Airline Revenue's Missing Startups

Aviation is full of exciting startups, except in Commercial where three challenges put the breaks on innovation

Think of startups and you might imagine whizzy tech companies led by inspirational entrepreneurs. Brands like Tesla, Airbnb, Uber, Spotify and Airportr and their founders are synonymous with the space. But wherever you might happen to live, these days there is most likely just around the corner a trendy co-working space like the one pictured above, with successful but less famous startups doing their thing and transforming clunky industries.

Aviation is no stranger to startups. Inflight VR supplies thousands of virtual reality headsets as in-flight entertainment. Caeli Nova has an innovative solution to opening up shorter flight routes by allowing aircraft to fly higher and further in the event of a cabin depressurisation. Statusmatch.com makes it easier than ever before for airlines to attract new high value flyers. The Butterfly seat converts between longhaul business class beds and regional business class seats to grow revenue. And Plusgrade monetises unsold business class seats, although the extent to which this revenue is all growth can be disputed (see article).

However airline retailing is proving a tough nut for startups to crack. Alaska Airlines recently introduced subscription pricing (see article) by Caravelo, although it has some limitations. While incumbent vendors seem to have little relevant left to say (see article), entrants like Migacore (see article) and Kambr are providing helpful additions rather than transformational new platforms. Meanwhile aviation itself is evolving as true air taxi aircraft like those of Lilium start to operate.

Why is it so hard? There are three big challenges that startups need to overcome – read on to find out more…

Challenge one: Ancillary saturation

Airlines have sought to raise money by selling each part of their product separately. Choosing a seat in advance, enjoying extra legroom at an emergency exit or bulkhead and relaxing with a beer or wine in-flight now come at a hefty price tag. British Airways charges more than £100 each way for the best seats in their Club World business class and Iberia proudly price their bundles to move, with ‘cerveza con patatas’ (beer and crisps) at €4.95 a 28% discount on buying the two items separately.

Over the last twenty years airlines have become extremely good at raising money from ancillaries but unfortunately there is no further to go and little opportunity for startups.

Challenge two: Misaligned goals

Airline organisations are not designed to use a data-driven approach to achieve common goals centred on specific customers. The industry has tried to offer rich content that inspires shoppers to buy using NDC, a communications standard, and application programming interfaces (APIs) with intermediary vendors. But most airlines are still not able to identify the specific most-desirable customer.

The biggest hurdle is a silo mentality within airlines where teams work apart towards different objectives rather than together towards the same goal. Enterprise AI shows promise in terms of delivering better results around customer goals (see article), but because organisation is an internal matter for airlines it is hard to see startups gaining traction in this space. Meanwhile it is hard for startups to gain traction when groups of stakeholders at their airline prospects are pulling their business in opposite directions.

Challenge three: Asset gaps

In the famous words of Facebook founder Mark Zuckerberg, startups like to move fast and break things. In a highly regulated and safety-conscious industry it can be hard for airline staff to have the necessary mindset to work effectively with small and agile organisations.

Airline technology is not set up to use in this way either. It would need to be high-tech, high-touch, customer focused and operating across both electronic and real-world spaces. But many of today’s airlines are still powered by legacy distribution platforms which had their origins in 1960s punch card computers with whirring tapes and flashing lights (see Club Class article).

Even modern apps follow customers using the same “from > to” structure – check any booking engine. Moving to personalised ticketing (see article) will require skills, attitudes and commercial logic that airlines lack today. Put all these together and no wonder we are seeing little disruption from startups.

So what would I work on if I were building an airline startup today? It would be a true retailing platform with inspiring window displays that help travel shoppers see the airline as a lifestyle company, not a purveyor of seats in a tube. How would it work? I will tell you more on Monday…

Are you a startup or scaleup trying to win airline customers. If so we can help – get in touch to find out more.

Join Ai Events Airline Information’s conference on Replacing Revenue Management & Pricing with Retailing Optimisation on 8-Mar, 15-Mar and 22-Mar.

ricardo DOT pilon AT millavia DOT com

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