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Airlines in Transition 5. Lighting Candles: Innovating to make profits: Big Data, Advanced Analytics

26-Apr-2013

“It is better to light a candle than to curse the darkness” – Confucius

The size, variety, speed and complexity of data available to the airline industry is growing rapidly, as with other industries. The importance of data use, the roles of intermediaries, the arrival of new players into the aviation data arena – such as social media, Google and Apple – and developments in consolidation, partnerships and collaboration along the supply chain make innovation essential.

Moreover, airlines need to work with airports, to facilitate connections and passenger flows, to reduce costs and to enhance revenues; and with IT solution providers to improve data interfaces across the “aviation ecosystem”, to improve efficiency and to enhance the revenue-generating opportunities arising from data sources. In this fifth report on CAPA’s Airlines in Transition conference, we examine the framework presented by airline strategist Nawal Taneja and the subsequent panel discussion.

Evolution of data-driven marketing

Data-driven marketing is evolving rapidly as the data available continues to grow. The vocabulary needed to describe the size of data is being stretched: megabytes (105 bytes), gigabytes and even terabytes are familiar terms to most people, but we now need to add petabytes, zettabytes and yottabytes (1024 bytes).

The availability of complex data, often in real time, enables an increasingly complete view of passengers and their behaviour, both structured and unstructured. Unstructured data refers to data from sources such as email, blogs, social media and website visits.

Evolution of data-driven marketing

Balancing value provided and value received

This data and advancements in analytics, together with opportunities in merchandising and ancillaries and the flow of information across social media can help airlines to balance the value provided and the value received. Increasingly near real-time and actionable data can enable the targeting of current and next-generation segments. It can allow carriers to customise their pricing according to the amount of information provided – for example, it should even be possible to have a number of different fare buckets equal to the number of seats as more and more information is extracted from passengers about their willingness to pay and for what.

As the picture of different customer segments becomes increasingly granular, it should even become possible to customise the product, for example offering different seats, a sleeping area where passengers can book time in a bed, or a customised meal.

Scalability means more can be done with less

The scalability associated with this level of analytics enables travel providers to do more with less. Less effort is required on the part of the customer, while gaining more service from the provider.

It can facilitate passengers in conducting so-called ‘semantic’ research, tailored to their own profile, for example researching hotel options at their destination, and in better using down time at airports and in-flight.

The passenger value proposition and the 'aviation ecosystem'

The passenger value proposition must be significant, timely, and relevant and all three of these qualities are enhanced by data and analytics. The proposition must be significant, based on customer context and customer behaviour; timely, based on information that is meaningful and actionable; and relevant, based on personalisation and prioritisation.

This wealth of information, analytics and business intelligence also provides opportunities for collaboration within what Mr Taneja calls the “aviation ecosystem”. There are a large number of participants in the aviation supply chain: airlines, airports, distribution, customs and immigration, ground handlers, retailers, security and air traffic control.

Most of these participants interact with the customer and many of them exchange data (take, receive, or both) directly with the customer. Moreover, they all have data of one kind or another about passenger flows and passenger behaviour. The level of collaboration between them is currently patchy at best, providing significant opportunities for better customer experience management.

The “Aviation Ecosystem”

Product/service innovations are now more important than network/fleet/airport facilities innovations

Mr Taneja summarises the history of revenue drivers in the aviation industry with the chart below. Historically, the most important revenue drivers came from innovations surrounding airline networks, fleet and airport facilities. These included the achievement of trans-oceanic capability, the introduction of jets and widebody aircraft and hub networks.

The incremental impact of innovations of this nature is now slowing, while the importance of product and service innovation to revenues is gaining pace. Product and service innovations began with the CRS and GDS and developed through revenue management, e-ticketing and the internet and fee-based services. The next phase of such innovations will consist of new intermediaries, better coordination within the aviation ecosystem and value-based options.

Business value of data, analytics, merchandising, social media

Critical success factors

According to Mr Taneja, there are three critical success factors linked to organisational structure and culture. First, it is important for airlines to change their mindset to that of retail and merchandising. Second, they must partner and collaborate with other participants in the aviation ecosystem to provide a total travel experience. Third, they need to get more out of data to differentiate their value propositions.

Critical success factors

Panel discussion: how airlines can work better with airports and IT solution providers to improve the connection interface (and improve the bottom line)

Aidan Brogan, CEO of Datalex, believes that technology is only an enabler and that change needs to be brought about by management. Datalex software provides airlines with retail management capabilities. In his view, airlines are underselling and undervaluing their proposition. It is the airlines that own the customer, with airports being facilitators.

The future of the industry lies in adopting a retail approach, giving the customer choice. Fare modelling can lead to revenue growth without changing the airline’s operations. It is also important to capitalise on loyalty schemes, for example enabling passengers to use FFP points to buy extras on-board as a kind of electronic wallet.

Lufthansa chief information officer Christoph Klingenberg emphasises the importance of data in the operational side of things. For example, enabling passengers to re-book, or the use of social media to obtain information on flight delays and other developments that may affect their travel experience, are areas of high data and analytics.

On the specific subject of airline/airport collaboration, Mr Klingenberg points to Lufthansa’s experience at Munich, where it has a 40% stake in its terminal. Co-ownership of the terminal helps to align the interests of the airline and airport.

Information technology can provide revenue enhancement opportunities, lower costs and enhance customer convenience, according to Christoph Mueller, CEO of Aer Lingus. An example of where airports and airlines could better share data is for the airport to share number plate recognition data from airport car parks not only with the airlines, who could use it to anticipate and manage passenger flows through check-in and lounges, but also with security staff.

Ethiopian Airlines CEO Tewolde GebreMariam believes that IT is changing the industry, but he is concerned that airlines may not be fast enough to keep track. The big challenge is customisation, which, taken to its limit, means a completely different business model. There are efficiency benefits to mass production, but customisation can be used to improve the existing model.

Lufthansa's Christoph Klingenberg (left) and Ethiopian's Tewolde GebreMariam at CAPA's AIT conference in Dublin: 12-Apr-2013

Jim Peters, CTO at SITA, notes that data exists to track the flows of people and aircraft and that this can be used to maximise the utilisation of airport assets. Connecting this data is important and, while there are risks to sharing data, there are also rewards.

He also sees potential for airport/airline collaboration in the area of mobile apps. Technological developments will soon allow offers and other information to be pushed directly to passengers’ mobile phones as soon as they enter the airport and are in a WiFi-enabled zone. He supports the idea that airlines would benefit from adopting the mindset of retail: “if there was an Amazon or Google airline, it would use all the previous purchase information and website history”.

Kevin Toland, CEO of Dublin Airport Authority, sees potential for more sharing of data: “we have sharing of data, but it is not as immediate as you’d want”. He agrees with Mr Mueller that data from airport car parks is a good example of where more could be done. Mr Toland is a believer in the use of social media to exchange information with passengers and also cites Amazon as a good model for the aviation industry to adopt a retail-style approach.

CRS/GDS limitations to retailer approach

Limitations within the CRS/GDS, in particular the PNR (passenger name record) are widely felt to be a barrier to airlines in evolving to be more like on-line retailers. “The PNR is not a shopping basket; airline systems don’t have a product catalogue”, says SITA’s Mr Peters.

Aer Lingus’ Mr Mueller laments that the conventional filing of fares does not take account of the modular build-up of product sales, for example if a passenger orders a meal in-flight. GDS are designed around fare filing and not as a retail solution, not even having a regular field for customer contact details.

Aer Lingus' Christoph Mueller (left) and SITA's Jim Peters at CAPA's AIT conference in Dublin: 12-Apr-2013

Travelport recently announced a merchandising platform that seeks to address some of these issues. This topic is analysed in more detail in Airlines in transition: Ancillaries come to the GDS, but websites hold retail advantage.

Should airlines ask all passengers for feedback?

It is rare for airlines to seek feedback systematically from passengers about their travel experience. Is this a missed opportunity?

According to the consensus view of CAPA’s panellists, carrying out more targeted surveys makes more sense. Passengers do not always want to receive an email or other communication asking for their views every time they travel. In addition, the costs to the airline and the practical difficulties in processing and analysing a high volume of email interactions with passengers may not be justified, although software now exists that can process words in emails and draw conclusions from the resulting data.

Analysis of Twitter feeds from passengers about their US airline experiences has been carried out, leading to derived satisfaction levels that are within 1% of the results of the airlines’ own surveys. This underlines the importance and validity of social media as an information source and the potential of unstructured data to assist management decisions.


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