Despite experiencing air travel levels unseen since the dawn of the internet age, e-commerce companies thrived in 2020. Many airlines are now taking note and adapting to the e-commerce model to ensure longevity and to diversify their revenue streams.
As a result, we are seeing the rise of the airline app, and with it, the changing dynamic of airline-passenger interactions.
The rise of the “super app” and AirAsia
For years, several airlines have used apps to allow passengers to manage flight bookings and receive tailored push notifications. When COVID-19 put a wrench in flying, airlines began to bolster their digital retail offerings by selling merchandise, alcohol and duty-free items. Notably, Malaysian low-cost carrier AirAsia has been the boldest in its desire to become a “super app,” rivaling other more established apps from Grab, SEA Holdings or Alibaba.
Within its digital brand, AirAsia has developed a logistics arm for cross-border and last-mile delivery (Teleport), entered into the food delivery business (AirAsia food/Santan) and farm direct (AirAsia Farm). August 2021 saw AirAsia join the ride-hailing scene in Malaysia with the launch of AirAsia Ride, initially available in the Klang Valley. AirAsia Ride aims to leverage existing customer data to provide a friction-free experience for passengers, letting them book both flights and their ride to the airport in one place. This follows hot on the heels of AirAsia’s acquisition of Gojek’s Thailand operations in June 2021, which included ride-hailing, last-mile logistics and food delivery and digital payment services.
AirAsia has also evolved its website and frequent flyer program into a lifestyle app for a range of online services (BigLoyalty), developed its own payments system (BigPay) and enabled onboard shopping through its inflight Wi-Fi and in-flight entertainment system, Rokki.
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And the model works. SK Group agreed to invest up to $100 million into AirAsia’s fintech platform (BigPay). As a reference, the market value of AirAsia’s super app, valued at US$1 billion, exceeds that of AirAsia Group, which has a current market value of about $900 million.
Our view is that an increasingly multi-functional airline app incorporating both the traditional passenger journey as well as e-retailing capabilities will further hasten the shift from a traditional airline business model. We also expect further monetization across retail, with airlines muscling in on the territory of traditional e-commerce players.
The expansion of airline e-retailing
With the evolution of available customer data, airlines can be more holistic in how they sell existing products such as flights, ancillaries, duty-free shopping and travel booking. Hotels and experiences are the most logical expansion opportunities, but many airlines are also stretching into the lifestyle realm of commuting, shopping and dining.
In addition, airline apps can be used to host a range of e-commerce services and content such as the selling of physical and virtual goods, online games and video streaming.
In the customer’s pocket 24/7
Rather than solely relying on customer interaction at the point of booking, airlines that use an app can connect to customers wherever they go, regardless of whether they are flying. This model, already used by e-commerce apps, means the airline can build mindshare outside of the travel realm.
Apps enable airlines to also track customer behavior in greater detail. This understanding of passenger spending and travel habits informs in-app promotions or bonuses to influence purchasing decisions across the entire customer journey, improving conversion and retention.
Frequent flier programs also keep customers within the airline ecosystem, driving loyalty. And, as an increasingly important source of ancillary revenue, airline frequent flier programs generate strong cashflow through the selling and redemption of points, crucial to providing additional liquidity. Making frequent flier programs part of the airline app experience will serve to cement this position.
The future of customer connectivity
Prior to the overhaul in 2020, airlines had begun their retailing journey by unbundling fares and other ancillary revenue initiatives. As the industry turns a corner in digital offerings and revenue streams, by centering interactions within an app, airlines will have greater authority to control the customer experience, increase the speed of product development efforts and accelerate promotional activities.
All of these tactics are intended to boost retention and increase non-flight gross merchandising value and take rates, both from customers and through platform partners.