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  • ANALYSIS: Five pain points in airline tech and distribution

ANALYSIS: Five pain points in airline tech and distribution

Flight Events and research company T2RL recently held the annual Technology & Innovation in Airline Distribution Conference in Bangkok, Thailand.

The event brought together airlines, technology providers, and consultants for a frank discussion about the complex technology and distribution issues facing airline chief executives today.

No single event can answer every question on the minds of airline chief information officers, but the conference provided a broad perspective on what they need to be focusing their attention on. Here are FlightGlobal's five takeaways from the event.

PERSONALISATION: SILVER BULLET OR RED HERRING FOR ANCILLARIES?

One significant opportunity the conference highlighted was that the collection and proper use of personal data can help airlines drive ancillary revenue – a growing source of airline profits.

Anil Batra, head of travel and transport at NIIT Technologies, shared an analysis of 55 airlines. The top 10 generate $41.59 in ancillary revenue per passenger, well ahead of $14.93 for the middle 35, and a mere $2.30 for the bottom 10.

He showed that this correlates with profitability: the top 10 carriers in ancillary revenue terms enjoyed profit margins of 12.6%, the middle 35 10.3%, and the bottom 10 8.3%.

The question is whether airlines can harness the power of personalisation to drive ancillaries.

A panel discussion indicated that personal data about passengers is readily available, with younger people especially relaxed about providing a significant amount of information. Few airlines, however, harness this to personalise the user-experience for their passengers.

"I fly to Greece six times a year on my country's airline," said one. "They send me random emails, but never anything about Greece."

Another challenge is the sheer number of ancillary offers possible, which Batra says can reach up to 100. If all these options are presented poorly, it will only confuse or annoy passengers.

“From our perspective, we feel personalisation can really help,” said Radoslaw Dutkowski, director of ancillary revenue and product at Saudi Arabian low-cost airline Flynas. “But when you get to a certain level of ancillaries to offer, there can be too many. Even if you have several touch points, you can't offer all of them on one page, because the customer will get lost. Personalisation could help to offer a limited number of ancillaries that fit the passenger's requirements.”

He adds that one issue with personalisation is establishing and measuring key performance indicators. “Is the revenue growth driven by personalisation? Is it a result of your marketing? Or is it driven by the ancillaries themselves?”

CHATBOTS: BOON OR BOONDOGGLE?

One emergent technology the conference explored was automated chatbots. While the technology has clear potential to reduce costs and improve customer interactions, it is also fraught with challenges.

Matthew Hulen, vertical head travel for Facebook in Southeast Asia, noted that of the all-time most-downloaded smartphone apps, six out of 10 are for messaging.

“Chat is ubiquitous,” said Hulen. "Ninety-nine percent of people understand how to do chat on mobile devices. Messaging and chat are rising significantly. Fifty-nine percent of people are messaging more than two years ago, 60% expect to chat more in the coming two years."

He gave examples of passengers receiving regular updates about their flight via chat apps, including a link to easily check-in and generate a boarding pass. Chat could also be used to prompt people to buy ancillaries, for instance reminding a passenger that he or she has not bought baggage or a meal.

Equipping a chatbot to answer more than basic questions remains challenging. Several airlines have simply dropped their Frequently Asked Questions page in favour of a chatbot engine, but a panel looking at the potential of the technology dismissed this as a poor way to leverage an emergent technology.

"This is a nascent technology," said Jonathan Newman of Barcelona-based technology firm Caravelo. "It's going to go through a very long, iterative process. Every new bot is getting better and better."

Newman also held out the utility of messaging and bots for retailing. "The sky is the limit. It's not just about retailing your own product through a platform. There is no reason why you can't retail all sorts of other things that are related to travel when you’ve got an open conversation."

Facebook's Hulen added that despite early frustrations, companies are sticking with the technology, and it will improve. In addition, the industry can work to educate passengers that chat is the expected, normal way to communicate with an airline.

Hulen said that companies using chatbot technologies ought to understand when a customer is fed up. "They need to give them a safe word… because it could be that only a real person can help a customer resolve an issue."

NDC: PAIN, BLOOD, SWEAT, TEARS, HAPPINESS

Yanik Hoyles, director of IATA's New Distribution Capability (NDC), emphasised in his presentation that the initiative is simply a way for airlines to replicate what they show customers on their websites to what travel agents show.

"It's about airlines taking control of their offer," he added.

From the offer perspective, NDC benefits include allowing airlines to merchandise all of their products, make personalised offers, facilitate dynamic pricing, and also reach new distribution channels. From the orders perspective, NDC allows airlines to manage all orders, enhance interlining, reduce revenue integrity checks, and take control of payments.

Jim Davidson, chief executive of Farelogix, which helps airlines implement NDC, offered some words of advice: "NDC is a journey. If you think it's once and done, don't do it. It's full of pain, blood, sweat, tears, and happiness."

"The offer is one of the biggest assets an airline has," he adds. "If you can't control your offer, you can't control who is buying your product. There is nobody in the retail industry who would allow that."

Despite the possible benefits, a panel discussion on NDC made it clear that for airlines to capture its potential, they need to embrace it fully, even to the degree of looking at their internal structures.

"Airlines are organised in silos such as revenue management, distribution, e-commerce, direct, indirect, etc. For NDC to work, you've got to look at your internal organisation," says Hoyles.

He adds that the various fiefdoms involved in forming an airline's product can make the creation of an offer challenging.

George Bryan, manager of distribution strategy at Canadian airline WestJet, helped drive NDC implementation at the carrier. He says the system does create a cleaner solution for customers with standardised offers.

He said that based on WestJet's experience, airlines need to consider six things before embarking on NDC: internal processes, stakeholder alignment, technology and systems, distribution agreements, agency adoption, and a clear sense in the airline as to what, exactly, it wants to offer.

MOBILE: IT IS IMPORTANT, BUT HOW IMPORTANT?

Mike Moore, managing partner and director of T2RL, noted that seven out of 10 people use smartphones more than two hours per day, and that 70% of all "shopping journeys" involve a smartphone.

"It's not about whether smartphones are important, but how important are they?" he said.

A panel comprised of technology executives from Air New Zealand, Singapore low-cost carrier Scoot, and Philippines AirAsia discussed their various experiences with mobile apps.

Of the three, Air New Zealand has seen the most success. The airline's app is the most downloaded in the country, and passengers can use it for an entire range of services, from booking seats, all the way through to most ancillaries. Air New Zealand has a dedicated team in house to work just on the mobile channel.

Scoot, meanwhile, has enjoyed success with its app, but it varies across the geographies in which it and stablemate Tigerair now operate. Curiously, downloading and use of its app in a given market has little correlation to the internet penetration in a market.

Scoot is in the process of revamping its app as it prepares to merge with Tigerair later this year.

AirAsia Philippines had a slow take-up initially, but now its app is enjoying strong success. Passengers can book flights and check-in, as well as purchase ancillaries. Tellingly, AirAsia Philippines has seen app purchases exceed online sales.

Getting an app right relies to a large extent on getting the right outside help. "There are not that many great mobile providers out there," said one executive. "When we went out with an RFP, we had five companies come back, but it was very easy to select the winner in the end. And when you do get a provider, there is a lot of pressure on them. If they're really good, other airlines will snap them up, and then they start to have resource problems."

The executives offered several suggestions about getting mobile right, including having a clear idea of what the objective is, understanding the contracts involved, and frequent customer engagement.

"Don't run before you can walk," said one executive. "Make your plans and do them."

LOYALTY: PLENTY OF DATA, LITTLE WILL TO USE IT

A panel of industry experts on loyalty concluded that this is one of the major challenges for airlines, which struggle to extend personalisation while at the same time attempting to increase yields.

Steven Greenway, chief executive of loyalty programme reward-U, said that airlines do, in fact, have plenty of data about their customers – they just don't use it correctly. "Big data is rubbish," said Greenway.

He said it is difficult to find people from traditional airline backgrounds who are qualified to run loyalty programmes. He believes that people from customer-facing sectors such as retailing are much better suited to running an effective loyalty programme.

Mark McDonald, regional director APAC at OpenJaw technologies, noted that the move to have loyalty programmes based on revenue spent, as opposed to miles travelled, is a good first step to identifying and rewarding key customers.

Unis Kamili, director of sales in India and the Middle East for Radixx, added that it is important for airlines to "create a bond" with customers, but that this can be very difficult, particularly in price sensitive markets.

The discussion looped back to another major theme of the conference: personalisation. Personalisation done well can be of great help to winning customer loyalty, but done poorly it can be annoying or even irrelevant.

One of the executives held up Singapore Airlines as a carrier that is getting things right in this area. On a recent flight with the Singapore carrier, he saw a flight attendant ask a passenger if he would like to move to his favourite seat.

"This is much better than simply acknowledging that somebody had flown on the airline a few weeks earlier. What does that really do?"

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