Airlines offer some of the snazziest, stylish and most desirable products anywhere in the world. The idea of jetting off in first or business class to exotic destinations is so enticing that consumers will put all their spend through co-branded credit cards to earn mileage, even paying money for the privilege. As a result loyalty programmes are one of the world’s most profitable fintech (see article).
Premium cabin travel is so cool because airlines get creative in passenger experience (see article). Uniforms, food, interiors and liveries are the canvases airlines use to stand out from the crowd, as we explained in our recent review (see article). Funky lounges and bars for example are great marketing and keep people buying tickets (see article).
But when it comes to commercial product things are a bit more staid. Traditional pricing and revenue management is based on data that is at best incomplete (see article) and at worst obsolete (see article).
Airlines have made efforts to invigorate willingness to pay through cabin upgrades (see article), branded fares (see article) and subscriptions (see article). But there is much more that can be done, ideally with the people, processes and planes that airlines already have.
Here are five of my top ten tips for airlines looking to get the most out of their staff’s creativity. I will be sharing the other five next week.
Tip 1: Increase passive income from content
Today’s aircraft generate large amounts of operational data, showing airlines how their aircraft are performing in real-time. Ed Bastian, the CEO of US carrier Delta, told us how he loves using the Airbus data solution Skywise to support maintenance, engineering and operations (see article).
Mr Bastian and his friend Virgin Atlantic CEO Shai Weiss also reckon that there is huge potential to translate data on passenger behaviour in the cabin into revenue, although they will be building their own data platforms rather than Skywise.
We reckon that in-flight entertainment will be a big revenue driver in the cabin. Whether passengers are using a wired-in system furnished by the airline or wi-fi content delivered to their own devices, retailers will be able to bid for impressions.
As we explained in our in-flight metaverse article (see here) these impressions need not be intrusive. They can be built into ‘billboards’ within the content. We understand that Spafax, a media supplier, have already developed this technology.
It will be interesting to see how airlines develop mechanisms that allocate access to different passengers through bidding. Some airlines might like to focus on the cabin, so impressions to high-yield first and business class travellers will be more expensive. Others might focus on the route, either by flight length, time of departure and arrival (i.e. overnight or daylight flights) or attributes of the origin-destination pair. Airlines will need to consider carefully how they design their bid-acceptance strategy and there might be an opportunity for an innovative startup to enter this space.
Tip 2: Let servicing trump selling
Airlines love to stack processes and retailing is no exception. They believe that if they can simply persuade passengers to add more and more things to their basket they will make more money. Traditional distribution and travel selling platforms work this way as passengers buy a flight and hotel, possibly topping it up with insurance or a car.
In the world of New Distribution Capability, a communications standard, airlines imagine that adding rounds of golf, beach towels or bungee jumping will earn them more money. Superficially this may be true, but look behind the scenes and the picture is more complex.
Travellers do not only demand products, they also want servicing. Not services in the sense of haircuts or meals, but flexibility to use the products they have bought in the way that works best for them, including exceptional recovery when things go wrong.
IATA Director General Willie Walsh, formerly CEO of Spanish airline group IAG and London-based British Airways (BA) was bang on the money when he announced a while ago that he thought the most important thing an airline could offer was not plush seats or gourmet meals but putting things right quickly and efficiently when they go wrong.
Oliver recently had a BA flight cancelled at short notice and BA paid his statutory compensation less than a day after he made his claim. That is servicing and Oliver tells me it is why he will fly BA even when the fares are more expensive.
But servicing is not strictly about handling things when they go wrong. It is really about flexibility. Why for example can passengers not un-check-in from a flight when they decide to extend their stay? If BA had offered Oliver a special deal to stay a few more nights he might have even paid more money to the airline rather than taking money back in compensation.
To make this happen the sales process needs to work in reverse and product stacks should be broken down. Today’s airlines start from the view that passengers have decided to buy a ticket and add everything on from there. Tomorrow’s travel retailers will also consider how they can improve journeys that are already in progress to the benefit of both passengers and operators.
Tip 3: Create a digital experience platform
Airlines hold a lot of data about who their passengers are, how they buy travel and which parts of the experience they value the most. Unfortunately this is not all currently in one place, so delivering consistent, customised offers and servicing is hard.
AirAsia have been deploying a super-app to put things right. This is perhaps the first true digital experience platform ever offered in aviation. We reckon that there is lots of potential for airlines to use this model to offer travel-related or life-related products and experiences through an experience marketplaces (see article).
These marketplaces as we see them are not simply an “Amazon of travel”. Airlines can already use Amazon for selling products and services. What the marketplaces will need to excel at is servicing, making tailored offers specific to individual trips incorporating the airline’s commercial (recovery) opportunities as they materialise rather than fixed before the trip.
Consumers using these marketplaces would still be able to fly their trip as planned. But if an airline has got its overbooking a bit wrong and is expecting to deny boarding, they might be able to raise revenue by offering an extra hotel night for sale to existing travellers through their experience marketplace. To sweeten the deal it need not be the hotel only – experience marketplaces can cover any travel experience.
Tip 4: Embrace applied psychology
Airline people like planes, travel and tangible experiences. They value hard skills and hard data, not inferred insights. Meanwhile in the retail world people and behaviours are messy but it is all around emotions and state of mind.
The best digital retailers deploy the best applied behavioral psychologists. Digital leaders like Amazon increasingly use organisational psychology to design organisations that are better equipped for servicing and ultimately raise more revenue. These new structures tend to be quite different to the way most airlines are organised today (see article).
There is sufficient hard science to enable new value and it will be increasingly important in adopting a service and digital experience model. Airlines have a lot of work to do changing their mindset and building business structures that are appropriate to the 2020s.
Tip 5: Utilise hybrid intelligence in a virtuous circle
Artificial Intelligence (AI) is in vogue right now. Revenue management (RM) vendors are spending lots of cash convincing airlines that their history-driven data sets are something new and remarkable. They are not, although airline RM has much in common with how people now describe AI.
RM tends to get more complex over time, making it harder and harder for airlines to set prices and figure out how many seats to sell at each fare without support from their vendors. Rather than reducing costs and complexity in RM, “AI” focus is sending them higher and higher.
There is now a significant risk that airlines will try to use AI to solve too many problems in ways that are too complex. Vendors will love the extra fees they can charge airlines, airline shareholders and directors less so.
Instead we recommend airlines use AI to upskill more people and design organisations that use the airline’s existing people and systems as effectively as possible. In practice, this looks like AI models helping humans catch up with the frontier of technology before iterating to. the next level of problem solving.
Explainable AI uses visual tools to explain how results are obtained and are credible, just like making a good but short presentation to help busy executives take a decision. Putting humans back at the center of business is the purpose of hybrid intelligence (HI). Airlines using HI Rather than autonomous AI will achieve better results at lower cost.
ricardo DOT pilon AT millavia DOT com (author)
oliver AT ransonpricing DOT com (editor)
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