In the race for ancillary revenue recovery, most airlines are on the start line – the industry’s leaders are already hitting the first bend of the track. As the initial global shock of COVID-19 sinks in, airlines are beginning to think beyond survival mode and look to their greatly increased need to maximize ancillary revenues in the aftermath of the crisis. But in the fight for their post-COVID-19 future, some airlines are bringing bigger weapons to the battle and look more likely to be the long-term winners in the revenue race.
Those weapons are digital.
For the handful of pioneering airlines that have already developed a full Omnichannel experience for their customers, the future path is much clearer. Airlines such as Singapore Airlines (KrisShop) and Lufthansa (WorldShop) are even able to keep their online platforms operational throughout this crisis, not only achieving a continuous, though reduced stream of sales, but also (and perhaps even more importantly for the long term) maintaining their customer relationships.
The strengths of an Omnichannel revenue platform over the traditional inflight ancillary revenue model are clear, and the COVID-19 crisis highlights the ever-rising power of online ordering when combined with home delivery. The huge surge of business among online operators – from established global giants such as Amazon to local bakers adapting to the crisis – is not temporary; it signals a deepening and lasting shift in customer behavior.
I know that from my own behavior. Getting a bit stir crazy at home the other day, I went shopping online at Amazon. My wish list included a new iPad Pro and Bose headphones for working at home… then I found a trampoline for the garden… and a new coffee machine for the kitchen…
These were all available on Amazon with easy, instant, secure purchasing and automatic home delivery. In contrast, most airline retail sites are as grounded as their planes. However, a handful of digital pioneers can match the Amazon experience; most of those same products were also still available on Lufthansa’s WorldShop and on the Singapore Airlines’ KrisShop. Even better, some of the prices were lower and I could pay with my large accumulation of airline miles. That’s a huge advantage, especially as so many loyalty scheme members are very concerned about their accounts right now.
With its WorldShop still open 24/7, Lufthansa’s Omnichannel strategy means that it can continue to drive ancillary revenue and also maintain its relationship with the customer. Similarly, other forward-thinking airlines, such as AirAsia, have digital strategies in place that provide them with a core competitive advantage, including driving revenue and maintaining their customer relations even within a crisis.
While the COVID-19 situation has illuminated the effectiveness of digital platforms, it has also shone a powerful spotlight on how the traditional inflight revenue model cannot adapt to the modern world.
A comprehensive online platform incorporating home delivery will be essential for airlines aiming for recovery and revenue growth in the year ahead. Travel retail margins, combined with reduced operating costs, make even duty- and tax-paid home delivery a very viable business in most regions.
Of course, the old model’s faults are well known and many airlines have ejected from the market while others have taken a tentative half step towards an Omnichannel approach. The latter have certainly improved their online presence, particularly through the concept of web-rooming, whereby the customer browses the airline’s product offer online and then pre-orders for collection (or gate/seat delivery). British Airways, for example, has a relatively strong and appealing luxury brand range, but without home delivery this online experience will be a dead-end for many of its customers and conversion will not be maximized.
Certainly, this approach can at least help to engage the customer and achieve some degree of sales, but is not a full Omnichannel experience and is nowhere near as effective in driving revenue. Airlines operating full Omnichannel platforms claim average retail basket sizes that are double the inflight industry’s average retail spend –creating a major competitive advantage. The ‘half step’ away from the traditional model cannot match that.
Crucially, most airline platforms often lack the required depth of range of relevant luxury product ranges (especially laptops, electronics, jewelry, watches, etc.) where confirmation of availability of new launches, specific model, color, size, etc. is absolutely critical to the customer.
Service and convenience are also key issues for the customer. Many airlines see ‘Click & Collect’ and seat/gate delivery as real advances in service, but these are relatively clumsy options (and usually with strict time limitations) that feel cumbersome to a customer accustomed to smooth online brand experiences. Adding ‘bolt on’ extras like these to the traditional model still leaves those airlines with a platform too basic in function for today’s sophisticated consumer, with the limited product choice and lack of home delivery services being fatal in-built flaws. As a consequence, these lower cost, lower sophistication platforms are now ‘grounded’ like the planes and can do nothing to drive revenue or customer relations.
In stark contrast, the handful of pioneering airlines with Omnichannel platforms continue to chase revenue (albeit reduced of course), continue to interact with their customers and continue to improve their digital platforms to further their competitive advantage ahead of market recovery.
Singapore Airlines is also using this crisis time to further enhance its already formidable KrisShop (see Image 1), including fast tracking an expanded brand range, improving backend operations and adding new customer services (such as Live Chat), enabling it to emerge from these tough times stronger and ready to seize the post COVID-19 revenue opportunities.
Similarly, Air Asia CEO Tony Fernandes has created his ‘Save Our Shops’ (SOS) initiative to drive the opportunity by enabling struggling travel retailers in the region to sign up as merchants on AirAsia’s e-commerce marketplace, OurShop, free of commission or listing fees.
In Europe, Lufthansa’s WorldShop platform leads the way by further expanding its product categories, including a powerful online campaign on spring/summer launches and exclusives to seize the attention of housebound members. Of course, these pioneering airlines too have been impacted heavily by the crisis, but they are still able to find additional ways to drive their competitive advantages.
The current ‘fire-fighting’ mode among the world’s airlines includes an intense focus on cost-cutting and the removal of discretionary spending - but at some point, their future planning needs must be brought back into focus and commercial visions move beyond simply surviving the next few months. The higher threat faced by some cash-strapped LCCs further emphasizes the Omnichannel opportunity available to the large flag carrier airlines.
Surprisingly, some airline executives still feel that E-markets are not natural environments for their airline. Of course, they experience Omnichannel in their own daily lives and they acknowledge that digital retail is unstoppable; but they haven’t been convinced that their own airline can develop an effective presence that delivers the right ROI.
Inevitably, each airline has its own unique scenario but I often find that they’re looking at Omnichannel in the wrong way. Fear of the scale (and cost) of change is understandable - but they must look at the advantages that far outweigh the challenges, and the cost. Seeing airport retailers spend $300m on upgrading their stores but, astonishingly, declining to add a few million dollars investment into Omnichannel is a lesson that airlines can learn from. It could certainly be a harder lesson for those airports to face in 2021.
The COVID-19 crisis, and the inevitable threat of further crises in the future, may convince more airlines to make the Omnichannel leap. Airlines already have huge customer loyalty member bases that can be precisely targeted through the incredible amount of data held – the perfect fuel for an Omnichannel strategy. Data is power and it is incredibly effective in the precise, personalized targeting of customer spending across an extraordinary gamut of products and services extending far beyond the traditional focus of ancillary spending.
By delivering more of their customer’s needs within a seamless, engaging, Omnichannel experience the airline can integrate itself within the customer’s lifestyle, transforming the commercial opportunity. It’s no longer tied to an aircraft seat on a specific date, or to a specific, narrow window of opportunity. Instead, we see a shift to a focus on the customer’s lifestyle and a myriad of ways in which the airline can look at its customer and say: ‘What else can I do for you? What else can I sell that blends into your needs and your lifestyle?’
To achieve that, airlines must adopt an Omnichannel experience and develop as lifestyle brands with a stronger, retail-focused mindset, creating a much more effective and stable platform for the long-term growth of ancillary revenues. And Omnichannel it is not a static answer, it can (must) continually evolve by understanding and delivering the ever-evolving needs of the customer. That process is powered by customer data, a commodity that airlines possess in greater depth and quality than any airport or retailer.
In the unprecedented shadow of the COVID-19 storm, even Omnichannel is not a complete answer - but it does offer a significant degree of shelter from the worst of any market climate. And, when the skies fill with planes again, it opens up a whole new world of ancillary revenue opportunities.
From major FSCs to small LCCs, digitalization provides the most effective, low-cost path to new levels of operational efficiency and revenue recovery to all airlines. Kian Gould, Chairman of digital revenue innovators Omnevo, explains 5 reasons why. Let’s start on the bottom line: any airline – including everything from flagship FSCs to small regional LCCs – can now cost-effectively digitalize their attack on the recovering market and seize the digital route to recovery. Let me explain why.
Frankfurt, July 14th, 2021 - Omnevo, leading provider of revenue-increasing digital platform solutions for airports and airlines and part of the AOE Group, and Fraport AG, owner and operator of Germany's largest airport, announced today that Frankfurt Airport goes live with the latest advanced version of Omnevo's award-winning omnichannel e-commerce solution. Additionally, the two companies announced that they have extended their long-term partnership for another five years to further develop the digitalization of the airport's range of products and services for the almost 70 million passengers (before COVID-19) who travel through Frankfurt Airport each year. With go-live, the existing digital solution platform, which Omnevo’s parent company (AOE) had originally developed for Fraport, was migrated to the latest Omnevo product version. Through its original partnership with AOE Fraport utilized the OM³ digital platform (now known as Omnevo) to become the world’s first omnichannel airport focused entirely on omnichannel both before and, especially, during the pandemic. The newly enhanced Omnevo cloud solution enables the operation of a complete airport marketplace solution for all travel retail sales at a fraction of the costs previously required for such a leading ecosystem, creating new revenue opportunities for crisis-hit airports of any size. Thanks to the highly flexible SaaS solution, Fraport has also effectively future-proofed its digital strategy by integrating directly in the Omnevo product roadmap, enabling it to benefit from Omnevo’s strategy of continuous improvements to the solution.
The past year has been extraordinary in so many ways and, while the tragic impact on lives takes precedence, we’ve also had to deal with the huge changes in our working life too. As the crisis developed early last year, I was busy planning in my new role as CEO of Omnevo - AOE’s new specialist product division - positioned as a digital solution pioneer in the travel industry, launching in early 2021. As the crisis grew, this became the most challenging experience of my career, but I’ve been surprised to find that it’s also become one of the most instructive and rewarding experiences too. Creating and launching any new company is always a huge challenge but we suddenly faced extraordinary new barriers as the way we do business had to be transformed. Much of 2020 was spent planning the new company and today, still operates almost exclusively remotely. Many of us, including some of the founders, worked together for almost a year but have still not actually met in person! Yet we already operate successfully in a global network and are scaling and winning new business. Omnevo is a truly virtual organization; this is how we were born and that is how we thrive. In this short time, we’ve already made our mark on this industry, with a culturally diverse, agile and highly committed team working alongside customers of all sizes around the globe. We’re gaining a lot of attention because we are recognized as game changers - and that innovative spirit is integral to our team spirit. We are committed to being the digital challengers and innovators in the travel and mobility industry – an ethos drives us every day. And it’s working. But what is the glue behind this, what makes us successful? Why is it working and, in these bizarre working conditions, how did we manage to get the team so well and engage with our customers so quickly? I’m obviously proud of what we’ve achieved but I want to share my personal perspective on how we made this happen and hope that it will resonate with others in the industry - and, hopefully, help you with your management challenges too.