OAG Alternative Interlining Report

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Every day we at OAG help businesses across the world grow and innovate with access to high-quality travel data. Our mission is to help the travel ecosystem thrive by capturing the power of its data. Today’s complex and competitive industry is our biggest adventure yet. With thousands of airlines and airports serving billions of travelers, the pressure is on from all sides: passenger demand, consumer expectations, regulatory complexity, the experience economy, and the drive for personalization. The propelling force in our industry has always been ground-breaking technology. We’re built on it - powering frictionless travel in a data-driven world.

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ABOUT OAG THIS REPORT

As part of our ongoing exploration into the impact of innovation on the airline sector, this report introduces the concept of Alternative Interlining—the next evolutionary step of what has traditionally been known as Virtual Interlining. With this report, we aim to redefine the concept, reflecting its growing significance and evolving capabilities. Airlines are increasingly adopting strategies that go beyond traditional interlining agreements, leveraging cutting-edge technology and market demand to deliver more flexible, personalized, and efficient travel solutions.

In this deep dive, we explore the key structural drivers behind the rise of Alternative Interlining, including evolving consumer behavior, advancements in distribution capabilities like NDC, and the expansion of global airline connectivity. As we look ahead, we analyze how this growing phenomenon is poised to shape the future of air travel and why it should be at the top of strategic agendas for airlines and travel-tech stakeholders alike.

For more insights into how innovation is transforming the aviation landscape, visit our Future of Travel website section.

INTRODUCTION

Over the past decade, one of the most significant tech trends in the airline industry has been the gradual shift from traditional interlining and codeshare agreements to the now well-established concept of Virtual Interlining.

Quick reminder: Since the late 1940s, airlines have relied on interline and codeshare agreements to expand their network reach without directly operating additional routes. These agreements enabled airlines to offer a wider range of destinations by partnering with other carriers, significantly enhancing customer options and operational flexibility.

However, the landscape of airline partnerships has been transformed – or some might say disrupted – by the concept of Virtual Interlining. Unlike traditional airline

models that rely on formal partnerships, Virtual Interlining leverages advanced technology and entrepreneurial instincts to combine flight segments from multiple airlines without codeshare agreements in place. Leading pioneers in this field, such as Dohop and Kiwi, first introduced these offerings more than a decade ago, each taking distinct approaches.

• Kiwi has primarily targeted the OTA space, focusing on B2C customers and often operating without direct airline partnerships.

• In contrast, Dohop has concentrated on building close collaborations with airlines, emphasizing B2B relationships to holistically integrate Virtual Interlining into airline operations.

Over time, both providers added additional services like insurance for missed connections and comprehensive customer support, thereby creating a new layer of value for travelers.

Today, a diversified ecosystem of Virtual Interlining providers has formed.

As we look to the future of Virtual Interlining, it’s evident that we are on the brink of unlocking its next evolutionary stage.

A variety of market forces are rapidly accelerating its adoption among both travelers and airlines. This shift calls for a new term that better captures the strategic significance and technological sophistication of Virtual Interlining in today’s airline industry.

RETHINKING THE NAME: VIRTUAL INTERLINING

The term “Virtual Interlining” often comes with negative connotations, particularly for travelers who link it with “self-connecting” and the lack of protection in case of flight disruptions.

Similarly, many airlines view Virtual Interlining as a loss of control over their inventory and content, especially when it bypasses traditional interline agreements.

However, the need for a new term goes beyond just clearing up traveler confusion and airline concerns. Initially, “Virtual Interlining” described the digital innovation of stitching together separate flights through online platforms – a concept that seemed almost exclusively virtual. Yet, as the practice matured, its influence extended far beyond digital booking transactions, profoundly impacting the tangible, physical aspects of air travel.

Let’s illustrate how “Virtual Interlining” has transitioned from a purely digital concept to one with significant real-world consequences:

1. AIRPORT ADAPTATIONS

Airports globally have re-engineered their infrastructure to better serve self-connecting passengers – a key demographic of Virtual Interlining. For example:

• Budapest Ferenc Liszt International Airport launched “bud:connects” to streamline the transit process for self-connecting passengers through direct assistance and integrated services.

• Marseille Provence Airport introduced a Smart Pass that expedites self-connecting passengers through security and provides discounts within the airport, enhancing the overall passenger experience.

• London Gatwick and Hamburg Airport have redesigned terminals and introduced dedicated baggage solutions to facilitate smoother transitions for self-connecting travelers.

2. AIRLINE INVOLVEMENTS

Airlines are increasingly incorporating Virtual Interlining strategies into their operations, often in partnership with technology providers, making it an integral component of their service offerings. This shift is primarily driven by a growing need to enhance the overall customer experience and remain competitive in a rapidly evolving market. By offering more integrated and seamless end-to-end travel experiences, airlines are prioritizing customer needs over traditional industry constraints, such as formal interlining agreements.

• Dohop’s partnerships with airlines like Norse and Thai VietJet, which enhance network and service capabilities, demonstrate the growing airline endorsement of Virtual Interlining principles.

• Tripstack is partnering with Thai lowcost carrier NokAir to expand the airline’s website booking functionalities with its white-label Virtual Interlining solution.

• Air Transat, voted the World’s Best Leisure Airline for the fifth time at the 2023 Skytrax World Airline Awards, announced the expansion of its in-house virtual interlining service with the addition of two new airline partners, Pegasus Airlines and Volotea.

Given all these profound impacts and the shift from a digital novelty to a standard practice with tangible benefits, the term “Virtual Interlining” no longer captures the essence of this evolved reality.

As a consequence, we believe a new term is more suitable: “Alternative Interlining.”

This term reflects the innovative and broadening approach to traditional airline connectivity and highlights its significance in the modern air travel landscape.

THE CASE FOR “ALTERNATIVE INTERLINING”

This new term, “Alternative Interlining,” underscores the breadth of alternatives now available to travelers when booking air travel. It emphasizes a shift from a primarily budget-focused Virtual Interlining offering to a richer connection of travel options.

“Alternative Interlining” isn’t just a rebrand; it’s a recognition of the significant and growing alternatives available in air travel arrangements. This movement is currently gaining unprecedented relevance and momentum, driven by three concurrent

structural trends that promise to revolutionize airline booking behavior.

Together, these trends are turning what was once a niche into a mainstream solution, essential for the strategic planning of every forward-thinking airline. Over the next five years, “Alternative Interlining” is expected to rise to unprecedented prominence, becoming a standard tool in airlines’ innovation repertoire.

Here are the structural shifts accelerating this trend:

In the subsequent sections, we’ll briefly delve into each of these drivers, exploring how they contribute to the rising significance of “Alternative Interlining” in the contemporary travel industry.

KEY DRIVER #1: DECLINING LOYALTY AMONG YOUNGER TRAVELERS

While traditional airline loyalty programs remain crucial revenue streams for many airlines, their future viability is increasingly uncertain. There is a noticeable shift, particularly among younger travelers, who are moving away from these traditional loyalty commitments.

Recent surveys underscore a significant decline in the likelihood of customers

recommending these programs, a trend extensively analyzed in our prior exploration of the future of the airline experience.

The root of this decline is the growing reluctance of consumers to commit to a single brand, especially among younger travelers:

• A McKinsey study reveals that Gen Zers and Millennials interact with almost twice as many brands as Baby Boomers and are far less likely to remain loyal to just one. This broadening of brand engagement reflects a shift in consumer behavior that is less about loyalty and more about seeking value and alignment with personal preferences.

• Our own 2024 OAG traveler survey confirms this trend, showing that only 65% of Gen Z and 70% of Millennials are enrolled in airline loyalty programs, compared to 89% of Baby Boomers and 80% of Gen X. This data points to a significant generational gap in the perception and participation in traditional loyalty programs.

This evolving consumer behavior bolsters the case for Alternative Interlining. As future generations of travelers demonstrate a preference for flexibility over loyalty, they are increasingly open to considering flight combinations from multiple airlines, irrespective of loyalty lock-in effects.

KEY DRIVER #2: NDC FOR RICHER ALTERNATIVE INTERLINING

The adoption of New Distribution Capability (NDC) represents a significant technological advancement within the context of Alternative Interlining, although its impact

is nuanced; see our distribution deep-dive for more insights.

• NDC facilitates more direct communication between airlines, Travel Management Companies (TMCs), and Online Travel Agencies (OTAs), enhancing the customization of travel packages, particularly in the Alternative Interlining space.

• However, it’s important to acknowledge that traditional distribution systems have also evolved in recent years, incorporating more flexible booking solutions that cater to modern travel needs. As such, NDC adoption complements, rather than replaces, the advancements made in traditional distribution frameworks.

NDC’s impact is particularly amplified by the improved availability and quality of data that Alternative Interlining providers can leverage. Data providers, including OAG, contribute to the rise of Alternative Interlining by offering trusted and accurate global datasets that streamline the process of

integrating with airlines. For example, OAG supplies and curates flight schedules, while fare data aggregators ensure that pricing information is consistently presented in a unified, validated, and upto-date format. By partnering with data providers like OAG, Alternative Interlining providers such as Dohop can more effectively navigate the complexities of multileg itineraries, benefiting from a comprehensive and streamlined data solution rather than relying on resource-intensive, one-to-one integrations with individual airlines.

Looking ahead, the long-term vision for a multi-data-enabled NDC extends even further.

It aims to significantly enhance airline offerings through personalization, potentially revolutionizing how Alternative Interlining providers package and sell flights. This evolution could open up new possibilities for tailoring travel experiences to individual preferences.

• One compelling future application of NDC in Alternative Interlining could be creating personalized layover experiences. For example, a provider could use NDC to access real-time availability for airline lounges or partner hotels, offering passengers on long layovers a tailored package that includes a relaxing spa service at an airport lounge, followed by a peaceful rest in a dayuse hotel room.

• Another innovative use of NDC in Alternative Interlining could involve offering destination-specific ancillaries.

For instance, when a traveler books a multi-leg journey to a popular event like the Rio Carnival or Oktoberfest, the interlining service can offer not just the flights but also tickets to the events, special guided tours, or even themed meals at renowned local restaurants.

Both examples illustrate how NDC, powered by comprehensive and real-time data, will empower Alternative Interlining providers to curate more than just unconventional flight paths – they can craft complete, highly personalized travel experiences that cater to the unique preferences and needs of each traveler, potentially transforming the very nature of what it means to book a flight.

KEY DRIVER #3: EXPANDING CITY PAIR CONNECTIVITY

As the airline industry emerges from the shadows of the COVID-induced downturn, the most significant growth indicator for 2024 isn’t just the increase in passenger numbers – it’s the remarkable resurgence in connectivity.

According to our OAG database, the airline industry has returned to pre-COVID levels of global connectivity this year, with the number of unique city pairs reaching the record highs of 2019, even though the total number of scheduled flights remains 5% below pre-pandemic levels. This recovery, driven by the ongoing emergence of lowcost carriers, significantly enhances the scope of Alternative Interlining.

With unique city pairings growing faster than scheduled flights, the potential for crafting innovative flight combinations has expanded considerably, bolstering the appeal of Alternative Interlining as an effective solution to the complex travel demands of today’s global explorers.

This expansion in city pairs truly embodies the concept of “Alternative” in Interlining.

By providing a vast range of route combinations, Alternative Interlining is set to transform from a niche offering targeted at budget travelers to a mainstream necessity, perfectly aligning with the future trajectory of global air travel.

Furthermore, the scope of offering more alternatives is set to expand with the inclusion of other modes of transportation, particularly trains. This integration is highly relevant in Europe, where dense rail networks provide a sustainable alternative to air travel, especially as environmental concerns increasingly challenge the viability of certain domestic flights.

By incorporating these options, Interlining platforms will not only enhance their utility and appeal but also improve connectivity for rural areas not served by major airports.

THE FUTURE OF ALTERNATIVE INTERLINING

As we evaluate the influence of these structural drivers, it becomes increasingly evident that the Alternative Interlining market is poised for substantial growth.

Last year, our models estimated that approximately 214 million passengers engaged with Alternative Interlining solutions. This estimation, consistently echoed by insights from airline executives and industry analysts like those at Amadeus, suggests that self-connection bookings easily surpassed 200 million passengers in 2023.

Looking ahead to 2024, we anticipate another year of robust double-digit growth

for Alternative Interlining. This projection is supported by current forecasts from the International Air Transport Association (IATA), which predict an overall airline passenger growth of 11.6%

Additionally, the significant impact of the three structural drivers we discussed is expected to further accelerate this growth. It would not be surprising if Alternative Interlining were to service over a quarter billion passengers this year alone. Achieving such a milestone would indicate that approximately 5% of total global passengers are utilizing these innovative self-connecting services, aligning with conservative estimates from industry

experts and highlighting the increasing relevance of Alternative Interlining in the modern travel landscape.

Given this trajectory, we strongly advise all airlines to regard Alternative Interlining not merely as an innovative option but as a mission-critical area for strategic development.

Furthermore, the implications extend beyond airlines to encompass all aviation stakeholders. Airports, regulatory bodies,

and service providers play pivotal roles in stimulating future demand by enhancing airport experiences, closing regulatory loopholes, and elevating customer awareness and understanding of Alternative Interlining options.

Clearly, Alternative Interlining is transitioning from a niche solution to a mainstream necessity, shaping strategic decisions across the aviation sector and demanding immediate attention from forward-thinking leaders.

For more information, visit www.oag.com or email us on contactus@oag.com

USAGE AND ATTRIBUTION

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DISCLAIMER

OAG Aviation Worldwide Ltd has used reasonable efforts in collecting and preparing data in the report but cannot and does not warrant that the information contained in this report is complete or accurate. OAG Aviation Worldwide Ltd hereby disclaims liability to any person for any loss or damage caused by errors or omissions in this report.

© 2024 OAG Aviation Worldwide Limited. All rights reserved.

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