A commercial aircraft

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Introduction

"A commercial aircraft is a vehicle capable of supporting itself aerodynamically and economically at the same time." This prophetic statement is attributed to William B. Stout, who designed the Ford Tri-motor in the early part of the 20th century. From his days, when air travel was a fantasy-driven, elite and clubby activity and the regulated airlines business had just a few operators producing healthy margins, it has been a long flight for the industry. Today the industry is highly competitive and industry watchers sarcastically equate aircrafts with buses, albeit in the sky instead of ground. With the coming of deregulation in the last decade, and consequently the advent of low-cost, no-frills airlines across the World, air traffic has increased manifold, but two of the biggest commercial changes that have come about in the business are:

  • The offer of rock-bottom airfares that make a mockery of railway fares.
  • The declining yields for airline companies - that is the decrease in "the average revenue
    produced per person-km or per tonne carried" (Source: Doganis Rigas, 2005).

While too many airlines and too many airfares may be good news from customer viewpoint, but the latter fact is something that doesn't bring cheer to the management of airline businesses. Even though the unit costs are falling due to technological advancements in aviation, these are not great enough to offset the fall in yields.

The business dynamics is such that there is already a movement towards restructuring and consolidation within the industry as alliances get formed between airline companies operating in different nations and regions.

So what's the future? How can an airline business ensure its survival and growth with, or without such strategic alliances?

Executive Summary

Airlines earn the largest proportion of their income from regular and business passengers. In a situation of brand parity compounded by vast choices available to customers the pressure on businesses increases. When price becomes a business strategy and all other differentiating factors are eroded, it becomes more expensive to attract new customers through traditional media driven marketing. To avoid this death trap, a smart airline must cultivate customer loyalty in addition to attracting new customers. Putting the above simply in the words of Seth Godin, it means "turning strangers into friends, and friends into customers."

While new business ensures growth in terms of market share, repeat business is a boon to the bottom-line. However there is a big challenge in ensuring repeat business, especially for an airline, that offers service and not tangible goods. One of the key features in success of a service is quality as perceived by the customer. To be able to maintain service quality levels, which delight a customer in each encounter, is a business task that requires great amount of effort. For a business to achieve this, it would need to engage in "full-fledged dialogues with consumers" (Source: Godin Seth, 1999). This dialogue is achievable only if a business has customer data. Fortunately in an airline business, a lot of customer data is easily captured without incurring extra expenditure. This data can be applied to achieve strategic business objectives.

According to a study, "learning more about the most valuable customers and how to do more business with them-could boost revenues by 2.4 percent, netting a large airline an extra $100 million to $250 million a year." (Source: Binggeli et al, 2002)

So what kind of data are available to an airline and how can these be applied for driving the business?

Customer feedback forms

One of the traditional sources of primary data is the mundane feedback form that is handed out to passengers while they are still in flight. This data can be used to analyse customer perception of the service quality, as it maps responses on various attributes such as cleanliness, staff courtesy, and food quality. The only challenge in using this tool is that a traveller may become indifferent to giving feedback and the percentage of forms, completed and returned, may be below acceptable levels. One way to make this mechanism of data capture a success may be to announce an in-flight lucky draw on all completed feedback forms. Incentive can be a great motivation for the flyers and in return, an airline gets very valuable data on attitudes and perceptions, giving it a scope for improving its service levels.

Data Consortia

As stated earlier, the move within the industry is towards forming alliances. Star alliance is currently one of the biggest such consortium with 20 major airlines across 5 continents as its members (Source: Star Alliance website www.staralliance.com). Two immediate advantages that come to a customer from this kind of alliance are getting a round-the-world ticket at a comparatively lower price, giving a seamless travel experience across boundaries, and the opportunity to earn flying miles on the same account from different airlines. To an airline company, this is an opportunity for to share data and put it to use for mutual benefit. By using this data to engage a customer, the advantage for an airline is in gaining loyalty and therefore a steady stream of income within the realm of a simplified competitive structure.

Surveillance data: Tracking website visitors

The starting point for capturing data for an airline company is no longer the footfall of a customer into a travel agent office and a subsequent purchase of ticket, but its own website. The power of a website to track customers cannot be undermined given the fact that online travel related purchases top the list for e-commerce and generate sales in excess of over US$ 50 billion. A little effort invested in web-analytics can lead to a massively productive dialogue with the potential customers.

With the rise in pre-purchase online activity, during which a customer collates information on the best offers available by visiting relevant websites, it has become very easy to capture customer data and put it to use for driving sales. An airline can do this by taking services of firms such as Pardot, which offer integrated web marketing services for a starting price of just USD 150.00. The solution involves "collection of data about website visitors from a form they complete and from their click habits." The visitors' IP addresses (unique identification assigned to a desktop / laptop) are cross-checked against the secondary data from American Registry for Internet Numbers and listings from outfits like Dun & Bradstreet. Each website visitor's behaviour and clicks are analysed and he or she is assigned a letter grade based on their value as a potential buyer. By using this grade, a sales team of an airline can draw a priority list of potential customers for establishing contact and subsequently make them an offer (Source: Buchanan et al, 2008.).

Transactional data

This has traditionally been a great source of customer data for any airline. Captured from ticket bookings to passport details, this source generates large amount of personal information that includes customer's complete name, address, gender, date of birth, country of origin and perhaps even ethnicity, in addition to the very important data on purchase history and mode of payment. It is this data that is used in running loyalty schemes such as frequent flyer programs. Loyalty programs can help measure customer lifetime value, an excellent metrics that enables a business to quantify the magnitude of effort that is required to retain a customer.

Transactional data is also a great source of geo-demographic and geolifestyle profiling. By analysing this, an airline can separate business travellers from leisure travellers. Since both these types of travellers exhibit different purchase behaviour, with a business traveller most likely to travel more and at the same time opt for premium services, an airline can design distinct offers and promotions for these two different segments.

Geography related data can allow an airline to spread its risk by diversifying into different routes. This can help in the event of any economic contingency.

Data on country of origin (nationality on passport) may be easily captured and can provide insights into food habits. Food is an important element in an in-flight service and perhaps one way an airline can gain competitive advantage is by providing a wider range of food on the menu in the long haul flights. Since mostly there is a time gap of a few days between the actual purchase and consumption of an airline services, an airline can gain considerable time for planning and effectively source appropriate mix of food for its menu from its in-flight catering partners.

Biometric data

In the current geopolitical scenario that has created a perception of threat for the airlines industry, the emergence of biometric techniques, and their deployment at the airports around the world in coming years, will witness another great source of data. Biometric data encompass finger-scan, iris-scan, facial-scan, voice-scan, and signature-scan. Easily accessed through biometric passports, an airline can use this data to create delighting service encounters from the moment a frequent flyer approaches the check-in counter.

Imagine a scenario for an airline, in which each member of the ground-staff and cabin crew, while providing the check-in service, gets an electronic prompt whenever he or she encounters a passenger who has travelled with the airlines before. On receiving the prompt, the ground-staff can expedite check-in as well as make polite conversation reminding the traveller of the last trip and enquiring about any special need. As the passenger enters into the aircraft, each of the cabin crew assigned responsibility of particular loyal travellers, greets his or her set of customers and escorts that person to his or her seat. What's more, during mealtime, smart food trolley is able to recognise the biometric data as it approaches a particular seat of the frequent traveller, and provides the steward with a digital record of the food and drink preferences of the particular traveller, and in the process, enables the steward to make suggestions based on past record as visible to him or her on the trolley screen.

This seems like an ideal scenario for establishing a positive and a highly proactive dialogue with the customer but technology is already available to make this possible. Needless to say that it may be worth the effort if a customer feels happy and therefore becomes profitable for the business.

RFID

One of the biggest put-offs for a customer using an airline's service is lost baggage. Inefficiency in baggage handling can erode customer loyalty. It is estimated that in 2007 "over 6.2 million bags were delayed or lost by European airlines", with Heathrow airport topping this dubious list. It is also understood that to reunite a bag with a passenger, it costs an airline an average of £46. (Source: Barkham Patrick, 2008). This is hardly a profitable business situation in an already cut-throat pricing environment and even if 20% loyal customers shift to another airline due to such inefficiency, the loss to business can only be distressing.

The solution to overcome this service lapse is RFID or Radio Frequency Identification (RFID) tagging system. This technology is a replacement for currently-in-use bar-code tags that help organise passenger baggage at the airports. The advantge of RFID is that it is a smarter technology. A RFID tag, which can be the size of a micro-grain at times, can be embedded in a baggage and its movement tracked on the conveyor belt as it moves for getting loaded. The information contained in the tag matches the customer's flight details. If the baggage, on its way to getting loaded onto the aircraft, goes on a wrong conveyor belt, a trigger gets raised and corrective action can be taken on time, reducing or even eliminating any such service lapses.

Conclusion

Data can be a strategic business asset for an airline and there are two reasons for this:

  • Severe competition is promoting parity and eroding customer loyalty.
  • Online shopping (e-commerce) and electronic media are empowering a customer by
    making available critical information on competitive offers in real time.

An airline can use emerging sources of data along with the traditional ones in effectively cultivating relationship with its customers and in the process retain profitable customers on a lifelong basis. At the same time it needs to be emphasised that to leverage this strategic asset, a certain investment is required in creating a system of customer data integration (CDI) which will allow the business to fine-tune its marketing activity on a very micro level. Last but not the least, there will be a need to adhere to the data protection laws and pursuing the practice of permission marketing.

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