Amadeus
Amadeus
This blog post provides an insight into the business field of the multi global distribution system Amadeus. Stefan Angst, Sales and Marketing Manager Amadeus Marketing (Schweiz) AG and Viktor Skalski, Key Account Manager TravelTainment Schweiz, gave a lecture on the exciting topic of dynamic packaging.
About the company
Amadeus is
the leading industry player operating at the intersection between technology
and travel. The company is present in over 190 countries and employs around
14’000 people worldwide. It is founded in June 1987 in Erding Germany. Amadeus
works together with customers, partners such as hotels, airlines and OTAs and
other industry players, to improve the business performance and shape the
future. It is a kind of a market place, which tries to connect the customer
with the travel company. Amadeus manages to let the customer and the provider
find each other.
In 2015 Amadeus and Navitaire solutions boarded around 1.2 billion passengers and the company was ranked as the number 10 software company in the world. (Angst & Skalski, 2018)
In 2015 Amadeus and Navitaire solutions boarded around 1.2 billion passengers and the company was ranked as the number 10 software company in the world. (Angst & Skalski, 2018)
What the company does
Connect: Amadeus helps the customers to connect with
the travel ecosystem and grows revenue.
Manage: The company helps to manage operations more
efficiently and reduces costs.
Serve: It helps to serve travellers better and
increase loyalty to their brands.
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Figure 1 - Offered Solutions
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TravelTainment
Amadeus
acquired the provider of booking engine technology TravelTainment in 2006.
TravelTainment is a specialist in solutions for fixed and dynamic packages. The
company builds leisure market places in and around Germany. They power the
biggest leisure market place in Germany and are a pioneer in dynamic packaging
since 2005. In 2018, 2.9 million passengers bought a package powered by
TravelTainment DP (dynamic packaging) technology. (Angst & Skalski, 2018)
Legal fundamentals of
packaging
There is a
regulatory framework from 1990 applying to package travel/tours/holiday dates.
The regulatory framework is still valid, nevertheless the internet challenges
this framework since it changed a lot. In Switzerland the tour operator and
intermediary is liable for the performance of the contract and needs also to
ensure the repayment in the event of insolvency or bankruptcy of the
contracting party. (Angst & Skalski, 2018)
Dynamic Packaging
The global
travel development especially in the air industry is expected to continue
raising. By doing so, the contribution of tourism to the global GDP is
increasing similarly. (Angst & Skalski, 2018) Not only is the
contribution to the global GDP of the travel industry increasing, this sector
is even outpacing the global economy percentage wise. This rapid growth in
tourism is to a great extent induced by digitalisation impacting the customer
behaviour (BBC, 2018)
and simultaneously the way companies and businesses work (Bandi Tanner, 2018) . This is where dynamic packaging starts
becoming a significant role in the business of tour operating (Angst & Skalski, 2018) .
Packaging
Dynamic
Packaging (DP) is a combination of different travel components, bundled and
priced in real time, to fulfil the needs and wishes of the consumer or the
booking agent.
Dynamic
Packaging is characterized by following elements:
- · Multiple components bundled
- · Applies to the needs of the clients
- · Applies to business rules
- · Opaque pricing
- · Bundled in real time
- · IT based solution
The
differences between the classic packaging and dynamic packaging are following:
Figure 2 - static vs. dynamic packaging (Angst & Skalski, 2018)
Technical Background of Dynamic packaging
There is a
significant difference between the classical and the dynamic packaging
approach. For many years, tourism providers published their travel packages in
catalogues which were updated twice a year. The offers were characterized
through fixed prices, static travel dates and predetermined length of stay.
Moreover, they were not flexible to market changes and other external
influences such as environmental catastrophes and terror attacks. Consequently,
the providers had to bear the whole risk. With the introduction of dynamic
packaging, most of these characteristics changed. Since the packages are
produced on a daily and individual basis, the prices are changing constantly,
and the offers are flexible to market trends. In case of an event, that has
negative consequences on tourism activities in a certain destination, the
offers can be removed suddenly to eliminate the financial risk.
How are dynamic packages generated?
The basic
principle behind the creation of dynamic packages is very simple. The core
element of the whole process is the dynamic package engine. Based on logics and
packaging rules it combines hotel, flights and services in the right way. These
packaging rules are selected by the customer and also the packaging engine and
consist of elements such as star-rating, price, travel duration, destination,
type of activities and so on. This allows it to fully customize the product
therefore provide the perfect holiday package, to each individual customer.
As simple
as the principle sound, as difficult is its implementation. The technical
requirements to develop a dynamic package engine requires a lot of know-how and
capital. They have to be able to handle hundred million search requests and
130`000 bookings per day. The tech-company Amadeus is specialized in providing
such software solutions to create dynamic packages. They are used by various
tourism providers to create and distribute dynamic holiday packages. To handle
the massive amount of data of 4.8 terabytes per day, Amadeus works with 2200
servers in 2 separate data-centers. They claim, that the production of dynamic
packages consists of three different operating steps.
1. Content Management
First of all, the
packaging engine needs access to the database of travel agencies, OTA’s,
airlines, hotels and other tourism providers to compare their products and
services. Similar to the functional principle of Google, the collected data is
indexed in a cache in order to be able to retrieve the information as fast as
possible and avoid server breakdowns during peak search times. The cache is
normally about half a day older than the actual information and is up dated
twice a day during times with low search requires in order to guarantee
actuality. According to Angst, the cache is crucial provide a proper working
packaging engine.
2. Packaging
Secondly, the packages
will be created based on the individual desires of the customers combined with
algorithms applying business rules and logic thinking. If a customer for
example wants to go to London, it is obvious that he wants to go there as
direct and fast as possible. Therefore, the engine only shows flights to which
these criteria apply.
3. Distribution
After the packages have been
successfully created by the packaging engines from global distribution systems
such as Amadeus, they will be distributed on several online channels. Travel
agencies, OTA’s, and other tourism providers sell these packages under their
name, but they have to pay a usage fee to Amadeus.
New Distribution Capability
The
International Air Transportation Association (IATA) recently introduced a new
technology standard called New Distribution Capability (NDC), which will give
airlines the ability to distribute all their content through third parties. The
standard will serve as a new interface to better connect the airlines and the
GDS Aggregators (Newcombe, 2014) . It enhances the
capability of communications between airlines and travel agents. Furthermore,
it enables airlines to better control how their products are displayed to the
end customer. Many airlines are offering a wide variety of customized products
and services on their websites to appeal to the travellers. Since many people
book with GDS systems, the airlines are not able to customize the offer based
on who is making the request. The GDS bots that are crawling through the page
to index its content may not understand the full range of products and its
advantages. Consequently, they are displayed in the wrong way and the customer
does not see the products advantages. With the introduction of the NDC
standard, this can be changed. The airlines will make the comparison of the
different flights based on their own rules and are therefore able to display
the features in their own way and customize the products based on the traveller’s
interest. This development might threaten the GDS-System such as Amadeus as
they lose part of their job.
Tour Operator Business Models
In the
field of tour operating, it is generally distinguished between vertical
integrated tour operators (VITO) and asset light tour operators. An additional
business model states the previously described dynamic packaging. (Angst & Skalski, 2018)
Figure 3: Comparison VITO, Asset Light
& Dynamic Packaging (Angst & Skalski, 2018)
Sales Channels – Role of the OTA
The share
of bookings over online travel agents in the Swiss Hotel Industry accounted
more than 27% in 2016. Within one year, the OTAs were able to increase their
share of bookings by almost 7% and yet, this development is not expected to
stop (Schegg, 2016) . In times when bookings over
online travel agents are steadily increasing it is important to take a closer
look at their business models. The business models of the most relevant players
in the online travel agent market are introduced in this section.
Advertising Business Model (TripAdvisor)
In this
business model the company earns money through click-based advertising,
transaction revenue, display-based advertising or subscription-based
advertising.
Click-Based Advertising
When users
make a search query on TripAdvisor, the most suitable ads for accommodation are
displayed. The big advantage for the hotels is that this form of advertising
generates only costs for the hotel, if the user clicks on the ad and continues
to the link of the hotel’s website. However, the hotel pays for the click
whether the user completed a booking or not. (Uenlue, 2017)
Transaction Revenue
The website
user of TripAdvisor has the possibility to book an accommodation directly on
the website of TripAdvisor. It is a valuable type of revenue as they receive
12-15% commission on the booking price. (Uenlue, 2017)
Display-Based Advertising
Display
advertising includes banner ads and are charged per 1000 impressions. It works
based on cookie data which makes the ads following the user. (Uenlue, 2017)
Subscription-Based Advertising
The goal of
TripAdvisor is to add as many service providers to its platform as possible. In
order to extent the database of the website, service providers have to
subscribe if they want to edit the business’ profile. This subscription is only
possible in exchange to a contracted fee. (Uenlue, 2017)
Agency Business Model (Booking.com)
The agency
business model consists of the revenue model, customer acquisition, a customer
value proposition and the technological lead.
Revenue Model
Booking.com
basically earns their money through the commissions rates per completed
booking. (Uenlue, 2017)
Customer acquisition
Thanks to a
huge budget, Booking.com is able to invest heavily into customer acquisition by
using Google AdWords for example. In regard to the customer acquisition they
profit from the economies of scale. (Uenlue, 2017)
Customer Value Proposition
In case of
Booking.com, the agency business model does not only offer cheap prices but
also a huge amount of choice. Moreover, the content of the accommodations is
useful and persuasive. Finally, the perceived risk is reduced for the customer
by star ratings and user-generated reviews. (Uenlue, 2017)
Merchant Business Model (Expedia)
A merchant
is buying a certain amount of hotel rooms for instance and resells them to the
final customer. These businesses receive the product or service to a slightly
lower price and rebundle their inventory newly by themselves. Therefore, they
earn the margin they are able to put on top of the initial price. As they are
buying capacities, they also take the risk of not being able to sell their
capacities. However, as they buy only individual products, they have the full
control over their final package. If necessary, they can adapt a package to the
needs of a customer and are therefore a part of the customer experience. Due to
the formerly explained risks, they can add higher margins. (Angst & Skalski, 2018)
Reseller (Classic Travel Agency)
Resellers
are selling goods which are already packaged by their supplier, a merchant.
Therefore, they only receive a fixed commission which is financed by the
merchant’s margin on the package. Like this, the reseller has no financial risk
to bear based on that the margin is rather small. Nevertheless, by purchasing
whole packages, the reseller has no control over the products which he is
selling. As he is not part of the actual vacation, there is a lack of emotional
connection and therefore maybe also of loyalty with the customer. (Angst & Skalski, 2018)
Conclusion
To sum up,
increasing competition in the tourism industry promotes the innovation of new
business models, technologies and distribution channels. This pressure for
innovation was the reason why dynamic packaging was introduced in the travel
business. Furthermore, companies have to find new ways to secure and increase
their profitability. Players that have been successfully operating in a certain
area, are forced to reconsider their business model and possibly invest in new
areas. On the one hand, this leads to economical advantages and more
convenience for the customers. At the same time, small players (e.g. asset
light companies) are not able to keep up with their competition anymore and get
pushed out of the market. This leads to less diversity and monopolization of
the market.
Sources
Amadeus. (2018). Our Company.
Retrieved April 24, 2018, from www.amadeus.com:
http://www.amadeus.com/web/amadeus/en_CH-CH/Amadeus-Home/About-us/Our-company/1259090533136-Page-AMAD_DetailPpal
Angst, S., & Skalski, V. (2018). E-Commerce
& Sales in Tourism: Dynamic Packaging. Chur.
Bandi Tanner, M. (2018). Tourismusrelevante
Trends und Entwicklungen. Bern: Universität Bern. Retrieved April 27, 2018, from
https://www.seco.admin.ch/dam/seco/de/dokumente/Standortfoerderung/Tourismus/Newsletter/Newsletter%20_12/Inputpapier%20Trends%20und%20Entwicklung.pdf.download.pdf/CRED-T_2018_Inputpapier_Trends&Entwicklungen.pdf.
BBC. (2018). The new tourism trend:
How digitalisation is revolutionising the travel industry. Retrieved from
www.bbc.com:
http://www.bbc.com/storyworks/travel/the-new-tourism-trend/technology-redefine-tourism-industry
Newcombe, T. (2014). Just what exactly
is NDC? Retrieved from
https://buyingbusinesstravel.com/feature/0222557-just-what-exactly-ndc
Schegg, P. D. (2016). Strong Growth of
Online Travel Agencies (OTA) in the Swiss Hotel Industry in 2016.
Retrieved April 24, 2018, from www.etourism-monitor.ch:
http://etourism-monitor.ch/sites/default/files/downloads/swiss_hotel_distribution_study_2017_hes-so_valais.pdf
Uenlue, D. M. (2017, September 30). Business
Models compared: Booking.com, Expedia, TripAdvisor. Retrieved April 24,
2018, from www.innovationtactics.com:
http://www.innovationtactics.com/business-models-tripadvisor-booking-com-expedia/
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