From Transaction to Trust – what actually drives airline customer behaviour today

Transcript

Peter Smith:Thank you, Joe and team, for some interesting insights there. I also remember Joe, by the way, the onboard masseuse on Virgin Atlantic, much to my wife's surprise when I was heading home from Cape Town one evening on a night flight. And when she awoke wondering where I was, she found me behind the curtain with the masseuse. So yeah, those were the days of luxury travel, eh? Good afternoon, ladies and gentlemen. Let me start with something that's happened to pretty much everybody in this room. You're traveling and something goes wrong. A delay, a cancellation, a missed connection, or perhaps your bags go missing. And in that moment, you or your customers aren't thinking about your fleet strategy, your network, or your ancillary program. Your customer is thinking just one thing. Is this airline actually going to take care of me? That moment when something breaks is where brands are built or indeed lost. Airlines have spent the last 20 years optimizing for transactions. My belief is that the next decade will be won on trust. So why is trust becoming so important now? Because customer behavior has fundamentally changed. Over the last 15 years, customers haven't simply changed what they buy, they've changed what they value. For decades, people accumulated things, items, cars, TVs, physical products. But over time, as you can see by this graph, something shifted. Consumers increasingly moved their money towards experiences. But then of course COVID came along and temporarily broke that pattern. We all went away and we bought office furniture, Pelotons, televisions again, and many of us probably still have lots of these items stored up in our loft or in our garages. But once restrictions lifted, Experiences didn't simply recover. As you can see, they came back with force. People wanted to travel. They wanted to see family, go to concerts, and create memories. And importantly, people became willing to spend much more to protect those important experiences. Because when somebody books a flight today, they're not really buying seat 14A or 14B. They're buying a honeymoon, a family holiday, their child's first trip to Disneyland, or perhaps for many of you here today, that critical business deal. Travel increasingly sits at the heart of people's most valuable experiences. And when purchases become emotionally valuable, customers become much, much less tolerant when they go wrong, which explains why we're seeing this next trend. Now, this graph isn't really about protection. It isn't really about insurance, it's about behavior. Nobody wakes up and thinks, I'll go and buy some insurance today. What customers increasingly want is certainty. And the more emotionally valuable travel becomes, the more they're willing to pay to remove uncertainty from that experience. Customers aren't buying protection, they're buying confidence that the thing they've been waiting months for actually happens. But if customers increasingly value certainty, there's a really interesting contradiction because they're thinking About risk. We surveyed over 1,300 consumers. 86% of them think about risk while making a purchase, but only 30% actually buy protection. Now that gap fascinated me because customers clearly care, so why aren't they buying? I don't believe customers reject protection. I think they reject friction, they reject complexity, and they reject products that feel completely disconnected from what it is they're actually trying to achieve. For airlines, that gap isn't just a problem, it's a huge opportunity. So the obvious question becomes, how do we close the gap? From what we're seeing across the market, 2 things consistently stand out. The first is personalization. Now I can feel the mood in the room lower when I use that word. It happens all the time. It's probably one of the most overused words in our industry. So let's make it real. Imagine 2 bookings. One is a family booking a $5,000 ski trip to Colorado. The other is somebody booking a $500 city break for the weekend. Yet what we often do is we present them with the same product, the same message, and the same pricing logic. And then we wonder why conversion suffers. Customers don't reject protection, they reject irrelevant protection. When we talk about personalization in travel, most people immediately think about product recommendations. But the reality is true personalization operates across 5 different dimensions. You've all heard of the 4 Ps of marketing. This is the 5 Ps of personalization. And the very best travel brands are now personalizing placement, product pitch, i.e., the messaging, presentation, UI/UX, pricing, and dynamically doing this by customer context and moment, often in real time, because customers do not all value exactly the same thing. We found something interesting when we looked beneath the headline numbers. Customers aren't simply different by geography or income, they're increasingly different by generation. Across all groups, trip cancellation came out as an overall priority product when people were looking at protection. But beneath that, motivations start to change. Gen Z, for example, Millennials, and Gen X still prioritize protecting their experience or the flight itself. Boomers, meanwhile, think differently. Emergency medical becomes their primary concern. Why does this matter? Because it tells us that customers aren't buying products, they're buying reassurance around whatever they fear losing the most. Let's bring this to life a little bit by looking at how different generations respond. Let's start with Gen Z. 73% respond positively to contextual trip-specific offers. Spotify, tell me what to listen to. Netflix, tell me what to watch. TikTok tells them what to care about next. Relevant recommendations don't feel intrusive, they feel useful. And for younger travelers, smart personalization really helps to create confidence. Millennials actually score even higher. 77% respond positively Which makes sense. The generation sits in a stage of their life of larger purchases. They often have small families, they're traveling internationally, and they tend to purchase more higher-value experiences. And when the stakes go up, relevance matters even more. For this audience, highly contextual recommendations don't feel like selling, they feel like assistance. Now we start to see a shift. Gen X, my generation, drops to 62%. Still positive, of course, but noticeably lower. This is where we start seeing really subtle trust issues emerge. Customers still want relevance, but they begin asking a different question: how exactly did you know that about me? So their appetite for personalization starts becoming balanced by concerns around use of their data. Then we reach boomers. Only 39% responded positively. Now at first glance you might conclude therefore that they simply don't want personalization. I don't think that that's true. I think they want relevance but without feeling that they're being surveilled. And there's a difference. A traveler's comfortable hearing, you're traveling during peak hurricane season, So you may want weather protection, for example. They're much, much less comfortable hearing, because of everything we know about you. So you see, one feels helpful and the other feels just slightly uncomfortable. So what do airlines, what do you do with all of this? The answer isn't more use of data, it's smarter use. of context. So for younger audiences, lean into hyper-personalization because it converts. If customers expect recommendations, don't be afraid to actually deliver them. Use destination, trip value, purchase behavior, travel patterns. Make the offer feel naturally Connected to the trip that they're taking. For more mature audiences, the lesson's ever so slightly different. Keep the offer contextual, but reduce the feeling of personal intrusion. This distinction's quite important. It's not about less personalization, it's about more transparent personalization. Because ultimately, the line isn't technology, the line isn't data, the line is trust. And that brings us to the second shift. Once trust exists, how do you use it to create even more trust? Compounding trust, if you like. For years, airlines have had one of the most powerful trust assets in travel, but many of you just haven't thought about it in those terms. Over the years, you've invested billions building loyalty programs, and the assumption has often been fairly simple: fly more, spend more, and more points. But I think something more interesting is actually happening. Customers increasingly aren't treating loyalty as a reward mechanism. They're treating it as stored value, and they want to spend that stored value on reducing uncertainty. We know because we asked the same 1,300 consumers, what drives your protection purchasing decisions? And the results surprised me because if you'd have asked me a few years ago, I probably would have guessed it's about frictionless checkouts or timing or perhaps more recently even AI recommendations. But customers told us something quite different. The strongest driver wasn't driven by technology. It was the value they already owned— points, rewards, membership benefits. And this is really important because it tells us that airlines already possess one of the most powerful trust currencies in the industry— loyalty. Let's look specifically at the top 2 drivers from the last slide. Nearly one quarter of customers prefer paying with points or rewards. More than 1 in 5 expect protection to be included within loyalty or membership. Customers don't see loyalty points as a discount mechanism. They see it as stored value, and they expect to spend that value on reducing friction. and uncertainty, not just on seats and upgrades. So the question isn't whether loyalty matters, it's how to turn it into something more strategic. So loyalty may have less to do with free flights and more to do with, as we said, reducing that uncertainty. Because as we're discovering, customers value confidence as much as they do rewards. So how do we bridge the gap? Historically, loyalty and protection have been 2 separate worlds. On one side sits loyalty, and on the other sits peace of mind and protection. And most businesses, most of you, probably still treat them completely independently. But I think the bridge itself becomes much more strategic, and there are 3 things that matter. First, keep it native. Don't force customers out of the booking flow. Second, allow hybrid models when it comes to spend. Remove barriers to utilization of their member benefits. For example, points plus cash is something some of you folks do. And third, embed benefits directly into membership, something credit card companies and banks have done very well over the years and have been hugely successful in doing so. Because once protection becomes part of membership, customers stop evaluating it as an additional Purchase. And when the bridge is complete, something important shifts. You're no longer simply rewarding past behavior, you're actively influencing future behavior. Points become more than a currency, they become a mechanism of confidence. Imagine a traveler thinking, Because I fly with this airline, I know I have support if things go wrong. That moves loyalty beyond transactions. Now you're building emotional loyalty, and emotional loyalty is much, much harder to compete against. But even loyalty has its limits, because the biggest trust test still comes when something goes wrong. And that's where the next finding becomes really interesting. This might be the most important finding in this presentation, and it's very simple. 73% of consumers would buy more if payouts happened automatically. 70% would switch platforms entirely for this reason. Let that sink in for just a moment. You spend billions competing on seats, schedules, pricing, product, yet customers are saying, take care of me when things go wrong and I'll move my business. Imagine your customer lands after a 4-hour delay and before reaching the luggage carousel they receive a message. We've detected disruption on your trip and we're going to automatically send $150 to your wallet. No forms, no phone calls, no waiting, and no friction. That doesn't feel like insurance. It feels like the airline cared about the customer. And in a world of parity, That becomes your moat. So stepping back, this isn't really about insurance. It isn't really about ancillaries. It's about understanding the customer better. It's about using loyalty differently. And it's about showing up in the moments that matter most. Because in an experience economy, The airline that owns the moment of disruption increasingly owns the relationship. Thank you.

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