The hidden value of loyalty in airline disruption management

The hidden value of loyalty in airline disruption management

When the officers of The Titanic – while facing the mother of all disruptions to service delivery - had a tough choice to make about which group of passengers would get a better chance at survival, they evidently applied a principle: 

Offer maximum assistance to the cream of the crop.

Yes, that is an extreme example, and those were very different times. We have more mature, tangible and less discriminatory metrics to evaluate customers today. So in modern business, the principle translates to this: 

Which customers would be better for the company in terms of future spending potential?

Modern aviation is not devoid of disruptions – not by a long shot. But given the advanced level of technology and integrated operation platforms available to us, one would expect disruptions to be fewer in number and of less frequency, as well as to be better managed. Every disruption results in revenue leakages to the airline company, and the passengers aren't put in a great spot either.


Disruptions: Controlled and uncontrollable? 

To be perfectly clear, overbookings are a slightly different story. Airlines have good predictive models to tell them the optimal extent of overbooking on each flight, based on how many passengers are likely to actually show up. This is usually not a large number – merely the delta in an acceptably misplaced prediction. USA Today quotes a US Bureau of Transportation Statistics study which pegs this number at just 34 involuntary denials of boarding per million passengers in 2017, and that in itself is an 45% drop from the previous year as per the same source. So we can take this as a "controlled" disruption which affects a small subset of passengers.

Once that number is available for guidance, the next step is to identify which passengers are willing to give up their seats for some consideration, which passengers "deserve" to be bumped off, who will be least affected (based on their itineraries), etc. This is approximately according to the model given below.

Disruption management is a science as well as an art in today's world – but at stake is as much as $60 billion annually. The strongest tool in your tool box is accurate information in the right package and form. The qualifiers are necessary – simply having tons of data to look at will not help a modern day Ops Control professional. The right pieces of data, filtered through highly intelligent algorithms and providing situational awareness, presented to the human link in a form which facilitates easy consumption is the only way to predict disruptions and minimize their impacts. There are several factors which are beyond the control of the airline in this equation, which complicates disruption management even more. 

Loyalty in disruption management

Accepting that some disruptions are unavoidable, the focus should then be on minimizing the adverse impact to passenger experience. Failure to deliver the promised service must be compensated in an appropriate manner. Figuring out "adequate compensation" involves not just complying with regional rules (such as EU 261/2004) but also knowing what the specific customer would perceive as a fair trade off for the negative experience which he/she just had. Some of the key questions are:

1. Will spending money and energy on this customer produce a significant ROI?

2. Has the customer been a victim of similar airline disruptions in the past?

3. What kind of compensation would be most desirable for the customer?

4. Will the standard basket of considerations be relevant to this specific customer?

5. Should additional considerations be made available? If yes, what limits are to be applied? 

Passengers who are members of the airline's loyalty programs have a clear advantage in this regard, primarily because the airline understands them better and will be able to match compensatory considerations better to their specific requirements. As additional rewards, the compensation structures can be enhanced for loyalty program members. Before you dismiss loyalty program members as too small a piece of the pie to matter, take a look at this blog post on corporate loyalty. Business travel is a good 33% of the global travel demand, but this is a highly valuable market for airlines thanks to higher margins and predictable demand in key sectors.

But more importantly, the complexity of a corporate customer lies in the fact that the decision making is disconnected from the actual travel undertaken, as explained in this blog post on agile earn and burn for business travelers. This means effectively compensating such a passenger in case of a disruption also demands an intelligent approach. This calls for an integrated platform for managing passenger services (reservations), loyalty and airline operations. Imagine the possibilities!


Daniel Stecher is Vice President of Airline Operations at IBS, and has more than 20 years of experience in the aviation and logistics industries. Prior to joining the IBS family, he was product manager and consultant for the schedule management, operations control and crew management product at Lufthansa Systems. Daniel is perpetually on the move, having raked up literally over a million miles of business travel in his career. He enjoys delicious home cooked food, reading books and the odd round of golf in his spare time.

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Tuesday, 16 October 2018

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