Thursday, July 7, 2022

Lufthansa leads the way to the next digital transformation

Characterized by what airlines can deliver, be it passenger demands for ancillary services, deals and offers or transparency in bookings, IATA’s New Distribution Capability (NDC) has presented to the industry, an effect like never before.   The Lufthansa Group, who has been at the forefront of the NDC rollout, continues to lead the way in this ongoing digitalization and modernization of distribution channels. The airline received its highest IATA NDC level of certification NDC@Scale in 2019 and continues to invest in innovative NDC solutions which improve the capabilities and offers for its travel agency partners and furthermore, strengthens its leading position in the industry.

For an airline whose clear goal is to continue being the industry-leading travel retailer by delivering what the customer want, wherever they shop, Lufthansa believes that these new, smart commercial platforms will lay the foundation for modern travel retail.

Arabiatravelnews spoke to Serkan Guerguen, Senior Director Sales Middle-East, North-Africa & Turkey at Lufthansa Group, who tells us that this can only be achieved by transforming the complete travel ecosystem; and this is a transformation they want to actively shape and drive.

Q : What has been some of biggest learnings for Lufthansa in recent years?

Over the past 5 years, we have consciously decided to break new ground in order to create benefits for our customers. Obviously, that was not possible to achieve overnight: we had to do a lot of pioneering work, seek exchange and discussions, and convince partners across the whole value chain to accompany us on this exciting journey.

The Covid-19 crisis was also an opportunity for transformation and at Lufthansa, we took this time to accelerate our technological innovation. The NDC Partner Program, which we introduced in May 2018, has finally made the benefits tangible for both customers and partners. But through it all, there are three things we never lost sight of:

  • we do it for our customers, ensuring they always receive relevant and most attractive offers in the customers’ preferred purchase point,
  • we pave the way for improved business relationships, ensuring our partnerships create tangible value,
  • we help transform the travel ecosystem to foster modern airline retailing.

Q : Lufthansa was  the first airline to introduce a surcharge on bookings outside its direct channels. How has the strategy fared?

Since 2015, the Lufthansa Group has been applying a Distribution Cost Charge (DCC) for bookings made via a Global Distribution System (GDS). The DCC is to be seen as a cost compensation measure and enables us to show our customers full transparency of how the ticket price is determined. But the DCC was just a first step to differentiate amongst EDIFACT-based, traditional GDS channels and our digital channels – NDC and .com’s. With the NDC Partner Program launched in May 2018, Lufthansa Group airlines offer its partners a value proposition that includes the four components “NDC Smart Offer”, “NDC Bonus”, “Servicing” and “Technology”.

Our partners quickly realized how they could benefit from the NDC Partner Program and the interest is steadily growing. Our program takes an important step forward with regards to modern airline retailing business models. Today, more than 4,500 IATA agencies have access to our content and we achieved a 30 per cent NDC share on agency sales already at the beginning of 2020 and this share continues to grow. Every third agency ticket is sold via NDC. Overall, we have reached a share of 75 per cent through our digital channels. This proves, we are doubling down on NDC to ensure that our sales partners can access the offers we display and sell on our .coms.

Now with our landmark deal signed with Sabre in December 2020, we jointly enable a diverse distribution ecosystem, extend the reach of NDC and allow for differentiated commercial models. Therefore, we are confident that thanks to this collaboration, we will be able to further accelerate NDC, for the benefit of our sales partners and customers.

Q : You also introduce a surcharge at a time when the industry has been in dire conditions. Was this a response to the times we are in?

The DCC increase was originally planned for early 2020 but postponed the implementation to October 2020 due to Covid-19. The DCC has remained the same over the past five years, although GDS costs continuously increased; thus, Lufthansa Group has absorbed these increased costs over the last years.

The purpose of the DCC remains the same, which is to show our customers full transparency on how the ticket price is determined. Other competitors charge on leg basis. We are rather following the practice of other airlines, as they updated their DCC more frequently and even applied a higher surcharge.

Q : Tell us about Lufthansa’s traveler related benefits.

The Lufthansa Group airlines’ NDC Smart Offer is constantly evolving. Even through direct distribution via NDC, our potential commercial arrangements with our partners remain in place. Our partners can avail the NDC Smart Offers, which can only be booked through the Lufthansa Group airlines’ direct distribution channels such as Direct NDC API, one of the Lufthansa Group certified NDC aggregators, via the free, web-based user interface SPRK, or via the airlines’ own websites.

Through this partners can offer customers NDC Ancillaries like lounge access, WiFi on board, fix price upgrade, a la carte dining, with more offers constantly being added. NDC products like economy light and business saver fares, access to exclusive presale campaigns; intercontinental fares and special advertising promotions and

NDC prices for additional baggage, advanced seat reservation and discounted fares are also some of the great-value offers available to partners.

Q : What is your advice to agents struggling with uneven adoption of NDC by airlines?

We are proud to have stepped out of our comfort zone as one of the first NDC movers back then: Since the beginning, we have continued to be actively engaged as part of the NDC Leaderboard Airlines to shape the future of NDC. In September 2019, we were one of the first airline groups to be certified by IATA for the last certification level “NDC@Scale”. Until then, we have worked diligently to set-up efficient processes, build up resources and digital expertise, and design smart offers. It is true that not all airlines are at the same level, but what is important to us in particular is that the entire travel industry works towards the same, uniform standard.

Q : How would you describe Lufthansa’s continuous pricing? What type of technologies /systems can they work with?

Continuous Pricing enhances the traditional pricing system by enabling additional price offers between the existing 26 booking classes. Continuous Pricing thus provides the customer with multiple additional offers that avoid large price jumps and significantly increases the Lufthansa Group airlines’ competitiveness in the market. To date, Continuous Pricing is exclusively available via digital channels, i.e. our NDC API as well as the Lufthansa Groups’ .coms. Travel agents using a GDS do not have access to these price offers due to their technological limitations, i.e. their technology restricts airlines to 26 price points.  

Q : What does this mean for the travel agents?

Continuous Pricing is an integral part of our attractive NDC Smart Offer and provides tangible value: Continuous Pricing only applies if the customer has a price advantage towards traditional GDS bookings. That’s why, since we introduced Continuous Pricing, we’ve seen a steady increase in the number of travel agencies opting for an NDC solution. 

Q : How can continuous pricing help boost ancillary revenue?

Since the customer saves money thanks to our Continuous Pricing logic, we expect that some customers may choose to invest some of their savings in ancillary services. However, we believe that the impact on ancillary revenues will not be significant through Continuous Pricing. Ancillary revenues will be the target for further Lufthansa Group innovation, so stay tuned!

Q : How do you see continuous pricing impact competition among carriers?

With Continuous Pricing we are able to offer the right price for the customer, independently of a rigid tariff structure. This represents a strategic advantage against our competition. This way, we expect to accelerate innovation within the airline industry that will ultimately benefit the customers.

Q : Do you see continuous pricing take over fare classes?

While Continuous Pricing could theoretically render fare classes superfluous in the future, we do not expect to see the end of fare classes in the short- and mid term. Fare classes are essential to many legacy systems and processes within our and other airlines. Therefore, we have set up our Continuous Pricing logic in a way that complements existing fare class logic. This way, we can roll it out to the market and reap the benefits already now, while setting the foundation for a potential future without fare classes at the same time.

Q : How has operations fared in the Middle East region and will network expansion be on the agenda for 2021-22?

We are pleased to announce that on October 1, 2021, Lufthansa will be introducing a new connection between Dubai International Airport (DXB) and Munich, doubling its capacity on routes to the UAE compared to pre-crisis levels, as a response to an increase in travel demand. The new route will operate three times a week and will be operated by an Airbus A350-900, which is one of the world’s most environmentally friendly and modern long-haul aircraft.

Dubai has always proven to be an attractive and safe destination and the new connection comes in time for the start of the Dubai Expo 2020, as millions of people are expected to travel to Dubai from around the world. Even during the pandemic, the UAE continued to be a popular destination for many vacationers.  

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