December’s World Aviation Festival in London was a great opportunity to bring the industry together and, although attendance was inevitably lower than normal, there was a strong conference program that carried a mood of guarded optimism. Best of all, I was delighted to see just how strongly the focus was on real action to drive ancillary revenue and recovery.
Much of 2021 has been spent waiting for a recovery to be established and many airlines have understandably been hesitant (or unable) to commit to new investment or major change in their customer operations. The long hoped-for recovery has been impossible to forecast accurately and many airlines opted to simply ‘hunker down’ and wait until a clearer path can be seen through the storm. That strategy carries deep risks.
We now face a new phase of crisis as Omicron sadly develops its global presence but the fact is that the world will continue to turn, people will continue to travel, the crisis will eventually recede, and traffic will return. Airlines need to be preparing right now to create the customer experience that the recovery will demand. Yes, the picture of how the 2022 travel market will look in recovery is still blurred right now - but the key point is that we do already know exactly what the returning customer looks like and what they want. We have a clear understanding of the experience they want - and we have the digital tools to deliver that experience.
The returning traveler needs to be welcomed back with a new standard of airline customer experience built digitally around their needs – needs that have been transformed by their experiences of the past two years. Unfortunately, even when fully aware of these customer needs, many airlines do not currently have the flexibility to respond.
The majority of today’s airlines maintain a broadly similar traditional base model and are consequently hindered by that model’s lack of flexibility and adaptability, particularly in the limit it imposes on the scale of product and brand choice the airline can create for its customer. Low conversion, declining SPH and major sustainability issues are common problems and, even when fully focused on their passenger’s needs, the model impedes the airline’s ability to deliver those needs.
Under this traditional model, most airlines have agreements with multiple vendors, sending the airline’s traffic to them in exchange for an agreed return as part of an affiliate-style relationship. This format has been in place for decades and can appear to be relatively simple and effective for the airline to operate – but does it work for today’s customer?
Customers are increasingly confused by the barriers and don’t like or understand why ‘their’ airline shuttles them between different providers. ‘Why has my airline sent me to company X for this service?’ ‘Why can’t I simply use my loyalty points at the check-out process?’ It’s disjointed, it weakens the customer experience - and it’s wasting the airline’s biggest ancillary revenue opportunity. The model not only limits airlines’ ability to respond to the customer but also makes differentiation practically impossible – and, crucially, those long-established problems are now being joined by new pressures driven by the COVID crisis.
As they look to recovery, airlines need to be aware that the returning passenger brings with them some heavy new baggage, especially in the new challenges of what they want and how they assess their airline experience. The domestic customer experience has been revolutionized by the brands and operators that responded most effectively to the customer’s changing needs. When people need to work from home, Zoom, Apple and Bose have the answer; when restaurants are closed or restricted, JustEat offers a global menu at your door within 30 minutes; when you need COVID advice, you look online; when you eventually fly again, you rely on your mobile phone for a touchless journey. Digitalization has been the bedrock of daily life throughout this crisis and the huge range of consumer behavior change it has driven is now deeply embedded and will be a huge factor in the recovery.
The core reason why those leading consumer providers (also Amazon, Alibaba, asos, Sephora, Deliveroo etc.) can respond quickly and deliver an exceptional standard of customer experience is because they have control of their marketplace. Airlines need to seize control too. In my keynote presentations at WAF (shared with Omnevo chairman Kian Gould), I explained the marketplace concept to the airlines as the only viable path to revenue recovery and long term performance.
Airlines can take control by adopting their own marketplace ecosystem strategy, developing a digital marketplace with the versatility to cover the full range of the customer offer across the whole passenger journey:
The range and depth of the offer and the supporting operations required are tailored precisely to the needs of the airline and its customers, precisely balancing each of the elements of the customer offer as required. This means that, whether it’s an FSC wanting a full omnichannel model with a focus on luxury retail or an LCC emphasizing a simple core F&B program, any airline (of any size) can develop a marketplace to address its own unique needs – creating an eco-system over which the airline maintains full control. This capability not only removes the inherent risks and weaknesses in relying on multi-vendor agreements, it also dramatically enhances the airline’s ability to meet its customers’ needs and drive far higher levels of operational efficiency and revenue delivery.
The marketplace model is developed to the scale the airline requires to meet its needs and is powered by passenger data, something that each airline has in vast quantities but has previously been unable to exploit fully. Ultimately, it even creates the potential for the airline to evolve itself from an airline into a lifestyle company through an omnichannel platform that, instead of focusing on ‘the passenger’, creates a much wider perspective on ‘the customer’. This opens up a 360-degree engagement model that deploys an astonishingly wide range of new revenue opportunities.
By reaching ‘the customer’ it means you’re not shackled to a flight seat on a set date; you’re not restricted to a small, relatively uninspiring choice of products/F&B to offer them; and you don’t lose contact with them the moment they step off the plane. Instead, you sustain a deeper relationship with your customer and, ultimately, can even embed your airline into their daily lives. You can sell to them when they travel, you can sell to them when they’re not flying; in fact, you can sell to them even when your own aircraft aren’t flying. It’s a totally open, 24/7-365, revenue opportunity.
In the past, some airlines have had the foresight and ambition to explore the digital revenue opportunity but have been deterred by the then missing critical piece in the digital jigsaw – the omnichannel order management and fulfillment system. With that complex system added, the radically enhanced customer experience is supported by a powerful and reliable back-end integration, linking the two through an ePOS system that empowers the inflight crew and drives on-board performance and revenue. This critical element enables the clear orchestration of multiple suppliers and fulfillment methods in real time, completing the jigsaw with an end-to-end solution that further expands the revenue opportunity.
Airlines using these proven marketplace solutions can expand their offer to any size, engaging with the world’s leading brands and potentially tripling conversion by expanding choice to thousands of SKUs, and achieving 100%+ increase in basket as well as exploiting the potential for cross-selling and up-selling - opportunities that are almost non-existent in traditional models. The icing on the cake is that the model also enables much deeper exploitation of the airline Loyalty program – around 60% of the sales in a marketplace model involve the use of loyalty points.
If you’re thinking this sounds amazing but your airline doesn’t need such an extensive, omnichannel platform then don’t forget that the technical beauty of the digital marketplace is that it can be cut precisely to your airline’s needs and budget, including revenue-share based options for easier entry. Similar to the principle behind selecting an iPhone, for example - from the SE to 13Pro - you simply adopt the modules that you need, exactly when you need them, and can always expand at will.
Scale is also not an issue; from a relatively simple core F&B model to the full omnichannel model, you can develop exactly the customer experience you require. The platform hosts that experience and drives huge advances in operational efficiency, sustainability gains, and revenue performance. Essentially, it gives airlines much more control over their revenue path.
To optimize both the recovery phase and long-term performance, airlines needs to be in control of the customer journey and keep the customer and their data within their marketplace eco-system. It’s encouraging to end 2021 with such a heightened focus on ancillary revenue digitalization at WAF, but it’s even more exciting to think that 2022 will see a radical shift towards the adoption of digital marketplaces. The challenge is not the digital technology; it has been consistently proven to work. The real challenge for airlines is in understanding and responding to the continuing scale and pace of change in their customers’ needs; and any airline that doesn’t respond will certainly face an even greater threat in the long-anticipated recovery phase.