The last decade has seen major changes in the travel distribution landscape. First, it was the Internet that started a revolution and forever changed how the travel industry operates. This online boom followed by subsequent economic slowdown has created new dynamics in travel distribution. The proliferation of smartphones and social media has resulted in further creating both chaoses as well as new opportunities. While opening up new avenues for growth, these developments have also created new operational challenges.
Challenges faced by travel distribution industry
One key nature of the travel industry is that the demand for travel is highly seasonal and cyclic. This creates a challenge for any operations manager in terms of capacity planning and right-sizing of the IT support infrastructure. Planning for peak size can result in underutilization and lead to higher marginal cost. On the other hand, not planning for peak load runs the risk of lost transaction opportunities, unsatisfied customers and finally business losses. This is one of the primary reasons why most travel distribution players end up having higher IT infrastructure cost and lower operating margins.
Increased Search Volume
Increased number of travel portals along with a changing pattern of travel booking behavior of the travelers, has resulted in a huge surge in ‘look to book’ ratio. This increased number of availability request per booking now runs into thousands from a mere single digit number a few years back, putting an enormous pressure on existing IT infrastructure. According to Pegasus Solutions, the global processor of hotel transactions through the GDS and ADS channels, the look-to-book ratio soared to around +60% over 2009 levels and is expected to rise further. Today’s common look-to-book ratio is almost at a 2,500 -3,000 to 1, -primarily due to the growth of online reservation and the changing consumer behavior who is now looking ‘value for money’ deals. For this, travel shoppers use multiple avenues such as search engines, referral sites, websites, mobile applications, and social media.
Just prior to the recession, online travel booking soared to all-time highs attracting further investments in IT infrastructure in demand anticipation. However, discretionary travel was one of the first spends that were cut down during the slowdown. This caused a severe strain on financials and travel companies had to rethink their models yet again.
Increase in number of sales channels
The popularity of smartphones has persuaded travel players to embrace mobility as a medium to manage bookings and provide other experiences to increase customer stickiness. At the same time, social media sites have also become very popular and travel portals are trying to utilize this trend by integrating different social media components with their sites. Of course, number of channels also increases complexities in product management.
Cloud computing from a travel distribution perspective
The Cloud helps enterprises to have a dynamically scalable abstracted computing infrastructure that is available on-demand and on a pay-per-use basis. This model not only saves the IT teams from investing heavily in infrastructure but also shields them from the intricacies involved in infrastructure setup and management. Presently, apart from providing the on-demand IT infrastructure, cloud service providers typically provide interfaces for other related IT management services. To understand the application of Cloud computing to the travel industry, availability searching or shopping is probably the best example; it is by and large the biggest resource consumer in a typical travel process. In today’s circumstances, travel enterprises who run their entire travel application on a single infrastructure platform put unnecessary stress on operational budgets. One of the probable solutions to this problem is to decouple the availability search functionality from the traditional CRS system transfer it on an infrastructure that can support flexible demand. At the onset, it seems to be a complex and upheaval task, as it creates operational challenges such as latency. However, these challenges can be handled through a cloud-based solution which offers higher scalability by using modern architecture patterns. On the other hand, mobility is witnessing an unprecedented growth in demand – this is another area where a cloud strategy can bring in competitive advantages for travel organizations. The key challenges that travel enterprises are facing today regarding mobile and social media channels are manifold, viz.,
- With the advancements in mobile devices such as iPhone, iPad, Android, Symbian, and Blackberry, travel enterprises need to invest in leveraging these to further their distribution and fulfillment channels.
- Mobility, being a rapidly evolving technology, is difficult to predict in terms of short-term as well as long-term demand. Due to this, travel enterprises are facing a challenge in scoping the required infrastructure for supporting mobility channel.
- Travel enterprises need to create a business model to measure the increase in revenue and profit against the costs incurred on mobility & social media investments.
Cloud-based flexible and on-demand infrastructure enables a travel enterprise to offer mobility and social media channels without incurring any fixed cost. Using a cloud infrastructure, a travel enterprise can start in a small way and grow into these evolving markets with a lower risk and financial strain.
Key concerns in adopting cloud-based system
Availability of a Service
Organizations worry about whether utility computing services will have adequate availability, and this makes them wary of Cloud Computing. But in reality, cloud infrastructure providers such as Amazon and Google have much lower outage compared to any internal IT system.
The primary way to access the cloud platforms is through proprietary APIs. Thus, enterprises feel that they cannot easily extract their data and programs from one site to run on another. But in reality, all major service providers have an obligation in their contract to return the data to the enterprise. These service providers also have data access APIs that can be used to extract data in standard formats.
Data Confidentiality and Statutory Requirements
Many enterprises believe that their data will not be secure in the cloud since current cloud offerings are essentially public networks. However, in reality, most of these cloud service providers have better data protection and security mechanism than most IT organizations. They achieve this through the use of audit trail, encrypted storage, and network middle-boxes. Service providers also comply with various statutory and audit requirements related to enterprise and personal data security and usage.
Integration with external systems
Since travel distribution systems interact with multiple external applications, travel enterprises always have a concern about integrating the cloud-based system with other external systems. However, all major cloud service providers have web service interfaces that can be utilized to integrate the cloud-based system with other external systems.
Solution for the ‘long tail’
As we know, the travel industry comprises of many small to mid-sized companies. A large majority of which are very entrepreneurial and niche in terms of the products and services they offer. Companies in this ‘long tail’ have little or limited IT knowledge or support and rely on numerous third parties for IT. Such companies always find it difficult to balance their IT spending between IT upgrades and innovating on their solutions, and this tends to become a barrier to business growth. Even today, many small time travel enterprises do not even have an IT system, because they cannot afford to set up an IT operation in-house. Economics of Cloud environment can change this basic premise and make it both affordable and beneficial for travel enterprises of any size who can use this service to derive a competitive advantage. Such an environment brings tremendous advantages to such companies because it also helps them to manage their cash flow better. At the other end of the horizon, start-ups are finding it easier to build and offer products like CRSs, tour operating systems, distribution systems or basic inventory systems on a SaaS model, which is a stronger value proposition and provides a competitive edge to their offerings.
Business outcomes of using cloud-based systems
From the above discussion we can conclude that travel enterprise can achieve business growth by leveraging the power of cloud computing:
- A cloud-based solution reduces the total cost of IT ownership for the travel enterprises and offers performance, reliability, security, and flexible scalability advantages
- Travel enterprises are able to increase customer base due to higher availability, low congestion, and additional sales channels
- Competitive advantage to the small and mid-sized enterprise in the form of lower fixed or upfront capital cost
- Improved operational efficiency due to low marginal cost
- Ability to manage risks better by reducing fixed investment on any new initiative