According to a recent Datalex report, “Airlines are at a critical juncture in their digital transformation journey, with a greater urgency than ever before to deliver on the promise of true digital retailing while at the same time dealing with the worst crisis to have ever hit the aviation industry.”
The report also says that “a time of crisis brings with it the opportunity for greater innovation and change.” While “innovation” and “change” may not be words that easily slip off the tongue when associated with the airline industry, there’s no doubt that it is having to react fast to external pressure – in particular, from the ‘big tech’ companies – to determine and own the future of modern retailing in the industry.
It's not difficult to see why big tech is trying to muscle in. According to one recent report**, the global airline retailing market size is estimated to surpass pre-pandemic levels and is projected to grow at a CAGR of 16.31%, reaching around USD 23 billion by 2026.
Rise of the “super app”
With that kind of outlook, the battle lines are already being drawn. For example, did you know that Uber wants to trade in flights? The ride-booking group plans to add flight bookings to its UK “super app” strategy this year to become a broader travel hub. Before the Covid-19 pandemic hit, around 15 per cent of Uber trips were made to airports, so the company hopes that integrating flight booking and ticketing will boost these higher-margin rides.
When this happens, will airlines just become executors? And will the “retailing” of flights be dominated by the Ubers and Amazons of this world, who know data and online retail inside out? Google already has Google Flights, but how long before it joins the fray as a real OTA (online travel agent)? Microsoft is offering its Bing Travel search experience for flights and who knows what opportunities are likely to emerge in the metaverse.
According to Datalex, airlines are investing in key areas such as:
- Customer Centric Experience – with initiatives to drive improved customer engagement and an enhanced travel experience including customer centric pricing & offers, biometrics, robotics and contactless travel, empowering travellers with digital self-service
- Artificial Intelligence (AI) and Automation – for operational efficiencies, to drive greater flexibility and crucially to enable airlines to cross-sell, upsell and serve in the moment of need using AI to power superior customer interactions
- Data – with actionable analytics and insights to really make personalisation of the traveller experience a reality.
We all know that airlines want to retail their own flights and not lose margin sharing with retailing platforms. But in order to do that, they need to get their data under control in order to build smooth, modern retailing initiatives.
What is the route to modern retailing?
In essence, retailing allows airlines to sell new products in new ways, directly to consumers. To achieve that, airlines and others in the current sales and distribution system have developed three critical concepts:
- New Distribution Capability (NDC), standards, processes and technology that allow airlines to control and include a great deal more content (such as ancillary offers, and other essential attributes) in their offering to travel agencies and consumers
- ONE Order, which streamlines the current system of dozens of orders and confirmations for each part of the offering into a single order management system
- Dynamic offers, which builds on these technologies to offer customers flexibility in what they want, and similar latitude to airlines in what they charge for these options.
Already, several of the world’s largest airlines have embraced retailing and have started to develop systems and standards that show the way for the rest of the industry. These early adopters are already selling a healthy percentage of their tickets through new retailing approaches and NDC channels. Yet many others have held back.
One reason could be that retailing will require significant investment from airlines. According to McKinsey, the industry will need to spend between $3 billion and $15 billion over the next 10 years. But for those that get it right, the opportunity is too good to miss.
Fundamentally, success will be all about the data. Whatever approach airlines decide to adopt, one thing is certain – the evolution of successful airline retailing will require real-time data analytics at scale. For example, calculating the next-best, personalised offer depends on understanding the full context of a booking request and predicting the probability of purchase related to packaged items and total price.
It will also require the ability to increasingly tap into external data sources, such as consumer trends, social media activity, mobility data, regional and global event information and travel restrictions. Successful outcomes should be:
- improving offer relevance
- increasing customer experience
- exploiting willingness-to-pay
- exploring segment-of-one
Increasing the ratio of digital direct distribution and self-services should also be an objective within any airline’s strategy. Stable operational performance and smooth customer experience are vital, however most airlines do not run respective real-time 24/7 analytics to detect adverse developments or faulty behaviour, or even predict and act before they occur.
What does the future travel experience look like?
There’s no doubt that new partnerships between carriers, airports, technology companies, service providers, brands and destination agents provide fresh opportunities to add value to the passenger experience, while creating potential new revenue streams.
At the forthcoming Future Travel Experience Ancillary Conference, Teradata – along with airlines, airport operators and industry leaders – will discuss and share future plans and visions, covering the most pertinent topics in the fields of ancillary revenue, retailing and merchandising.
With significant disruption in travel underway, it will be an opportunity to gain critical insights and learnings on future trends and successful transformation strategies that can help the airline industry prepare for anything that big tech can throw at it.
-(1).jpeg?origin=fd&width=100 "Stefan Thiel")
