue in the US launched in 1998 and grew rapidly by offering point-to-point, no-frills flights.

Eventually, consumer behaviour changed for all airlines, including larger, legacy carriers such as Qantas, American, Delta and United. As consumers and the aviation industry embraced the internet more deeply, a tug of war played out in the background: consumers, and then the industry, variously benefited from successive waves of tech innovation.

Eventually, larger legacy carriers used their real-world scale to fight back and gain an advantage. Qantas, for example, started flights on low-cost carrier Jetstar in 2004.

At the dawn of air travel, tickets included things like luggage, meals and seat selection. With online booking, airlines started charging separately for meals, luggage and different seat choices. Customers accepted the change and embraced the control over – and savings on – their purchases.

Since then, the information revolution has, if anything, only intensified for aviation. And the industry must now face the impact of AI.

Former Qantas chief executive Alan Joyce alluded to the challenge in a speech in August: “If airlines don’t own the customer interface in the age of AI, someone else will, and we’ll become just the plumbing behind the platform.”

The launch of Google Flights in 2011 brought the power of the internet closer to ticketing by providing aggregate price comparisons, alongside Skyscanner (dating from 2002) and Kayak (created in 2004).

The next year, the International Air Transport Association introduced the new distribution capability (NDC), a travel data transmission standard designed to supersede the long-standing GDS, which could not handle the amount of personalised detail becoming commonplace on orders.

GDS also held back airlines from bundling together detailed offers — the kind that online travel agencies specialised in.

While the emerging NDC allows airlines to communicate more effectively with travel agents, it has, to the degree it’s been implemented, benefited larger airlines. Corporate Traveller said that more than 95 per cent of its corporate travel customers today use NDC. The uptake elsewhere is less clear.

Travel futurist Carolyn Childs said the significance of NDC in a time of technological disruption was not clear. “I wonder if NDC is going to get overtaken by AI but creates a common language and architecture to let other things operate.”

Accelya, an aviation retail software provider, in January said almost 50 per cent of airline NDC programs failed because they weren’t scaled up or given a dedicated team, among other reasons.

NDC promised airlines greater control over inventory and pricing strategies. NDC shifted the balance of power away from intermediary travel agencies and websites and gave it back to the major airlines. Airlines were no longer blindly issuing tickets to be sold on online travel agents’ websites. They were controlling more of the selling.

Major airlines adopting NDC could then change prices instantly based on current demand, bypassing the limitations of the old fixed-price model.

NDC aimed to transform the way airline products are sold, making the process more like modern online retail.

The current era is defined by AI, which enables automated pricing shifts without human oversight. This has given rise to the concept of offer-order.

In this model, a unique offer (flight, specific class bookings, et cetera) is made to an individual customer, which becomes an order when the customer selects it.

Childs describes offer-order as the “point where consumer need and market’s need really combine”.

Will this prompt worries from travellers about privacy-crushing “surveillance marketing”? Experts like Australian Travel Industry Association chief executive Dean Long are sceptical that the technology will lead to “surveillance” targeting of passengers.

While airlines could identify customer “personas” – such as a “young adventurer” or a “parent travelling during school holidays” – they still struggled to achieve a truly individual marketing experience, he said.

As technology continues to evolve, questions remain on who will benefit most between airlines and passengers.

“There will continue to be this tug of war between the consumer and the airline that won’t go away.” But as we get into the era of AI and large language models, business has the advantage, Childs says.

At the same time, the airlines’ advantage is ripe for disruption by AI. “[Business] must make the system work for everyone but at the individual level, the lone, savvy consumer only needs to score a win for themselves,” he says. And so, the tug of war continues.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.