Achieving Operational Excellence And Marketing Innovation

The airline business is facing two opposing sets of forces, the likely resolution of which will create a major step change in the business model of both full service and the low cost sectors. The first set consists of three major forces: disruptive market dynamics, explosive growth in demand and a proliferation of enabling innovative technologies, empowering both businesses and consumers. The second set of forces, an opposing set, consists of complexity and regulations, forces that are conspiring to limit the effectiveness of change by the existing players.
The first set of forces will produce substantial growth in travel, facilitated by a broader spectrum of price-service options. For example, at one end of the spectrum, there will be even lower cost products and services, resulting from the development of advanced aircraft, newer generation of planning systems and with products distributed by newer channels. At the other end of the spectrum, there will be high-end products and services, enabled by the introduction of advanced aircraft, such as flying taxis and advanced supersonic jets. In addition, developments in numerous technologies will deliver everything from personalisation, to better customer experience, to more comprehensive search, voice-enabled search, for example. On the other hand, the second set of forces, complexity and regulations, will bring about a massive restraint for existing players who are saddled with self-defeating complexities created, in turn, by the tyranny of the installed base of technologies. New players will still be constrained by regulations because regulators are always falling behind the market to meet the needs of customers and the suppliers of travel related services. However, new players will not be burdened with conventional complexities.
Accordingly, these two sets of forces are necessitating airlines to manage a balance in two domains while planning along two major axes - one axis representing marketing, and the other representing operations.
The marketing axis has to address the needs of the market that are growing faster than ever and in different directions simultaneously. Therefore, working on the marketing axis demands for the continuous introduction of new products and services that are offered on a personalised basis leading to higher costs and higher levels of complexity. Consider, for example, the marketing axis on which management needs to transform its business processes to practice demand driven marketing and the complexities it encompasses.
Consider now the operations axis where the battle is to become the most efficient and the most flexible low cost producer and where management desires to achieve operational excellence. Up until now, the industry has operated with long lead time planning horizons and fixed capacity and low flexibility. However, the volatile changes, discussed in my previous columns, call for a more demand driven capacity planning that is flexible and efficient. This planning environment entails much shorter planning horizons, and a much better coordination of resources, probably much more decentralised in terms of both existing and new providers.
But, planning strategically in both domains simultaneously necessitates, as I have discussed before, management to bond the commercial and operational functions, as well as numerous sub-functions within each of the two domains. Such a bonding process requires, in turn, each sub-group to work with one data set where the data is corroborated, cleansed, integrated and continuously updated in real time. On the commercial side are, at least, five major sub-functions: network/fleet/schedule planning, pricing & revenue management, sales & distribution, customer experience and loyalty. On the operations side are, at least, three major functions: flight operations, ground operations and MRO. The object is to create a strong bond in the two domains and, at the same time, make the airline digital.
The irony is that the aviation business sectors - airlines, airports, aircraft manufacturers - already have vast quantities of data that, if placed in effective data environments, can be used much more effectively to optimise internal operations. In fact, internal data platforms can be created even to break down the internal silo systems, enabling marketing to bond with operations to focus on (a) customer and employee experiences and their expectations, and (b) competitors, existing and potential - airlines as well as new travel marketers. Moreover, internal data platforms will enable management to move away from the fixation on conventional streams of ancillary revenue and focus beyond the core products to the broader concept of mobility-as-a-service (MaaS), where there are much higher value opportunities for new streams of ancillary revenue. But these new revenue streams require the availability of a single view of each customer (and, going forward, a single view of each employee) to provide and manage offers that take into consideration the total needs and preferences of each customer and the value of each customer to the airline - current value as well as lifetime value.
Planning along these two axes, marketing and operations, and to manage successfully in the two domains, marketing innovation and operational excellence, brings into focus a major challenge that, however, is also an opportunity. This challenge/opportunity is to provide mobility-as-a-service (MaaS) to meet the end-to-end journey needs of travellers while providing consistent customer service with seamless experience at each touch point. This challenge/opportunity calls for the need to not only switch from product/operations centricity to customer/solutions centricity (as I discussed in my last column), but also to extend the "core boundaries" of the business by either developing or working on intelligent engagement platforms.
However, managing within the two domains brings into focus two additional considerations, (1) a need for faster response time, and (2) a need to de-complex the business.
The first consideration - faster response time - calls for a capability to dynamically match supply and demand. This requirement calls, in turn, for the need to develop a good understanding of how the digital environment is different from the traditional business environment. In the digital environment, the speed of change is much higher, necessitating a much faster response time. The uncertainty in the business landscape is also much higher, requiring not only a willingness to experiment and iterate, but more importantly, to scale the business. This requirement leads to a need to focus much more on business transformation than on developing digital strategies.
The second consideration is to de-complex the airline business to navigate strategically within two domains, operational excellence and marketing innovation to manage the expected growth and change in the traffic mix, by using technology intelligently and, even more important, without adding further complexity. State of the art technologies can play a major role in reducing the existing level of complexity, not increasing it, to meet the changing needs of customers and the business. And the reduction in complexities can enable the exploitation of potential opportunities in two areas, (1) reducing prices to "drive" demand, and (2) working on solution-centric platforms to deliver greater value to customers by providing solutions to travellers' total mobility requirements.
Consider the opportunity to reduce complexity to achieve massive reductions in costs and, in turn, massive reductions in prices. This is an area most likely to be exploited by some far-thinking low cost carriers, given not only their lack of legacy systems and less fragmented data (as well as non-conventional mindsets), but also their ability to move fast and take more risks. With much lower costs, a new breed of airlines will emerge to "drive" demand.
The concept of driving demand through lower prices is reasonable given that there are still segments of consumers who (1) do not travel, (2) could travel more if there was a significant reduction in prices, and (3) can afford to pay more but do not perceive the additional value. The new generation of low cost airlines will start with lower prices but then add further value in such areas as simplicity and convenience, resulting from the development of a stronger bond between marketing and operations.
Would the airlines pricing to "drive" demand be limited only to the low cost sector? Not necessarily. What if a full service airline group (such as IAG or Lufthansa) decides to separate its marketing function from its operations function? What if the airline's separated marketing group then puts out a request for proposals from different operational groups to bid on the services proposed by the marketing group, in competition with, in some cases, its internal operational groups or other bidders in the marketplace, for example, within the alliance?