At less than a century old, the commercial aviation industry has rapidly evolved, making evolutionary leaps that have continuously strengthened the industry in line with the changing requirements and demands of an ever-more discerning consumer market.
From the use of airmail to support passenger travel back in the 1920s through to the creation of global distribution systems and the start of revenue management in the 1980s, much has changed for the airline industry. Now, in the 21st century, the sector is growing and changing once again, adapting to consumers who have fully embraced the internet and always-on connectivity.
And there is another leap yet to come, with industry players currently gathering the momentum to make the jump – which will see them embracing data-driven creation, pricing, placement, and promotion of customised offers relating to airline flights. This represents the next logical step in a connected world, in which airlines can make use of big data to put the right offers, products and services in front of the right people, thereby not only creating a more individualised experience but driving profitability, too.
In research recently conducted by Skift on behalf of Amadeus, more than half of airline executives believe this will lead to increases in passenger revenue of 15% or more.
This is the natural evolution of the dynamic pricing concept, in which an airline adjusts the pricing of components of an offer in real time, based on relevant factors such as known customer preferences, inferred customer intent, product availability, the competition, and timing. Where previously airlines would offer all customers one total fare, customised offer creation is the result of the realities that emerged as demand grew and airline ambitions expanded — though they remain underappreciated by many industry leaders.
While customised offers are undoubtedly beneficial for customers and can represent an important tool for retention, they also have significant benefits for airlines, too. It may seem counterintuitive, but by providing customers with more options and easily understandable choices, as well as pricing that more closely aligns with how they value goods and services, airlines benefit from increased revenue and a move away from the decades-long push to commoditisation.
Customised offers are more complex than the current norms in selling, with an interdisciplinary approach required to balance pricing, design, and presentation to customers, but they are entirely achievable with the technology and knowledge available today that enables airlines to keep moving forward with the development of tailored packages.
Seizing the full potential of customised offer creation requires airlines to embrace five key points:
There is no such thing as a ‘single customer’ mindset. Different passengers value things differently, based on who they are and their requirements for travelling. A tourist will look for different factors than a business traveller – and then again, a single passenger travelling for pleasure will have different needs to one travelling with a large family group. Segregating customers into segments as rudimentary as ‘business or leisure’ is therefore no longer an option.
Dynamic pricing will become the new normal. Today’s technology allows airlines to change the prices of their offers based on the availability of real-time data. Dynamic pricing will support customised offers.
Commoditisation is yesterday’s news. Customised offers have the potential to reserve, or at least reduce, the decades-old trend towards the commoditisation of the airline industry. The misleading perception that all airlines offer an identical service and the focus on price as a sole point of differentiation is slipping away; airlines, particularly those in from the Middle East such as Emirates and Etihad, have gone to significant lengths to prove they offer more than just a seat on an aircraft, but an entire experience. Differentiation based on service, not price, is becoming the new norm.
Airlines must address the talent gap and outmoded organisational structures.
Responses from airline leaders interviewed for ‘A New Formula for Airline Success’ suggests that an evolutionary change is required in how airlines can create customised offers, which means that teams must adapt. Airline commercial teams are built around core functions that have matured over the years and that, to an extent, operate independently; but this will have to change if they are to keep up with the time. The rise of the customised offer era is an opportunity for airlines to recruit, retrain, and reorganise.
The time is now. Change is happening. Consumers are more connected, aware, and discerning in terms of price, value, and service offering than ever before. The technology and thought processes required to create customised offers exist, and are already being deployed by several leading airlines. Those that don’t seize the opportunity will quickly fall behind.