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Listening to what airline passengers want – but responding to their buying behaviour

26th November, 2012

Airline passengers’ primary needs are to get to their desired destination on time, whether it’s for business, personal or leisure reasons, without losing their baggage, and
 at reasonable fares. If a passenger living in Austin, Texas wants to 
fly to Kathmandu, Nepal and their favourite airline (say, American) does not fly there, then the primary need is not met.

If they are able to fly to their desired destination with minimal hassle and have a pleasant experience, then the carrier has succeeded in meeting the passenger’s secondary need.

This article, one of a series, is provided by Professor Nawal Taneja and extracted from the latest issue of Airline Leader, distributed this week in hard copy to aviation CEOs around the world.

The previous article from Professor Taneja dealt with the full spectrum of potential changes in airline business models, ranging from incremental to transformative. The extent of these changes depends on how the marketplace responds to customers and competitors, including other airlines and technology-based aggregators and distributors.

This article now discusses the needs of customers, specifically their primary (network and schedule) and secondary needs (travelling experience).

Airline alliances, a necessary element, but deliver inconsistent experiences

Airlines, being restricted with respect to bilateral as well as ownership and control rules, have developed extensive strategic alliances to fulfill the primary needs of passengers. However, while alliances do enable member airlines to fulfill their passengers’ primary needs related to networks, most passengers find that the experience is inconsistent due to wide differences in the quality of services offered by alliance partners.

The experience element also relates to the hassle of travel, even in the markets served by a single airline. Travellers continue to be frustrated with several areas within the travel chain: during the shopping phase when navigating an airline’s website to find answers relating to the service or to understand changes in fares, and during the actual travel itself, for example when dealing with boarding lines at the gates.

Some airlines have worked hard
 to meet their top-level passengers’ needs, both primary and secondary. At the top of the spectrum, Singapore Airlines has partnered with US private jet company JetSuite to offer twin-engine, four-passenger jets to connect with Singapore’s international flights from US gateways for passengers travelling in Suites or First Class cabins (branded “suite-to-suite” service).

Such an offering helps alleviate concerns relating to missed connections, while an element of personalised customer service is evident by JetSuite’s offering of a dedicated hotline for SIA passengers and car services connecting the
 two airlines’ terminals.

Lufthansa also offers a similar programme
 with partner NetJets. These initiatives, however, come with a substantial price tag. A premium class passenger flying Singapore Airlines will be charged about USD2,500 one-way to connect with a JetSuite flight. Even at such rates, commercial airlines pick up part of the cost of transportation provided by the private jet airlines.

At the lower end of the spectrum, some airlines such as American 
and Lufthansa have launched concierge programmes to help relieve some of the stress incurred during travel by assisting travellers in getting through the airport. Even these services are considered to be expensive by the majority of passengers travelling in economy class, with costs ranging from USD125-300.

Airline passengers want more but want to pay less

Passengers want a myriad of services to meet their primary and secondary needs. Airlines are willing to provide such services. However, only a very small percentage of passengers are willing to pay for these services. This touches upon 
a concept that was raised in the 
first article in this series (Airline Leader: May-June 2012
), namely, that technology can now be leveraged by airlines to obtain insight into reported wants versus actual buying behaviour of passengers, to improve the travel experience and increase profitability for airlines.

To start with, airlines could segment passengers into two different groups: 1) those only concerned with price, and (2) those concerned with price, but who are willing to consider other factors as well. This is a different strategy from the traditional business/leisure segmentation. It is this second group (and its sub-groups) that airlines should capitalise on and spend far more resources understanding.

To the airlines’ credit, a few have made an attempt to learn what passengers want. The question is how much each passenger is willing to pay to satisfy a particular desire on the list. Going forward, airlines can dig much deeper to gain a better understanding of the sub-segments they should pursue. Airlines can then identify who they want to target (not just those travelling on premium fares), maintain a relationship with these passengers as their travel needs evolve and finally design products and services to meet those needs.

Technology can be used to test price points

One small example of a deeper dive into the willingness to pay for a feature would be taking silent bids for upgrades via mobile devices, just prior to boarding. Another example would be a traveller choosing (via “clicking”) a feature that interests them, and observing whether or 
not they still chose the feature once its price was revealed. An analysis of this level of behaviour – not
 just if the traveller purchased the feature, but also the differentiation between whether the passenger wanted it initially then changed their mind due to the price – could be one way in which airlines can better determine each customer’s value system.

The goal is basically to understand how different passengers plan their travel in different situations – how and what passengers are searching. Given the wide proliferation of the internet, sophisticated search engines, mobile devices and social media, airlines should be able to send a wide array of content to engage with virtually each and every passenger.

Business intelligence needs to dig even deeper to meet basic needs

Although airlines have been developing greater insights 
into customers through business intelligence, there is greater scope to dig even deeper. More crucially they should direct their energies towards acquiring customer intelligence to develop comprehensive business cases for and to market price-service offers. Business intelligence, relating to information about customers, is hardly a new topic.

Airlines have been leveraging business intelligence to help passengers meet their basic need(s) for some time now, for example conducting research relating to fare sensitivity. However, they now need to learn more about different customers, particularly economy class travellers and their needs and willingness to pay for the services they desire.

One example of an airline that 
is striving to learn more about its customers is Scandinavian Airlines. SAS offers a portal in which passengers can submit new ideas
 on products and services; others 
may vote on the ideas. Singapore’s Changi Airport offers a myriad 
of options for travellers including swimming pools, nature trails, playgrounds, movie theatres, as well as fitness, shower and spa facilities. Moreover, the airport even features a “Customer-Centric Initiatives” page on its website.

Businesses have now begun 
to focus on information for the customer, customer intelligence, as
 a way of building loyalty. Airlines, for example, are sending real-time information about gate changes and flight status updates to passengers’ mobile devices. Some are also providing on-time performance statistics at the individual flight level.

Now, consider augmenting business intelligence by engaging with passengers: finding out what they are willing to pay to receive certain services that reduce the hassle factor of travel and, in turn, developing customer intelligence by offering cafeteria-style programmes with respect to what a passenger is willing to pay given their tolerance level of the hassle factor at various touch points.

Airlines are already providing such services for higher fare-paying segments, but they 
can now develop business cases to penetrate the middle segments with a greater array of choices, especially by leveraging emerging mobile and social media analytics. They can also enable cabin crews with the means (through wi-fi enabled tablets) to both augment customer experience and generate significant incremental revenue with high margins.

Shaping airline business model innovation to respond more effectively

Once an airline knows 
its customer base with respect to
 their stated primary and secondary needs, as well as their willingness to pay for the desired travel services, it can then change its model to attract various segments of the customer 
base and maintain loyalty.

That leads to the subject of:
 how to change your business model. This will be addressed in the December 2012-January 2013 issue of Airline Leader.

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