How Airlines are Trying to Become the Next Amazon
Airlines have the ambition of replicating the success of retailers such as Amazon, IKEA and Aldi, among others, or players such as Netflix, in a bid to improve their revenue streams and adjust to the changing business environment, in which digital technology is one of the major transformers of the airlines market and its channels of distribution. This, however, represents a huge task for many operators, especially as such change requires substantial financial investment and funding, which is needed to completely transform internal structures and accommodate new retailing practices as an add-on to existing loyalty programmes.
What constitutes modern airline retailing?
Over the years, airline retailing has been functioning in the form of in-flight duty-free, and as part of the loyalty programmes these carriers have been operating (i.e. sale of points and upgrades, as well as redeeming points for products and services other than miles). This, however, is changing in light of the digitalisation of processes, distribution and communication with passengers. Some scheduled players, such as United, Delta and American Airlines, are even stopping in-flight duty-free. British Airways is also considering taking similar action for all short-haul destinations in 2018, in a bid to encourage internet pre-ordering and direct home delivery of goods.
Source: Euromonitor International
Connected customers demand better on-board connectivity
- Broadband access revenue: in-flight broadband connectivity, for which many airlines charge fees and which vary based on flight duration, upgrades, data restrictions or the time slots used by the passenger.
- Advertising: add-on internet and mobile advertising with the aim of promoting a click-through.
- E-commerce and destination shopping: products and services sold via the digital channel by the airline which generate revenues at the destination through personalised product offerings.
- Premium content: streaming content such as TV and music and the rental of wearable devices.
NDC opening the door for more retailing practices
The International Air Transport Association (IATA) came into play when concerns the airline retailing strategies and practices through its New Distribution Capability (NDC) platform. According to IATA the NDC uses open technology standard called XML, which facilitates the transmission of content rich data in real time. Through this system, NDC powers the sale of flights, and the exchange of passenger, flight and credit card details. Its aim is to help airlines sell their ancillary revenues and provide a more personalised offering to customers, which travel agents as well as corporate clients use.
A major concern among carriers is that the propositions created by the GDS for them are not reflecting their product and brand principles, focusing more on the price rather than the offer which can lead to a lack of brand loyalty. To enforce this merchandising strategy, airlines are implementing fees on GDS bookings to drive traffic to their own websites. Following in the footsteps of its rival Lufthansa, IAG has announced that it will levy charges on bookings via GDS, to lure traffic back to its own platforms and booking systems.
Omnichannel retailing for airlines
Many airlines are investing in establishing an omnichannel strategy in order to offer a comfortable and rational booking and shopping experience for consumers. The strategy varies by airline, especially between scheduled operators with several distribution channels, and low-cost carriers, which mainly distribute online. Airline sales through mobile is now one of the key growth opportunities in the market. As such, many airlines are strengthening their m-commerce by developing mobile apps and payment methods. With customers being used to great shopping experiences outside of the airlines market, they expect seamless, consistent and optimised services across the travel industry as well, and all channels of distribution.
This, however, is not yet the case, with many carriers struggling to deliver the same personalised offer through all channels; not least because in many cases they are operated as separate entities with different set-ups, which slows down access to customer information and assistance needed and prevents strong client engagement. Such structures also prevent the capture of customer data needed to understand customer preferences and activity.
Carriers are recognising that such transformation is paramount in an increasingly competitive airline market, which is progressively becoming consumer-led, with a focus on personalisation and seamless consumer experiences throughout the whole passenger journey. This in turn demands consistency in pricing and promotion via all distribution channels (bricks-and-mortar shops, web, mobile, inflight, etc.). The need to go beyond the commoditised transactional seat sale and deliver services during the whole customer trip and to respond to all customer requirements by using retailing practices is a must for many airlines.