If airlines don’t take care of their customers, someone else will
There are at least 1,000 airlines operating in the world today [1]. And they're in a race, even the ones that don't know it yet.
Airline spending on digital transformation is growing by 27% a year and is expected to reach over US$35 billion by 2030 [2]. From a relatively slow start, carriers will rush to digitize everything from order management, through distribution, to customer service, retail offering and more.
The question is not will this or that carrier digitally transform their operations. It's will they do it fast enough, will they get enough right from the outset to enjoy first-mover advantage and if they won't, which one of their 1,000 competitors will start picking up their passengers, literally.
With the right technology, and the right approach, airlines can offer customers better targeted products and an improved customer experience. They can adapt to market conditions faster, and work with third parties to offer innovative retail packages that increase revenue and profits.
Now is the time to act
But why act now? Why not just leave things and wait to see what happens? In part, because we're finally — after a tough few years — seeing things pick up again.
In 2023, spending on business travel will top pre-pandemic levels for the first time [3]. Global tourism volumes will reach almost 70% of pre-pandemic levels [4]. And across the board, passenger levels are now at 95.6% of their pre-2019 levels according to IATA figures released in September 2023 [5].
This alone is a prompt to action. Far better to act now, when times are good, than to wait until an uncertain future — when other factors, for instance increased climate regulation, may have intervened to increase costs — only to be forced to act by competition and customer expectations.
Delay imposes its own penalty
These aren't the only reasons to start digital transformation now. The long-awaited recovery isn't the only way in which the market is changing.
In common with other sectors, the travel industry has seen a decline in brand loyalty. For almost three years, customers couldn't buy the things they had been accustomed to in the ways they were used to. This has led them to question their affiliation — to everything.
A recent survey found that, in the last year, brand loyalty has shifted across 91% of product and service categories [6]. In the airline industry, this has expressed itself in a startling decline in frequent-flyer membership, down 21% since the pandemic [7].
Even as the market recovers, and even in the short term, no one can afford to take their customers, or the good times, for granted. Fail to offer what customers want, and it's entirely possible for an airline to find itself losing out, even in a buoyant market.
So, what do travellers want?
Just be good to me
Travellers want a premium customer experience. In the latest IATA survey, almost everything passengers said they valued — from proximity, through improved information, to airline availability — touched on aspects of customer experience [8]. The emphasis on experience is particularly pronounced among younger passengers, 80% of whom will pay extra for a better journey [9].
Yet despite overall high levels of reported satisfaction, 95% of passengers who participated in one recent study said they felt more could have been done to improve their passenger experience [10]. And there are some obvious areas in which an upgrade to airline systems can make a massive impact on passenger experience.
Reliance on passenger service system (PSS) and global distribution system platforms, often built as long ago as the 1970s, hampers airlines' ability to innovate. They prevent innovations such as dynamic and continuous pricing. They make it difficult to offer personalized extras and add-ons. Their inflexibility complicates collaboration with retail partners. All round, they're holding the sector back.
Realising the benefits of change
It doesn't have to be this way. With the right technology, and the right partner, airlines can start upgrading these systems now. They can deploy new platforms for retail, offer management and order management alongside existing systems, running both in tandem until the new system is tried, tested and ready to take over.
From the moment each new module is switched on, the airline benefits. It can offer greater flexibility, improved targeting, a broader range of products and services — and a better experience all round. The new systems also allow it to start collecting more, and more accurate, customer data, beginning the journey to a modern, data-driven operating model. And as old platforms are turned off, costs fall.
Benefits of adopting modern, streamlined and flexible offer and order management systems include:
- Optimise your go-to-market strategy with targeted offers, dynamic continuous pricing, more efficient up-sell and cross-sell — and other benefits of modern retail technology.
- Increase revenue by broadening the scope of your offer, using the system to promote owned and third-party extras, tie-in and promotions.
- Cut costs and reduce complexity by using modern, efficient technology specifically designed for the airline and travel industry.
- Migrate rapidly to an efficient, intelligent data-driven business model, using offer and order management technologies flexible enough to respond to data signals in real time.
And for airlines that start the next phase of their digital transformation today, there is a massive, potential first-mover advantage. To take just one example, early movers in modernising retail and offer management have already seen distribution savings of up to 50% [11] And research by IATA found that modernising distribution increased revenue per passenger by around US$1.7 [12].
Airlines that move quickly to begin the modernisation process can realize instant benefits. But they also have the chance to gain a head start over the competition — and keep it.