The increasing importance of virtual interlining for airlines and travel retailers

In a perfectly connected world, it would be easy to create and sell airline itineraries that include connections between multiple carriers, even if they don't have interline or codeshare agreements.

The reality, of course, is not that simple. Airlines and online travel agencies (OTAs), however, are finding opportunities to sell a wider variety of itineraries through virtual interlining (VI), which some industry observers say is a growing trend.

"The market opportunity is significant and still growing," according to Gabor Toth, CEO of TripStack, a travel technology company that specializes in carrier integrations and VI platforms. Toth says that Low Cost Carriers (LCCs) are especially drawn to the opportunities that VI can offer.

"TripStack anticipates that VI can represent 12 to 15 percent of all flight bookings sold in the future," he adds. "This represents over 500 million passengers annually, based on the 4.7 billion annual passengers pre-Covid."

Technological advances and the growth of LCCs have helped fuel the demand for VI. In a 2019 report called The Future of Interline, the International Air Transport Association identified VI as an "emerging" concept but warned that "the new framework needs to ensure that responsibility for the customer at every touch point is clearly agreed between interline partners, and that this can be clearly communicated to customers."

Indeed, the growth of any new business concept requires adjustments, both on the part of suppliers and consumers. This may be even more necessary now, as VI attracts more attention from airlines and OTAs looking for strategies to recover from pandemic-era challenges. And that's why Virtual Interlining (VI) solutions are becoming increasingly attractive for airlines and online travel agencies (OTAs) looking to grow revenue, according to Toth.

The appeal of virtual interlining lies in its ability to simultaneously benefit airlines, travel retailers and travelers, according to Toth. "The consumers are the biggest benefactors of virtual interline fares," he says. "Simply put, they get more options, cheaper airline itineraries and are supported by our world-class VI guarantee." Airlines and travel retailers, meanwhile, profit by expanding their range of sellable flight content.

The airline advantage

Virtual interlining offers airlines the ability to create a "virtual network," expanding their offerings to appeal to a wider customer base — and carriers will increasingly feature VI itineraries on their own websites, according to Toth.

For airlines, VI presents further opportunities to service customers they may have otherwise not captured. "VI itineraries are already shown on various travel retail sites and meta search engines such as Kayak and Skyscanner, but TripStack sees cooperation with airlines progressing to also include the display of VI fares on the airline website."

Tech providers like TripStack can help the airline monetize traffic on its website by combining their flight inventory with other select partner airlines or other modes of transport, including rail and bus.

Making it easier for airlines to list VI itineraries on their own site is a goal of TripStack's Self-Connect solution, which provides airlines with a customizable B2C platform designed for high-traffic websites. "The TripStack Self-Connect [service] provides a simple way to expand the airline's reach by offering additional destinations without having interline agreements," Toth explains.

"The platform is highly customizable, allowing the airline to fully tailor the solution — including the routes, airline partners and minimum/maximum connection times. The best part is the zero-dollar cost of ownership for the airline. We cover all the costs and also provide the airline with a share of revenue we earn on each booking. The airline gets more bookings and a new revenue stream at zero cost."

TripStack also aims to make it easy for airlines to expand opportunities to generate additional ancillary revenue. In addition to services like branded fares, seat selection and baggage selection they could also offer baggage loss protection, travel insurance, extended cancellation protection and others.

The travel retail angle

Airline ticket sales have skyrocketed, jumping more than 327 percent in the months of June, July and August 2021 compared to the same period in 2020, according to the Airlines Reporting Corporation. But looking back even further, flight sales have dropped over the years for online travel retailers. VI can be a powerful tool to remedy that decline, according to Toth.

Online travel retailers are also well positioned to benefit from VI, Toth says. "Virtual Interlining is a game changer for travel retailers since it provides additional revenues in a segment — flight sales — that has seen revenues and profits shrink over the last 20 years," he says.

"Virtual interlining allows Travel Retailers to offer unique fares that are not offered by most competitors and provide real value to consumers. VI allows the retailer to differentiate itself from other content providers by providing more choice, lower prices on more than 40 percent of all flight routes and, in many cases, fares that are the best connections in terms of number of stops and overall duration."

In addition, travel retailers can charge markups or service fees for the fulfillment of more complex itineraries, while still allowing passengers to find airfares that are lower than what would have been possible without VI. Ideally, it's a win-win situation for all parties.

Some travel retailers try to create their own VI content but others understand the complexities and look for partners and need to shop around before deciding on a VI partner, since every company operates differently — and since virtual interlining is still a relatively new concept, there are no set rules or expectations about the specific features that VI products must offer.

TripStack emphasizes its own differences as it makes the case for VI. "A key differentiator between TripStack and its competitors is how VI itineraries are booked by our travel retail clients," Toth says.

"We do not add a mark-up. We believe in offering the lowest possible fares and then each retailer can add the margin they find relevant. We are a technology company that aims to maximize transparency and put the power in our customers hands.

"TripStack creates its VI fares based on assessing flights from numerous content sources. The itineraries are built based on customer preferences, which include configurable connect times and airline partners. Then during the booking process, the retailer can select where each part of the booking is made, leveraging their own contracts and the overall pricing. This difference allows our travel retail partners to maximize revenue and maintain ownership of the customer and the booking process.," Toth says.

Leveraging technology

New technology continues to play a crucial role in the evolution of virtual interlining, as suppliers work to finesse and refine the way the product is created, managed and sold.

"TripStack was one of the first travel technology companies to offer VI fares, and we continue to expand and improve the product offering with new features, more customization and building better and cheaper fares," Toth says.

With TripStack's virtual interline product, the company continuously analyzes billions of route combinations and price points to produce unique flight itineraries at the lowest possible price. "Having access to the best airline connections, global distribution system [GDS] and NDC/API prices is a must," Toth says.

"If you don’t have the price points, you can't build the best itineraries.. For our clients, this means the best itineraries via the TripStack API.

Still, there are challenges. A report published this year in the Journal of Air Transport Management, for example, highlighted the results of a study of VI within Europe, which found that VI flight itineraries for non-direct trips within Europe were significantly cheaper than traditional itineraries. But the results, when comparing VI versus traditional itineraries for direct flights, were mixed.

One of the disadvantages of self-connected itineraries is that the airlines don't communicate with one another, which increases the potential hassles for passengers if one of the legs of the VI itinerary is disrupted, since passengers are responsible for checking in and transferring their own baggage from one airline to another.

Airports and equipment manufacturers can help to minimize the risks. London's Gatwick airport, for example, launched its own GatwickConnect program in 2015, providing VI baggage transfer services, thereby easing the process for LCCs and passengers alike.

Baggage handling equipment manufacturers, meanwhile, can also simplify the process of VI connections, by automating baggage transfer between airlines, as is done for codeshare flights. While there may be a fee for providing such a service for VI itineraries, this can also provide OTAs with yet another potential revenue source.

Travel technology companies can also play an important role in protecting OTAs and travelers from potential "sources of friction" like baggage issues and missed connections. TripStack, for example, provides a customer guarantee.

"TripStack offers its own connection guarantee to customers on each VI itinerary," Toth explains. "In the event of a flight cancellation, a schedule change, a misconnection or a delay that makes the itinerary invalid, TripStack will make sure that the customer is given a valid alternative to reach its final destination as soon as possible.

"We also cover some circumstances outside the passenger's reasonable control, such as delays due to customs or immigration processes. In addition, we offer free accommodation if the customer needs to spend the night at the self-connect airport, as well as money for food and beverages, according to our terms and conditions."

Global reach

The growth of the VI concept is mirrored by the growth of companies like TripStack, which was founded in Toronto in 2016. The company's acquisition by the eTraveli Group in 2019 has allowed the brand to continue expanding its global presence.

"The 2019 acquisition really changed the trajectory of TripStack," Toth says. "We were no longer a startup, but a flight content provider to one of the biggest sellers of flights in the world, and we had to improve the quality of the platform in order to provide the level of service that is expected by eTraveli Group."

The acquisition has also expanded TripStack's ability to serve a diverse, worldwide clientele, according to Toth. "TripStack is able to leverage decades of software development on the eTraveli Group side, which includes payment localization that is superior in many ways to our competitors," he says.

"The platform is truly global in nature, with 30-plus languages supported, 40 currencies and 19 payment methods, as well as 24/7 customer support that has extensive experience with LCC, NDC and VI bookings."

Future growth

VI continues to play a greater role in the airline industry. Toth predicts that it will expand to include more multi-modal travel options. "The pandemic changed the ways airlines operate for the foreseeable future," he says.

In certain European markets, we have seen collaborations between the state airlines and the state rail carrier — Air France and SNCF, for example — and collaboration between Delta and European rail carriers to provide great VI combinations.

The future of multi-modal VI is bright, with more travel retailers offering these types of itineraries to passengers."

As air carriers and OTAs continue to strategize their post-pandemic rebound, the VI concept is poised to provide a timely solution for expanding the market while better serving travelers.

With the right approach, airlines, travel retailers and passengers can expect VI to expand their ability to efficiently and economically connect more of the world.