Progress in Digital Transformation in Aviation

Here are some examples of recent digital oriented initiatives in the aviation industry:

• Some airlines are experimenting with the use of facial recognition technologies to improve the check in and boarding processes;
• Some airports are experimenting with the introduction of robots that can make air travel less stressful. Meet Leo, a robot created by SITA and being tested at Geneva International Airport that can come to the curb side of an airport, take a passenger's bag, tag it and transport it to the appropriate location inside the airport. Also meet KATE, an intelligent check in kiosk robot created by SITA and being tested at Kansai International Airport, that can move to a congested area at an airport to expedite the check in process;
• Airbus' A3, a Silicon Valley subsidiary, has been designing customisable modules to provide airlines with the capability to reconfigure aircraft interior cabin layouts to offer passengers dramatically different options on how they spend their time in the cabins.

While all such initiatives will add much value, step-changing digital transformation in aviation is still at a very early stage. Progress relating to a significant level of transformation has been relatively slow due to:

• The unwillingness of management to change existing business models and business processes, due, in turn, to the misconceptions of digital transformation and the uncertainty behind transformative initiatives;
• Varied stages of development of businesses within different sectors of the aviation industry, calling for widely different strategies and their timings;
• The significant gap between the capabilities of legacy technology systems and processes, and the contemporary customer centric technology systems and processes needed to engage with customers and provide personalised services;
• The complexity of some sectors within the aviation industry and management's sentiment to engage in transformation quickly;
• Resistance to the implementation of fail/fast initiatives even in areas that do not relate to safety considerations;
• The continuation of planning cycles based on an annual planning schedule.

Consider the confusion between the word digitisation and digitalisation. Some executives still believe that by digitising some functions and processes, they are transforming the business. However, digitising some functions refers to converting information from an analogue into a digital form without changing the content and simply automating some conventional paper-based and/or labour intensive processes. For step-changing transformation, what is called for is digitalisation that goes further and refers to the use of digital technologies (and digitised data) to change how the business is conducted in some areas. Consequently, the focus needs to be on the word transformation, not on digital.
Challenges such as the complexity of business processes, and constraints in legacy systems also attribute to the slower pace of transformation. With regards to the first part of the challenge, despite other business sectors deal with complex issues - automobile, pharmaceutical, petrochemicals, for instance - airlines consider their sector exceptionally complex. With respect to the second part of the challenge, legacy systems, there has been, and continues to be, a gap between the operational needs of the business and the commercial needs of customers. To deal with these complexities and constraints, airlines have been developing sophisticated systems and processes within their major functions. However, the introduction and implementation of airline functional systems within existing systems has made the airline business more, not less, complex.
Moreover, integration among systems within the isolated operational space as well as within the siloed commercial space has been handled through human interfaces that compounded the ongoing complexity. Furthermore, instead of streamlining operations, the complexities increased with the formation of airline groups - for example, the IAG Group and the Lufthansa Group. Social media engagement and increased mobile device use also add to the complications. As a result, the gap between the operations and the marketing space continues to exist, affecting costs, revenues and customer experience, not to mention employee experience. Finally, on the point of annual planning cycle continuity, it is a process that has held back agility. Digital transformation can now make the airline business more agile and more flexible. For example, digital technologies can enable an airline to reduce the planning cycle from the standard 12 months for the development of schedules to a few weeks, but it calls for major changes in revenue management and reservations functions - a discussion for a different column. Similarly, digital transformation within the operations space (flight/crew planning, fuel management and M.R.O) can bring up incredible levels of reductions in operating costs, not to mention an increase in the capability of aircraft to generate more revenues as well as improve customer experience through reductions in delays. Looking forward, the aviation industry should consider using information and analytics-based platforms to develop and implement transformative strategies to face both challenges and opportunities created by the convergence and intersection of, at least, three major forces. These forces are (a) increasing levels of complexity, (b) expected growth and changes in traffic, and (c) the emergence of exponential technologies to enable management to transform their business models. Platforms will enable, for example, airlines to achieve scale and scope as well as agility and flexibility (through strategic partnerships) to offer intelligently aggregated travel-related services right now. Subsequently, they will enable airlines and airports to provide solutions to travellers' global mobility requirements.
The most important and immediate capability that digitally-focused platforms will provide is to develop a bond between operations and marketing that reduces complexity significantly and enables the development of value-adding price-service options to accommodate the expected growth and shifts in traffic worldwide. For example, according to charts published by IATA, 2018 could be a pivotal year when the percentage of Origin-Destination traffic within developing markets becomes higher than within advanced markets. As for the rankings in the top ten air passenger markets, 2016 vs 2036, the US shifts down from number one to number two and the UK moves down from number three to number five, while India moves up from number seven to number three and Indonesia moves up from number ten to number four. These shifts in traffic can be explained by such developments as relaxation of aviation regulatory policies and expansion of LCCs.
It is the operating framework of platforms that will enable airlines to the balance marketing and operations centricity. Airlines have always had an operations centricity. Going back in history, it was the initial complexity of logistics that caused airlines to focus much more on operations than on marketing. The airline industry worldwide was heavily regulated (until about the end of the 1970s), preventing management to develop and implement traditional marketing strategies relating to, for example, price-service options. However, even after the airline industry was deregulated, although in steps, management focus, with the exception of a few airlines, continued to be high on the logistics of operations relative to the marketing side of the business. More recently, a few top tier airlines, having "almost mastered" the logistics of their operations, have begun to devote more attention to contemporary marketing challenges and opportunities even though complexity continues to exist and, in some cases, has even increased for some of the reasons mentioned above.

TOP TEN AIR PASSENGER MARKETS 2036 VS 2016

Source: IATA/Tourism Economics

Compare this business model in the airline sector to the business model of Amazon that seems to have focused on marketing first and logistics second. Amazon started with the identification of products to sell and the ease of shopping (the famous "one-click" mantra, for instance), followed then by efficient logistics, such as fast delivery. Product line, initially focused on retail, began to expand into other sectors, the grocery sector and the healthcare sector being the latest areas. After marketing came the focus on delivery logistics - two days, next day, and, in some cases, the same day. Now, for the transport of grocery-related products, deliveries could even be envisioned within a couple of hours. The interesting twist is that Amazon is now reportedly considering "marketing" its logistics competency. As such, Amazon could easily deploy its capabilities in logistics to make deliveries for other businesses that sell their products on the Amazon platform.
Although considerations relating to logistics and the complexity of airline operations did come before marketing, focus has been shifting, although slowly, to the marketing side. In recent years, airlines have been exploring and implementing some customer-centric marketing initiatives. The bundled product has been unbundled and the physical product has begun to be integrated with some digital elements, such as the mobile capability to shop and book, the availability of digital boarding passes and the availability of limited amounts of personalisation. Some full service airlines also created lower cost divisions and started to offer fares that matched the fares offered by lower cost airlines to appeal to the price-sensitive market. Air France went even further and designed its low fare division, Joon, launched in Dec-2017, to appeal to millennials by introducing some digital features such as streaming-based entertainment.
Going forward, however, airlines will need to work with newer generations of platforms if they are to meet the dramatically changing needs of their customers and their businesses. The newer generation of platforms will provide airlines and airports, besides the capabilities to achieve scale and scope, with capabilities to create and capture new values by bonding the marketing and operational systems and processes. If airlines do not transform in this direction, and rapidly, there could be technology businesses, working with customer-centric platforms, which could help travellers create personalised and total trips with flexibility and the ease to change the trip components in real time and on a contextual basis. Airbnb could step forward for example, and offer a platform for a comprehensive set of travel-related services. Such an operator of a platform could simplify the shopping process, for example, by including:

• All components of the end-to-end travel process, based on context and total needs of the traveller;
• Services such as prediction of fares and prediction of on time performance (not just on the day of travel but also during the shopping phase), recommendations and reviews trusted by the shopper;
• Availability of convenient payment systems.

The core competencies of these powerful technology businesses lie in the areas of data, analytics, customer relationship management and the focus on making consumers' lives easier. Keep in mind the mission of some technology companies to "empower people to achieve more". How fast can airlines transform to "empower travellers to achieve more"?