There are a common themes, indeed, common challenges that we at OpenJaw find when we meet with our clients around the world.
Whilst many of them have different markets and often radically different business models, these challenges roll up to seven trends that we think will be significant in 2018.
Challenge #1 - The rise of mobile, social media and the always-on consumer
The travel experience has expanded and is now multi-layered, multi-screen and fragmented. The inexorable rise of mobile, social media and the always-on consumer has resulted in two contrasting outcomes:
- Travel customers are elevating their expectations, whilst travel brands face the threat of commoditisation
- The multi-screen means that the customer journey is totally fragmented
Mobile has grown so fast that it is used by everybody from your mother to the CEO.
Mobile means that every aspect of the customer journey has changed: the fact that "everyone is a fingertip away" means that there is a real opportunity to tackle this by having the customer at the centre of the airline.
Mobile, social and digital enables airlines to:
- Create customer experiences that engage both the traveller and the employee
- Drive more personalised interactions
- Rapidly improve customer service scores
The challenge of connecting with the ‘digitally distracted consumer’ means that the traveller has less time to engage with airlines.
The challenge is to "combat digital deafness" – a great phrase that summarises the dilemma facing all travel businesses.
You can argue that airlines hide behind the complexity of distribution, partnerships and pricing strategies - and not totally focussing on customers.
Kieron Branagan
The future of mobile can be gleaned by looking at what is happening in China.
China, like many other developing markets, did not follow the pattern in the West of going from travel agent to PC to laptop to smartphone as their channel to book travel.
Many consumers just went straight to the smartphone and have never engaged directly with a website.
Mobile is ubiquitous in China, a way of life, not only a medium of communication. Mobile has become an integral part of everyday life for Chinese consumers.
On mobile, they talk, text, shop, order food, hail taxis, book travel, trade stocks, pay for products and services, deposit money into their bank or transfer money.
The question asked in the West is – what is our strategy for mobile? In China – mobile is the strategy.
This is a strategy that should be adopted by airlines in the West.
Challenge #2 - Digital Transformation
2017 was the year that Digital Transformation was finally seen as something whose time has come.
Indeed, Tim Clark, president of Emirates, was quoted earlier in the year as saying: "Every organisation is going through a digital transformation whether they know it or not.
"New platforms in which our future processes are going to sit will be fundamental to the future, so deconstructing and reconstructing the firm in the digital environment is what we must do.
"The way we go about assembling the resources, and how you use back of house systems, are going to be completely transformed by digital."
You can argue that airlines hide behind the complexity of distribution, partnerships and pricing strategies - and not totally focussing on customers.
Subscribe to our newsletter below
However, there is something more subtle going on that hinders the speed of digital transformation: corporate culture. Corporate culture is the single biggest challenge for digital transformation.
Take, for example, the startup culture seen in tech-driven businesses: their culture are radically different to the control culture of airlines.
Startups have a fail-early, fail-fast approach, whereas operationally driven businesses like airlines cannot have a failure culture.
Yet, the culture of the start-up is where airlines can find the innovations they need. The melding of these two opposite cultures is bound to create an interesting dynamic over the next few years.
Challenge #3 - Navigating the travel tech landscape
Fintech, martech, adtech, healthtech and now traveltech are all exhibiting the exact same pattern: an explosion of small, agile tech-driven businesses targeting airlines with all sorts of products and services.
All the talk about channels, data, predictive analytics, machine learning and AI is creating a confusing vendor landscape.
Is this a good thing?
The problem for airlines is to understand how these different pieces of technology stick together.
Airlines openly admitted that the pace at which disruption is happening means "we can't do it all ourselves".
Instead of being reliant totally on internal resources, airlines are radically changing their mindset about external vendors and partnerships.
Challenge #4 - "They have not gone away, you know"
Notwithstanding any excitement about digital transformation, many airlines around the world are reliant on travel agencies and global distributions systems to get their products in front of their customer.
Indeed, many carriers outside of Europe have up to 80% or more distributed through agencies.
Many of these regions have a young population, and the simple fact that many do not have credit cards means distribution systems are fragmented.
NDC is now front and centre for airlines who wish to merchandise their products and content across all channels.
There is a clear recognition that NDC will enable airlines to transform the way air products are retailed.
Perhaps it is time for NDC to get the same billing as more "buzzworthy" topics such as digital transformation, given that NDC initiatives have the capability to drive revenue sooner than many digital transformation initiatives can.
Challenge #5 - Conversational commerce goes mainstream
Chatbots are going past the proof of concept stage into production and real actual usage, with hotels leading the charge in the travel industry.
Chatbots take the intent of the customer, understand the intent through Artificial Intelligence, and point the customer in the right direction.
Conversational interfaces can be seen as "retailing touchpoints", because they reflect the way that people live and act.
The current use cases of chatbots are many and varied:
- Customer Service
- Bookings
- Ancillary Upsell and Cross Sell
- Servicing Customer Bookings (e.g. MMB)
- Retailing
You can narrow these themes to "cost reduction" and "revenue increase".
Chatbots are a new technology and so a learning curve is required.
Indeed, there are two very interesting issues that airlines need to think about: "empathy v speed".
For example, if there is a problem with flights, customers want an immediate answer and are ok with lack of empathy.
Chatbots typically know before a call centre that there is a problem or disruption, due to their connection with the back end systems, so a fast, fact-based reply is needed, stripping out niceties.
However, if there is a big emotional impact or empathy requirement, then the customer is better talking to an agent.
Challenge #6 – Customer Experience as a driver of strategy
The origin of customer experience as a strategy originates in the late 1990s book by Gilmore and Pine - The Experience Economy.
This was one of the first books to discuss the rising importance of customer experience, and they created a model showing how economic value progresses from delivering basic services towards an era in which businesses will need to orchestrate memorable experiences for their customers.
airlines have the data on what the passenger is looking for, where they are going and why they are going but still the average airline margin remains at 6-7%.
Kieron Branagan
In response to the growing threat of commoditisation, airlines are progressing from delivering basic services towards crafting, and creating platforms for customer experience.
This involves a move toward customer insight, operational involvement, optimisation and iteration using the smart application of data.
However, airlines themselves are not as good as utilising data and technology – they are good at flying aircraft, naturally.
As a result, airlines are developing new operating models to support different types of customer experience, which in turn, creates a need to shift cultures, behaviours and skills to enable different ways of working.
So the potential impact of the long-term shift towards customer experience for airlines is nothing shot of revolutionary.
Challenge #7 - Airlines should be taking a much bigger share of the travel ecosystem
One of the starkest truths of this was that airlines bring a lot of passengers, and a lot of revenue into the travel ecosystem, but are not getting their fair share of the total margin and total revenue available.
What percentage is going to airlines and what is going to the ecosystem?
One estimate was that 30% is going to airlines with the rest of the money going to the ecosystem such as hotels, transfers, ground transportation and events.
Even worse than this, the airlines have the data on what the passenger is looking for, where they are going and why they are going but still the average airline margin remains at 6-7%.
The resources and the repertoire is there, but not the appetite.
Consider the OTAs and other "gatekeepers" of travel: Expedia, Kayak, Ctrip, for example.
Equally, the big technology brands such as Google and Facebook play a bigger role in the travel industry, not as travel providers, but as tollbooths and curators to lead consumers towards making the travel booking.
Both the OTAs and Google/Facebook monetise this slice of the travel pie and are making it very profitable for themselves.
What should the airlines do to cope with these trends?
Two ideas can be borrowed from other industries for 2018
1. Platform
One of more interesting frames of reference that can be borrowed from the world of technology is "platform thinking" – which is exactly how Google, Facebook and larger OTAs like CTRIP position themselves.
Platforms are no longer restricted to retail or high-tech, but are visible across multiple industries — and the trend is accelerating.
The chief assets of any platform are information and interactions, which, in turn, creates the value in the platform and competitive advantage.
Today, many industries are realising the importance of moving to platforms that few industries are exempt.
So, perhaps platform thinking can now be applied to airlines: with large passenger numbers, deep pockets and the appetite, certain airlines can choose a strategy of being a travel platform with an airline attached.
This is certainly true of the larger low cost carriers.
2. Retail
Whilst platform thinking is a very sophisticated strategy, other airlines can adopt the strategy of "airline as a retailer".
By embracing the tenets of retailing properly, airlines still have a huge opportunity. In many cases, airlines are really only starting out on their journey to true retailing.
The starting point is still to think about ancillaries: air/non-air offer, fulfilment and merchandising, and to understand that digital transformation, technology and tools underpin the success of "airline as a retailer" thinking, and will speed up the adoption of retailing as the dominant mindset in aviation.