Ten Tips for Creative Airlines - Part Two

Five more ideas for invigorating airline commercial products

Last week I shared five of my top ten tips for creative airlines. Click here to check them out. This week I am pleased to present the second five.

One of the topics we introduced in this article was ‘servicing’. This is an idea that airlines should enable passengers to be entirely flexible with their tickets. Sometimes this will require a fare premium as part of ‘fully flexible’ branded fares (see article).

But there may also be times when both the airline and the passenger might value changes. For example, airlines who know a flight will be overbooked can reduce denied boarding costs and associated compensation by proactively offering passengers the chance to extend their stay. Airlines with products like this might even earn a small revenue premium when otherwise there would only be cost.

To recap, the first five tips were:

Tip 1: Increase passive income from content

Tip 2: Let servicing trump selling

Tip 3: Create a digital experience platform

Tip 4: Embrace applied behavioral psychology

Tip 5: Utilise hybrid intelligence in a virtuous circle

Now read on to find out what’s in the final five…

Tip 6: Merge RM with customer service and loyalty

Loyalty is arguably a key driver of every airline’s entire commercial product (see article). People in this department focus on individual travellers rather than agents and distribution using legacy platforms. Their tech is quite young too.

For all the discussion of airline retailing, airlines have little real experience in this space. Loyalty people on the other hand tend to work with real retailers who are partners with the programme, using the airline’s mileage currency to reward their customers.

Members of the loyalty department might even have a retail background themselves. Such experience is quite rare in revenue management (RM) or network sales, which might help explain why airlines are still keen on labyrinthine fare structures and tricky fare rules that are hard to communicate or explain.

Unfortunately, of all the airline departments RM is perhaps the least customer friendly and the least focusing on servicing. Yet as a department it tends to be remarkably powerful within an airline’s organisation. By and large, if revenue management wants something commercial to happen, it does.

RM would be in a great position to embrace servicing but the current focus on seat sales and transactions rather than customer lifetime value and satisfaction makes it hard for RM to transform themselves. Merging RM with customer service and loyalty would be a great goal for ambitious airlines. By default, it will trigger healthy new policies that are friendly.

One ID is an IATA product currently in development that will allow airlines to understand all the transactions associated with a person. Airlines who wait for One ID might need to hang around a long time as first-step technologies like the NDC communications standard and One Order, which aggregates all transactions in a trip, took decades and billions to realise.

But for those airlines who merge RM, customer service and loyalty today the benefits of One ID are likely to come sooner. Such carriers will need to set goals that focus on maximising the lifetime revenue of a traveller, not just the revenue for one flight or even one year.

Tip 7: Build relationships with OEMs based on revenue, not cost

For the last 50 years airlines have been highly cost-focused organisations. Their Chief Financial Officers have taken every action possible to create lean and efficient processes.

Original Equipment Manufacturers (OEMs) like aircraft and engine manufacturers, galley suppliers and seat designers have responded in kind. Today’s aircraft guzzle much less fuel and all their interiors products are built with state-of-the-art lightweight and robust materials that are efficient to fly and easy to maintain.

So much progress has been made in the field of cost reduction that it now costs a lot of money to save money. The best materials and the best designs now take millions of hours and billions of Dollars to crate.

As a result it is now easier for airlines and their suppliers to boost profits by growing revenue rather than cutting costs.

Twenty years ago Boeings were built for pilots and Airbus were built for engineers. Today both manufacturers should build for passengers instead.

Fortunately there are plenty of opportunities. Aircraft are now data collection platforms and aircraft interiors can enable service delivery (see article). Intelligent textiles, galleys and lighting can be used to improve the passenger experience so after a good flight people become more likely to book the airline for their next trip. The extra demand will help airlines grow revenue.

Virtual Reality (VR) and metaverse technology also offer airlines great revenue potential, although there are some thorny operational issues to overcome (see article). Airlines can even create revenue in their fancy business class lounges (see article).

Airlines will not be able to achieve these results by themselves because they are so focused on their top priorities – operations and safety. But suppliers who can innovate and show airlines the revenue potential of their products may find it easier than ever before to sell to airlines (see first article and second article).

Tip 8: Embrace micro-payments

Airline subscription models such as Caravelo’s are viable (see article) and could reflect general trends for people to pay smaller but regular amounts for products and services they used to have to buy outright.

Instalment-based pricing models like Laytrip’s have superficial similarities but tend to target lower income markets so buying behaviours are different. Subscription payers are more likely to take many flights, instalment payers only one or two.

Consumers are arguably growing weary of subscriptions and recognise that the model actually leads to their costs going up over the long term. An explosion of travel-related content, choice and promotions like we have seen in the entertainment industry with Netflex, Prime, Disney+ and others could end up reducing loyalty and demand from the most valuable market segments.

An alternative is to use micropayments, adding services to trips over time. Traditional airline sales is highly concentrated – the consumer buys a flight and perhaps a travel package at the time of booking and some ancillary services like a drink or excess baggage either in-flight or at check-in.

Micropayments however are less concentrated. Airlines who offer consumers products and services at many times before the trip, during the trip and after the trip may collect a large number payments that are smaller individually but collectively add up to more.

For micropayments to be successful they will need to be compelling, not annoying. Airlines might do well to use social media data from platforms like Migacore (see article) to understand the trends in consumer behaviour across markets and respond accordingly.

Tip 9: Build an airline experience store

Go to the Apple Store on London’s Regent Street and chances are that you will not be able to buy an iPhone. You can pick one up that you have ordered online but none are actually available for sale. Yet the shop is bustling. People go to solve their issues, buy accessories and generally feel the buzz around the Apple culture.

For the same reasons airlines should consider building their own experience stores (see first article and second article). If real estate in their major markets proves too expensive they should at least consider building airline experience marketplaces online and in VR.

To be successful such a store would need to show how the airline delivers unique products that consumers cannot buy elsewhere, choice and exceptional digital services. Some consumers will want to try out a comfy business class seat to see the value it offers. Others will want to explore destinations and get travel ideas.

Airlines might even offer passengers a chance to re-live past journeys so they can remember the excitement of travel and be inspired to book again.

Tip 10: Earn a higher share of wallet

Globally, the average amount leisure travelers spend during a 7-day trip is USD 1,500. This excludes flights, transportation, hotels and meals. That means there is USD 1,500 per trip that an airline does not touch. If they were able to earn 10% commission on even two thirds of it that would represent revenue growth of USD 100 per passenger. Some airlines would be able to offer tickets for free (see article).

But with rising inflation and other operational challenges, betting on travel is more risky than other purchases that even irregular airline passengers make every day. AirAsia is building its super app to become the portal of choice for everyday spend. Co-branded credit cards assign a share of spend across large middle class demographic groups to airlines (see article). Airlines who build a relationship with their passenger beyond their travel and maintain it on an almost daily basis will be best-placed to succeed in the next decade.

Ricardo DOT pilon AT millavia DOT com (author)

Oliver AT ransonpricing DOT com (editor)

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