Understanding Airline Distribution and Revenue Integrity

NDC & ONE Order and the future of Revenue Integrity - Part 1

We, at Lufthansa Systems, are always determined to develop and implement the best solutions for airlines around the world. In our commercial and distribution division, we are very aware of the major program?NDC & ONE Order?launched by the?International Air Transport Association?(IATA) which will impact the airline industry from distributing its products until the settlement (accounting).

This blog is dedicated to the future of Revenue Integrity in the?ONE Order.?However, before we can discuss it deeply and fully comprehend why the changes proposed by the IATA are necessary and how they will affect airlines and specifically Revenue Integrity processes, we need to go back in time.?This week's blog is all about history, why and how Passenger Service Systems (PSS) and Global Distribution Systems (GDSs) were created and why Revenue Integrity became important.

Early airline distribution

In the 1970s/1980s, to facilitate and reduce manual work, as well as, to make it easier to search for flights, book seats and issue tickets, airlines created Central Reservation Systems (CRS).

Since each airline had its own CRS, a travel agent could not access the inventory of all airlines using a single system. In the 1980s, the three major CRS which had been established so far in the market became independent from the airlines:

• Amadeus -?founded?by Air France, Iberia, Lufthansa and SAS in 1987
• Sabre - created by American Airlines in 1960
• Galileo - established by British Airways, KLM, Alitalia, Swissair, Austrian, Olympic, Sabena, Air Portugal and Aer Lingus in 1987 - later it was taken over by Travelport

This marks the start of what is known today as Global Distribution Systems (GDS).

From that point on, travel agencies around the globe, from small local travel agents to global business travel management companies (TMCs), could access any airline inventory available in the GDSs- search, book, manage and sell flights for their customers - directly on their computers.?

This technical access to the travel market and the linking of suppliers and consumers worldwide comes at a price. On the airline side, the GDSs charge the airline for each segment booked, each ticket issued, each refund, simply we could say, they charge for each command given to the system, etc.

To get and maintain such a GDS terminal access as a travel agency, the agencies need to pay a fee or book (not specifically sell) a certain amount of segments. In case of a high volume of bookings, travel agencies could even receive commissions.?

After giving access to their inventory to millions of travel agents and passengers, airlines realized that the established processes also allowed misbehavior in such a way that many bookings remained unpaid but continued to block the seats until the departure of the flight.?Passengers, which do not appear to fly but still block seats, are another cause for a potential revenue loss next to the GDS fees.

How could an airline ensure that seats are only blocked by passengers who would actually pay and fly?

Revenue Integrity

To try to clean the inventory from unproductive bookings the airlines used to perform manual checks, flight by flight, booking by booking. But what are unproductive bookings?

They comprise all bookings that do not bring any revenue and only cause costs to the airline. The reason behind them is very diverse, for example: they could be unticketed bookings holding the inventory longer than allowed by the ticket time limit policies; or they can be bookings with names that are not real, called fictitious names; or they can also be duplicated bookings or duplicate segments. The reason why a duplicated booking or a duplicated segment is unwanted is that the passenger cannot use both of those segments/bookings. There is a discussion about what to do, if both are paid, but this discussion we will leave for another day!

Let's go back to our historical background. In the 1990s, the airlines started to use very basic robotic solutions without any database, which continued to check flight by flight, booking by booking looking for tickets, duplicate segments and fictitious names.?

Initially, these robotic solutions sent all their findings to an inventory queue where airline agents manually checked these bookings. Some years later, these actions began to be automatized.

The first revenue integrity companies in the mid-90s were Lanyon (acquired by Sabre Airline Solutions in 2004), Airline Automation Inc (acquired by Amadeus in 2004), Bredimus Systems (changed its name to Airlogica in 2002) and MCC (exited the market in 2007). The first generation of revenue integrity systems could effectively reduce the manpower but were very limited, created transactional extra costs inside the inventory systems, and were very easy to circumvent. These systems were called "Flight Firming Tool" (FFT).

The second generation of RI, in the late -90s, started to use a database containing a copy of the bookings which could be analyzed without touching the real PNR (PNR terminology comes from Passenger Name Record and it means the same as a booking)?in the inventory. This copy of the PNRs was done by messages of the airline data feed received in batch files.

The first real-time RI application was developed by Calidris (acquired by Sabre Airline Solutions in 2010) at the beginning of the 21st century. Around this time, before tickets became mandatorily electronic documents (called e-tickets), due to the high number of no-shows, most airlines realized that revenue integrity solutions provide a high return on investment and are a "must have". These real-time solutions could deliver around 20% more revenue than the applications that process batch files.?

Over time, airlines understood that revenue integrity is not only about finding and cancelling misbehavior and system abuses. On the distribution side, it has a direct impact on cost savings and is responsible for keeping the inventory up-to-date which affects directly flight optimization enabling the increase of each flight's revenue, on the revenue management side.

Lufthansa Systems Revenue Integrity - LSY RI

Before having a dedicated Revenue Integrity Product, Lufthansa Systems had some related RI activities built inside a MultiHost-Unisys System (more or less the same way some inventory providers have a very simple version of a ticket time limit) with the following characteristics:?

• Host inventory system-based application;
• Each robot (for the controllers) was installed in the user's computer;
• No UI access;
• 3 Controllers: Segment Check (a simpler version of a Ticket Time Limit), Horizontal Dupe Check?and Vertical Dupe Check.

The first version of the Lufthansa Systems Revenue Integrity was developed in 2003 with Austrian Airlines as the launch customer. The main change from the previous model was that for the first time, the customer was able to insert the settings into the system via a web-based interface. This allows the user to be flexible and independent which became an important function and is preserved until today.

In 2012, Lufthansa Systems launched the 3rd generation of their Revenue Integrity System, sometimes referred to by RI3, together with Condor Airline as an integrated and hosted application that processed data in real-time.

At Lufthansa Systems, RI is in constant development and the major update in the application has occurred during the years 2017 and 2019. The number of controllers has doubled, a new database was introduced enabling faster data processing, and the logic for the Dupe Check Controller was completely renewed which significantly increased the findings of candidates for duplicated bookings.?Moreover, the manual workaround duplicate bookings could be reduced because of the implementation of new checks and internal processes.

In mid-2019, Lufthansa Systems Revenue Integrity was running for the three Lufthansa Group Hub airlines: Austrian Airlines, Lufthansa and Swiss Airways. In the following years, RI3 was also implemented at Eurowings Discover, Air Dolomiti and Brussels Airlines.

This major project pushed the application to a new level and Lufthansa System Revenue Integrity was recognized in the external market for being a successful solution, which attracted a new customer?outside the Lufthansa Group Airlines in 2019, the first which is hosted in Sabre Inventory System, Air Malta.

In 2019 and 2020, four new controllers were developed, including the Churning Controller that is of great use and need in the airline industry. Churning can be explained by the behavior of repeatedly cancelling and booking the same segment by the same agent. It does not only circumvent the TTL policy but it also blocks the inventory longer than allowed and causes costs. Lufthansa Systems RI can find Churning only a few minutes after being turned on and it does not only check the same bookings but it can check across bookings.?

If you are interested in this topic and want to learn more about Lufthansa Systems RI Churning Controller, feel free to reach us by clicking?here.

In 2021, Lufthansa Systems welcomed two more airlines of the Lufthansa Group - Air Dolomiti and Eurowings Discover - as RI customers and Brussels Airlines decided to migrate from its previous provider as well. RI is handling all six airlines within a single interface bringing harmonization to the whole Lufthansa Group.

Our first blog intends to give you an insight into the history of commercial airline processes and their technical development, as well as to highlight why Revenue Integrity is needed and what our Lufthansa Systems RI can do.?

With this background, it will be much easier for you to understand why IATA is proposing a new distribution way in the future.

In our next blog, we will have a closer look at?NDC?and?ONE Order.?What changes does it bring to the industry, how do these changes affect the airline business processes and mainly how it will influence revenue integrity.?

Look out for our second part of this blog series!