African Aviation's Tough Tech Choice
Airlines across the continent are not in a position to try every new tech going, so which should they choose?
Aviation conferences are buzzing with new ideas. Vendors and industry associations are trying to persuade carriers that the savvy thing to do is adopt their model. And the airlines themselves, always keen and often desperate to find new ways of raising revenue, are making big bets on what they think will work.
Unfortunately simply buying everything is not an option for most airlines, especially in Africa. Emerging technologies like artificial intelligence, blockchain-based ticketing (see article) and Internet of Things (see article) have high potential to generate data and turn those insights into revenue. But they are also extremely expensive and at an early stage of development.
Ethiopian Airlines aside with it’s 130 aircraft and consistent profitability (see article), most African carriers have neither the scale nor the financial strength to make significant investment across a broad range of options. They will have to make tough choices.
So what should they do? Read on to find out…
Africa’s unique aviation challenges
African aviation is characterised by three challenges. Airlines should consider these when making their investment choice.
1. Single-aisle aircraft like Airbus 320 and Boeing 737 are too large for many African routes, so markets are often under-served and seat factors are low. Smaller jets like Airbus 220 and Embraer E-jet and turboprops offer a partial solution.
2. Many regions across the continent have high economic growth and an emerging middle class. Up until recently they were not flying, so there is no set of mature and standard data that airlines can use to take decisions. The data available does not show airlines where the opportunities are.
3. Direct services are scarce and passengers sometimes have to fly highly circular routes like via Paris or Addis Ababa to reach a destination only a short distance away as the crow flies.
How suitable is global aviation’s menu of tasty revenue generating tech for Africa
First up, consider artificial intelligence and machine learning (AI/ML). This technology works by applying advanced algorithms to large amounts of data and figuring out all the patterns and relationships that traditional analysis misses.
However it turns out that AI/ML is more of an evolution than a revolution in aviation. In most cases it is a natural next step from the revenue management that almost all African airlines do already. It also does not really address any of the three African challenges.
Accordingly African airlines are probably better off figuring out how to use their existing technology even more effectively than they do today than investing large amounts of cash in the next iteration. AI/ML also needs large amounts of data, which is simply not available in Africa.
Once the large global players have spent their money investing in AI, turn-key solutions will be available at low cost to Africa. PROS, SABRE and all the usual suspects will have AI/ML solutions in development (see article). Until these mature and full data about African opportunities is available, AI/ML should not be a priority for most African airlines.
Next on the menu of revenue generating tech is blockchain-based ticketing, like that provided by Argentina-based TravelX.
A blockchain is a string of data points showing everything you might need to know about how an asset, in this case a plane ticket, has changed over time. This technology has potential to reduce fraud and agency disputes, and also to allow passengers to sell on the ticket to somebody else.
The trading idea is that the airline’s commission whenever a ticket changes hands should compensate for the airline’s ability to set it’s own prices through revenue management. TravelX allows airlines to constrain trading in certain circumstances to the advantage of the airline. For example close to the flight when high-yield business travellers may be booking.
Blockchain-based ticketing could be a good bet for African airlines. The cost of implementation is low compared with AI/ML and TravelX technology works on top of all the legacy ticketing infrastructure that African airlines already use.
In return, insights into how tickets change hands will provide data about consumer behaviour that is not currently available in Africa. Airlines will be able to use this data to take better decisions on the launch price of tickets and when they need to hold sales or promotions.
Using new sources of data leading in to loyalty is a good bet for African airlines
When it comes to data, African airlines should consider three alternative sources. What people are talking about on social media is often helpful (see article). When a TV programme broadcast in Nigeria about Kenya’s lions attracts attention airlines will see a boost in demand for flights across the continent from safari travellers.
Such data applied over the long-term can support higher seat factors and larger aircraft as carriers can up- or down-gauge aircraft according to short-term opportunities. Cirium’s Migacore is probably the leading supplier of this type of data.
Consumer payment data can be handy for determining which cities are likely centres of outbound travel demand. Certain categories of spend like fine dining, jewellery and live entertainment are highly correlated with the desire and the budget to travel.
When a city shows an up-tick in these types of spend airlines can be sure there is lots of demand that might not be served today. Combine this with the social media chatter that shows where people want to go and you have a new route. This solves the problem that many passengers have to take highly circular routes.
All three of the large payment companies – Amex, Mastercard and Visa – have long-established data services covering these opportunities. Often they will let the airlines have it for free if they are allowed to run the carrier’s loyalty programme.
Mobile phone billing data is also helpful. If a person uses their phone in Cape Town one day and Cairo the next, then they must have taken a flight. Airlines and phone companies may be able to work together to understand how their existing passengers fly on other airlines. Carriers armed with such data will be able to offer more effective promotions and deals, filling seats and supporting new routes.
Cabin services
The latest all-singing and all-dancing business class seats are fitted with doors and fancy gadgets. These units are expensive to buy, potentially hundreds of thousands of Dollars just for one row. They are also expensive price-wise, with business class fares coming into thousands of Dollars.
All major African airlines take their business class seriously. Flat beds and comfy seats are standard. Catering is often excellent. But standard business class is probably close to reaching it’s potential in Africa. Internet of Things-enabled seats which notify galleys to prepare a drink when people are about to finish a movie will probably not be economic in Africa for a while.
While the growing middle class segment are willing to pay for a good experience, business class is just too expensive for most.
Premium economy on the other hand (see this article and this article) is unusually scarce in Africa. Western carriers offer these comfy seats, which are typically 50% more spacious than economy but come at double the fare.
Ethiopian Airlines 777-300ER’s are packed with economy – forty two rows and 365 seats of it, against five rows and 34 seats of business class. Due to the law of demand, the last 50 or so seats in economy are likely selling at tiny fares.
If Ethiopian Airlines ripped out these seats and replaced them with premium economy they would steal a lot of revenue from non-African competitors with passengers already flying premium economy. The intermediate cabin is probably the best way of supporting large aircraft in Africa.
Some of their existing passengers who fly economy today but cannot afford business class would voluntarily pay more for a space that the airline is already selling. Seat factors would increase too, as there would be fewer spaces to fill.
Premium economy is a no-brainer for Ethiopian Airlines, Kenya Airways, South African Airways and any other airline with flights over about three or four hours. It may not be the most advanced technology, but it is tried and tested successfully all over the world. Now is it’s time in Africa.
oliver AT ransonpricing DOT com
PS. I don’t normally double-post, but this article was originally published on Zurulink Africa here - I thought Airline Revenue Economics readers would enjoy it too