Planning for Airline Revenue Growth Post-Pandemic: Seven Steps
At the start of 2020, the world was a very different place. Airlines had invested in new aircraft capable of connecting nearly every major city on the globe. AirBnB was one of the most hotly anticipated IPOs of the year. Destination cities like Amsterdam, Venice and Barcelona were groaning at the seams, and all the talk was of how travel could be curbed.
After many years of modernisation through fleet renewal, technology updates and product improvements, many airlines were recording the best results in their history. All of this progress was stopped by a single global event that few could have foreseen.
One by one every country in the world affected by coronavirus closed down its borders, and, as a result, closed down the airline industry. The effect on travel was immediate – and breath-taking. In 2019, Lufthansa were flying on average 350,000 passengers every single day. In May 2020, this number was reduced to 3,000 passengers a day. In terms of flight schedule, Lufthansa CEO, Carsten Spohr said the airline had gone back in time to where it started in 1955 – a decade after the Second World War and following a 10-year ban on flights!
There was some hope that the second half of 2020 would be better as the first wave of the pandemic would be over as lockdown would have flattened the curve. There was the belief that there was pent-up demand as people would be tired of being cooped up, would adjust to the conditions and start traveling again.
However, this has not happened as swiftly as the industry thought. And, even post-pandemic, airlines will continue to bleed money until traffic levels recover to where the airline’s revenues more than cover their newly reduced cost base. IATA has recently predicted 2022 for domestic recovery and 2023 for international recovery.
As a result, new revenue streams are urgently needed for all airlines, as passenger growth is flat or negative for the foreseeable future and fares look to remain static – or go downward.
The future for revenue growth for airlines both during the pandemic and beyond the pandemic needs to be based on thinking about what they can sell beyond the seat. How? To face this challenge of rebuilding, airlines need to be in a position to become “complete retailers”.
Henry Harteveldt – Principal at Atmosphere Research – defines complete retailing as:
“The ability for an airline to dynamically create, price, publish, and sell relevant, personalised offers throughout the traveller’s journey, and manage the order’s creation, payment, and fulfillment, across any channel and platform.”
What does this mean from the customer’s perspective? Harteveldt believes that ‘a trip is an ongoing opportunity for a customer to buy what they want when they want it’.
Airlines have always been in a great position to sell the entire trip and fulfill needs because most customers have a ‘first’ and ‘second’ wallet mindset when they travel. With the first wallet mindset, the customer is focused on getting the best deal for the flight. Once that task has been done, the customer’s mindset changes: they focus on the quality of experience that they are getting in-journey and at the destination and are therefore willing to spend more on higher-margin products.
What does it take to be a complete retailer? Here are seven steps that airlines can take right now to become a complete retailer and create revenue growth during and post-pandemic:
1. Create a Great Customer Experience
Customer experience is based upon the sum of all the interactions a person has with an airline – it is becoming the defining differentiator between companies. The consumer now has a set of expectations forged by their contact with the great retailers and the Silicon-Valley brands such as Uber and Airbnb. These businesses focus on delivering a consistently excellent customer experience (CX), and airlines need to respond by delivering a seamless experience across all devices, platforms and touchpoints.
2. Focus on Conversion with the Right Product
Adopting a retailer mindset means understanding that there is a long window of opportunity to sell relevant products to customers before departure. Research from Yieldr shows that the average booking window is 78 days with a breakdown of 81 days for LCCs and 55 days for scheduled carriers. Within this timeline there will be optimal moments that matter for the customer; these will be the times when they are most receptive to the recommendation of certain products. The ‘secret sauce’ is the potential for a real-time response to a customer signal with the perfect product based on signals of intent and past purchase history.
3. Create a Great Content Portfolio
The real key to being a complete retailer is to have a comprehensive portfolio of airline and 3rd party ancillaries relevant for the airline and its customer. The best place to start this portfolio view is to breakdown the individual components of a booking. Airlines have total ownership of the flight product and this is the highest margin opportunity for complete retailing. Seat selection, bag options, meals and early boarding are all high margin products: when a passenger books a seat, and pays extra to select their seat, the airline is generating a 100% margin on that seat selection. Even when the operational costs for flight-related cross-sells such as meals and Wi-Fi are factored in, the margin profile is generally in the 80%+ range.
Margins on non-flight ancillaries are important but are lower: hotels, car hire, ground transfers are an important part of the ‘second’ wallet and have been part of the airline retailing proposition for years. To be fit for purpose post-pandemic, non-flight ancillaries need to personalised, presented to the traveller in the right channel at the right time to not only improve the conversion but to also improve the margin opportunity.
4. Create Propositions that are Distinctive to your Travel Brand
Good retailers stock the shelf the way they want to, with their own products or with partner products that are curated in such a way so that they are differentiated from the competitors. Applying your airlines’ unique knowledge of customer preferences, behaviour and purchase history means that you can select the right product supply, for example, a chain of boutique hotels, and create combination retail offers for any flight and travel product. These can be your own products or part of those products combined and made available.
5. Use Consumer Insight
There is no retailing strategy without data. Data-driven insights lead to better customer insight. With airlines able to collect and analyse more and more traveller data (including mobile app and social media behaviour, session history from in-flight connections, travel history and previous purchases), it is essential that this information be captured, stored and shared, to create a single unified traveller view. This will enable personalised search results so that the airline can merchandise the right products at the right time to the right person.
6. Integrate Data to Create the Right Offers
Integrating all data will enable an airline to develop greater customer insight and personalise customer recommendations. But it is the combination of insight, personalisation and recommendations that provides the ‘magic sauce’ that enables airlines to use their data. Just like a retailer, an airline needs to ensure it has the correct tools at its fingertips that take contextual data and generate tailored offers to match the brand and then funnel these products to the right segment of the customer demographic – across all channels.
7. Create Personalised and Dynamic Offers
The objective should be to personalise a customers’ experience and by doing so make things as easy as possible in the online customer journey. Personalisation is about offering the right product at the right time to customers based on their prior history and/or current context. The combination of the airline’s flight inventory with hotel accommodation which can then be combined with ground transfers, car hire and destination activities creating one packaged price that is tailored or ‘personalised’ for each customer. These packages can be created ‘on the specifics for the intended user – improving conversion
We are at the dawn of a new era in travel – one that was not anticipated. The COVID-19 pandemic will end, but changes in consumer preferences and business models will outlast the immediate crisis. As the economic impacts persist, the crisis gives airlines the opportunity to accelerate their customer-centric thinking and their complete retailing capabilities.
OpenJaw Technologies has been at the forefront of helping airlines transform into travel retailers for almost two decades. We have found that by adopting a ‘retailing’ mindset, airlines can flip their thinking about their customer on its head and, in doing so, drive more revenue, larger margins and increased profits. Now in this new world, the industry needs to plan a different way to ensure we come out of this crisis in better shape – and being a ‘complete retailer’ is the only way to make this happen. Airlines must follow the lead of successful retailers by moving beyond thinking of a customer as a transaction and a seat and have a laser-like focus on increasing their customers’ ‘share of wallet’ – this is the only way to survive and thrive post-pandemic.
Bryan Porter, CCO, OpenJaw Technologies