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Retail on the Runway: Airlines Must Embrace API Architectures and AI
Airlines that embrace API-driven architectures and AI can expect distribution cost savings of 25%, and up to 5% greater annual growth potential.
As the expectations of tech-savvy, digital-native customers grow rapidly, airlines are under mounting pressure to break legacy bottlenecks. Global Distribution Systems (GDS) and Passenger Service Systems (PSS) are constraining capabilities, and innovative carriers know the need for transformation has become urgent.
Modern Retailing (MR) is the answer, enabling personalisation, enhanced efficiency, and entirely new revenue streams. At BCG, we have supported over 1,600 airline digital transformation projects, equalling more than half of global capacity. Let’s explore the challenges first.
Grounded Indefinitely
Rigid GDS communication protocols, reliant on a messaging standard from the 1980s, are blocking personalisation and data flexibility.This outdated standard was designed for seat and fare transactions, not the dynamic options modern travellers expect.
Monolithic PSS compounds these issues, preventing modularity and causing vendor lock-in issues. As personalisation become increasingly linked to customer loyalty and revenue opportunities, inflexible protocols prevent airlines from operating like modern retailers.
Fare-based static pricing models block crucial AI progress, especially when it comes to AI-driven continuous pricing. Filed fares and fare classes are updated in advance and distributed via GDS, trapping airlines in a cycle of revenue leakage and sub-optimal margins.
Fragmented omnichannel journeys complete the concerning picture, which dissatisfy modern airline customers, cause upselling opportunities to be missed, and present opportunities for third-party competitors to make gains.
New Horizons
Airlines need to reimagine themselves as digital travel retailers, not just seat sellers. This means doubling down on personalisation, implementing dynamic bundling, and making continuous pricing anew standard.
This is where the five major technology enablers come in:
- API-driven integration and NDC aggregators: decouple from GDS and unify key channels.
- Dedicated personalization and customer data platforms (CDPs): create a central brain for dynamic offers.
- Pricing and bundling platforms: enable continuous pricing and recommendation engines.
- Revenue management evolution: enhance ancillaries and multi-segment journeys with AI and ML.
- Product catalogue, stock keeping and order management: lay the foundations for modular, flexible retailing.
When it comes to technology sourcing, there are different strategic pathways to take – and a mixed approach is likely optimal. In-house development means greater speed-to-value, but this route is costly and comes with heavy integration requirements.
Co-development with incumbent vendors is another option, offering best practices and standards but lacking pace. Modularization with vertical solutions is the third, whereby non-airline vertical tech is leveraged to accelerate maturity. Our experts are uniquely positioned to help guide you on selecting the right blend.
Don’t Leave Your Retailing on the Tarmac
Transformation ultimately calls for a modular, incremental, tech-first approach. This is because legacy GDS and PSS architectures are tightly interwoven, significantly increasing the operational risk associated with sweeping changes.
Based on our extensive experience, we recommend a four-step roadmap:
- LaunchNDC-based offers and ancillary structuring.
- Expand bundling and rule-based pricing while integrating stock keeping.
- Enable dynamic bundling and real-time personalisation.
- Achieve a fully dynamic, order-based retailing ecosystem (eliminating legacy PSS).
This is not about technology in isolation, but about commercial agility: the ability to test, scale, and monetize new products faster than competitors. The airlines that succeed will be those that look beyond standards, adopt a bold yet incremental roadmap, and treat retailing as a strategic capability (rather than a regulatory requirement).
To take your retailing to new heights, get in touch with our team!
