Airline customers demand attention, but it is technology that is enabling it

24 January, 2018

From Bitcoins and Blockchain to APIs, distribution and airline and airport data, customers demand attention - and technology is now enabling it. This seemingly random collection of issues shares several features in common. First of all, each is poorly understood by the wider industry. They also share the dubious privilege of being at the cusp of disruptive behaviour in their various spheres and, most importantly for these purposes, they intersect as airline distribution enters a new and uncertain future.

Amid that noise, the customer is promoted as the prize, but it is questionable whether customers share the same perception. They are the ones who want control and it will be a continuing battle for supremacy. What is clear is the shape of aviation is changing.

As the focus of airline activity continues to shift from flying aircraft to selling tickets, data and the way it is used rapidly become more important. If that sounds simplistic, it is meant to be. Because the structure and focus of most airlines is still heavily weighted towards buying and flying big lumps of metal (and carbon fibre). They cost lots of money and the technical and commercial regulatory burdens on airlines demand overwhelming attention to non selling activities.

Even in the unlikely event that the executive team, and their board, get it, the level of inertia against making the data and retail leap is so great that keeping up with the pace of change in data analytics is usually far beyond them.

Getting approval for a billion dollar expenditure for a handful of aircraft is relatively straightforward (including getting the buy in of market analysts). But it is a different matter getting budgetary approval to spend several hundred million dollars on new data engineers and programmes where there will be little to show, let alone creating entities that are able to be valued or capitalised as an asset.

Data and its analytics are fast advancing as a vital feature of the selling process. Airlines have not been good either at collecting or analysing the vast array of commercial data that their customers hand them; their systems are mostly "disparate, complex, costly, order centric". They are usually spread over a wide range of uncatalogued sources and have not been treated with respect.

As new potential forms of distribution emerge, delivering internal data to intermediaries (and end users) becomes an integral part of the story. But getting from here to where airlines want to be is not that simple and while use of API channels is an obvious way to go, it will be a difficult path. IATA's NDC (New Distribution Capability) is likely to be part of the technical solution in many cases, but it cannot be the silver bullet; much work remains to be done internally by the airlines themselves.

Frequent flyer programmes are a step forward in terms of collecting and utilising information gathered from some of their more valued customers, but even the most vigilant and creative airlines are only tapping into a tiny reservoir of information. It is limited to their own frequent flyers and only captures a small fraction of their overall spending habits.

Compare that with an Alibaba or an Amazon, each of whom is allocating around USD15 billion - billion - to data specialists over the next three years. The breadth and depth of the personalised data they are able to access and, more importantly, apply to generating sales, is far beyond the wildest dreams of any airline. These entities, along with Facebook, Google and even Airbnb, have highly granular information about the habits of literally billions of people, many of them travellers or potentials.

That is the first challenge for airlines. The second, potentially larger one, is corporate mentality.

There are many other issues that arise from the legacy corporate airline mindset. One is the typically default relationship with airports. That is, mostly antagonistic (and often reciprocated). Yet there is so much to be gained by sharing data with airports. Airport retail volumes globally are around USD50 billion annually, yet airlines touch scarcely 1% of that amount.

The continuum of tech coordination to "enhance the passenger experience" is another area where coordination and cooperation would be valuable. Airlines and airports are fond of talking about this desire to help their customers, but almost invariably the discussions are in parallel and rarely intersect other than by accident. And this is perhaps where both airlines and airports are shaping their future goals wrongly.

Whatever the rhetoric, the inspiration for change and innovation rarely actually has anything to do with improving the lot of the traveller. It is in reality mostly occupied with gaining greater control over the traveller's wallet, rather than helping. That there is a level of coincidence of interest is more by chance than by intent.

If the "suppliers" are serious about responding to the demands of a newly technically empowered consumer, it would seem more logical to begin by approaching them through the eyes of that consumer - not by searching for ways of manipulating it in their own interests. Otherwise there are many new interests sitting on the sidelines who will respond more effectively.

Then there is the Blockchain phenomenon. The concepts and opportunities associated with what is an open, distributed ledger that permanently records transactions offer the potential to alter ways of transacting business across the board. One of those areas is likely to be in distribution of airline products for sale. Bitcoin, usually uttered in the same breath, is only one of a growing number of cryptocurrencies that enable financial transactions outside the normal channels of "trusted" banking sources. Bitcoin has however helped stimulate popular attention to the underlying ledger concept and, whether or not that currency remains, others will fill any gaps.

Given its tendency to disruption of the status quo, there will inevitably be resistance to expanded usage - notably taking the form of regulation designed to protect consumers, even its real intent is to dilute the disruptive elements and bring them back into the safe arms of "trusted" banks.

One major value of Blockchain technology is the removal of the need for trust, because an indelible and transparent transaction chain is established; it can only be established with the agreement of affected parties and its history cannot be erased.

This proliferation of fundamental conceptual shifts in transacting business has given rise to a torrent of change. It is highly confusing to an industry constructed around buying and flying aircraft. That the changes will reshape aviation is beyond doubt. When and how they will happen is littered with unknowns.

WANT TO READ MORE? This text was adapted from a story that first appeared in Airline Leader magazine, the strategy journal of airline CEOs. You can view the full text, download the full magazine and scan over archived issues on CAPA - Centre for Aviation's special Airline Leader landing page.