Rethinking Passenger Segments

Airline Leader

Passenger segmentation is an ongoing subject of discussion. And while airlines have clearly developed significant insights into the business group and the personal and leisure group, as well as various sub-segments in each of these two major groups, there are two new segments whose size seems to be increasing.

  • The emergence of two new passenger segments: one seeking efficient air travel and the other expecting seamless intermodal transportation.
  • Technological advancements in air and ground vehicles are creating opportunities for new service providers and disrupting the dynamics of the airline industry.
  • The automotive sector's advancements in autonomy, electrification, social ownership, and interconnectivity may impact short-haul air travel.
  • Mobility as a Service options in surface travel are extending convenience to air travel planning, delivery, and payment.
  • Customer-engagement systems are becoming crucial for airlines to understand and personalize interactions with travelers in the digital era.
  • Airlines need to consider partnerships with technology companies, start-ups, and other verticals to stay competitive and provide connected experiences to new passenger segments.

First is a group that expects available and accessible air mass transportation systems that are more efficient in the use of travellers' time, both in planning and booking online and on mobile devices, as well as travelling in the shortest amount of time. This segment of customers will not accept indirect routings through hubs, opaque pricing strategies, and distribution limitations. The second is a group that expects connected services and seamless travel on different modes of transportation - intermodality. This segment expects different transportation mode service providers (airlines, railroads, buses, boats, taxis, and so forth) to offer services that are efficiently connected to provide end-to-end trip solutions. These two segments appear to be increasing in size and each could reach a critical mass to have new entrants offer service propositions specifically dedicated to each of these two new segments. As a result, there could be substantial structural changes in the airline industry and closely related businesses, with the potential to disrupt the dynamics, on the one hand, between airlines, airports, intermediaries, other modes of transportation and, on the other hand, the travelling public.
There are three developments supporting the potential emergence of these two new segments.
1. New emerging technology, incorporated in the air and ground vehicles, will create new opportunities for existing and new service providers to offer new value propositions. In the case of the air mode, aircraft in all stage lengths, promise to create attractive and cost effective new options, especially in new nonstop markets (both domestic and, to some extent, international), as well as for intra-regional urban travel. Consider: (a) a broad spectrum of small eVTOL (electric vertical-take off-and-landing) vehicles for urban air mobility; (b) the planned development of a hybrid electric 10-12 seater aircraft with a 500+ mile range (for example, Zunum); (c) a fuel-efficient single-aisle aircraft with 100+ seats, and a planned range approaching 4,000 miles (for example, the Airbus 220), or an advanced narrowbody aircraft with a range approaching 5,500 miles (for example, the airbus A321XLR), capable of flying nonstop in large trans-Atlantic markets such as between the mid-west and the east coast of the U.S. and the Western European countries); and (d) ultra-long haul aircraft that would not only serve nonstop markets approaching 10,000 miles, but also change the nature of connecting hubs.
How about travel by car? Four aspects of technology, coupled with the acceptance of ride-sharing, are already expected to create a point of inflection in the automotive sector - autonomy, electrification, social "ownership," and interconnectivity. Autonomy and the willingness to share cars, have the potential to reduce congestion on the roads. Electrification will reduce pollution. And, interconnectivity, coupled with robots being able to read maps and the infrastructure networks becoming intelligent, have the potential to reduce accidents. Besides a reduction in congestion, pollution and accidents, users will experience lower costs, as they will make payments based on use and on-demand basis. The disruption in the automotive sector will most likely have an effect on air travel in short haul markets, both for point-to-point travel, as well as for travel that presently requires connections through congested hubs.
2. The success of Mobility as a Service options in surface travel promises to extend the convenience of app-based technologies to the planning, delivery and payment for trips involving air while meeting customers' elevated expectations. Consider, for example, the mobile apps developed in Germany (moovel - "an urban mobility company, making cities smarter") and in Finland (Whim - an app that provides an easy way to travel). These apps enable analyses of options for travellers between two points (using public and private transportation) based on different priorities, such as trip time and trip fare. Trips can be booked and paid for using mobile devices. In Europe, the momentum is building up for the rail mode to participate proactively in the Mobility as a Service concept. More people are expected to travel by train as (a) the environment becomes more liberal (less government regulations relating to the control of services and infrastructure, (b) the increasing desire to protect the environment, (c) operators to "open up, collaborate and share data," and (d) the rail mode transitions into the digital age, particularly, with respect to distribution. Sweden could progress fast in facilitating the rail mode to participate in the Mobility as a Service.
3. New customer-engagement systems to make interactions with customers more effective, particularly, in the social media era. Different customers prefer to engage through different channels - phone calls, emails, live chats, and so forth. Some travellers prefer to communicate with live agents while others prefer to communicate through self-service systems. Service providers need to not only adapt, but also obtain the necessary data to understand travellers' pain points, track their behaviour, personalise interactions, improve customer experience and make it more dynamic. While customer centricity is hardly a new concept, it has become more of a reality in the digital era. There is now more data on customers' desires, needs and preferences and the availability of intelligent technology (artificial intelligence, for example) to make shopping easier for targeted customers and, at the same time, help service providers develop product differentiation, while providing them with competitive edges. Moreover, customer-engagement systems can improve customer service and experience significantly with the development of human-machine collaboration, facilitated by artificial intelligence and algorithms. The customer-engagement systems can be part of platforms that offer a broad spectrum of services encompassing (a) scope (all aspects of the end-to-end travel, including services at all touchpoints), (b) scale (meeting the needs of all segments of travellers, from those looking for simple and efficient mass transportation, to those looking for personalised services), and (c) convenience (total trip care, from advising, to booking, to paying, to tracking, to resolving problems on a contextual basis).
The key point in the role of customer-engagement systems is that airlines may see not only disintermediation, but also reintermediation. Brand named high technology-based businesses are already leading the charge. The platform being developed by Google that includes search relating to airlines, hotels and travel packages could easily be expanded to include ground transportation and cruises, as well as the capability to manage itineraries. And since language barriers can be a challenge for some travellers, Google could use machine learning to enhance the capability of its platform to tackle this challenge.
Given these trends, airlines cannot look just at each other, or even other modes of transportation, as the only competitors. They must also look at technologies and organisations in other verticals as potential competitors. However, they could also look at them as partners. For example, if there is to be a proliferation of nonstop services in many more markets using new types of aircraft, coupled with new services to airports that are more accessible and more efficient, then partnerships need to be developed with small progressive airports.
Consider, as an example, how Lyon-Saint Exupéry Airport's vision of becoming an airport of the future is being brought to life through partnerships with everyone connected with the airport through the implementation of the Airport Collaborative Decision Making (A-CDM) initiative that facilitates airport partners (airlines, ground handlers, air navigation service providers, and the airport operator) to coordinate operational decisions in a collaborative way.
The airport is also developing partnerships with start-up distributors such as Kiwi to grow "self-connect" traffic involving bus-rail-air connections and with technology companies such as Stanley Robotics to have robots valet park cars. Partnership could also be formed with developers of new forms of mobility in urban markets (Uber's vision of on-demand aerial taxi service), to serve the needs of new segments. These partnerships can facilitate the development of new sources of relevant data and new ways of engagements with customers in real time throughout their journeys. If airlines are to provide truly connected experience to the new segments, the design, delivery, and engagement phases call for strong coordination among all partners by connecting the dots.