Updated: Oct 8
(Editorial published in Aviation Business ME Magazine - Issue June 2014) www.aviationbusinessme.com
The New magic words for airliners are Ancillary Revenue & Big Data...
The airline industry is an enigma. On the one hand, it is limited and constrained by complex and what appear to be outdated economic regulations. Yet on the other hand, it is an industry characterized by rapid change, innovation and new technology. It is a dynamic growth industry, but achieves only marginal profitability. In short, it is an industry of contradictions and like most other modern industries on a daily mission to generate revenue, curtail expenses, and boost profits, therefore airline senior executives are today extremely interested in two hot topics – Ancillary Revenue and Big Data. Everyone is seemingly talking Big Data, along the whole song-and-dance between passenger and airlines, and airports, around ancillary revenues and customer experience.
Nowadays the whole airline industry is seeking the extra mile by maximizing revenue per flight, which implicitly includes all ancillary revenues as well as the airfares paid. To cope with pressures on top line revenues from ticket sales amid intense competition, Big Date should be the magic potion to boost ancillary revenue. The ancillary revenue revolution sees airlines unbundling their service offering and charging passengers for items they wish to purchase or sue. Air freight and baggage fees are one of the fast growing items in ancillary portfolios that also includes seat allocation, in-flight services and products, related travel products, in-flight advertising, airport lounges access and increasingly diverse opportunities. For sure, to be innovative difficult choices have to be made as much of what has to be done affects costs as well as revenue, without to underestimate the sacrosanct business principle that success often depends on being the lowest-cost provider – not low fares. If that is not possible then the offer has to differentiate and obtain a premium for a higher standard of service. With most organizations just beginning to understand the value of the available data, there is still enormous competitive advantage to be gained from slicing and dicing the vast amount of data being collected in the Web 2.0 world even the airline industry as others is facing significant obstacles in dealing with big data, including security issues and a shortage of trained staff and the need to develop new internal capabilities. Airlines need to unlock their data from silos and gain a holistic view of it so that they can make unique associations and ask important questions about passengers and products with a technology solution that integrates their data stores, identifies behavior patterns and draws meaningful associations and inferences. Summarized, to leverage productivity and profits exponentially, Big Data and ancillary revenue will involve moving from historical insight to predictive information from the heart of the organization and not at the edges.
For an industry which practically invented the concept of customer experience as part of the pre-flight and in-flight services as well as some of the most successful customer loyalty programs with airline miles being at the forefront, it is quite disheartening to see most of the western legacy carriers struggling for survival due aging infrastructure without sufficient funding to renovate or replace it, airport closure during the night, employee unions. High fuel prices and rising operating costs threaten airlines’ profits and make it a high stakes business to be in – leading travel providers to look for innovative and nontraditional revenue sources. Instead to have been creative enough, the Legacy carriers stood by the principle of a price that included everything. From the mid eighties, they fully underestimate the new entrants from the Middle East with their hybrid approach of offering unbelievable services by just changing the traditional mind-set to make more money from its passenger to what can it be done to add more value for my passengers. Today instead to be combative against strategic location evidence and finding way to protect their market, the traditional legacy carriers should focus on the creativity and innovation spirit of yesteryear, the true engine for the economic growth. So, can we put back the romance and adventure in flying that it once was? It’s time to get creative and move up the value chain. The next generation of passengers demands not just a flight but an experience, a personalized one, and no doubt at all that the Middle East carriers will keep the current innovation momentum…
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