With global passenger traffic plunging 66% as COVID-19 grounded airlines to a halt, 2020 was the worst year in aviation history. Even in the U.S., where leisure air travel is back with a vengeance in the form of vacations, business travel continues to languish. This is worrisome because business travel, although it accounts for only one in seven or eight trips, produces 45% of the revenue earned by the bigger airlines; worse, recovery to pre-pandemic levels is at least a couple of years away, especially in the profitable international routes.
That being the case, the airline industry has to pivot sharply to make its leisure travel business much more profitable than it is today. Revising price upwards isn’t much of an option in this highly price-sensitive business. Instead, airline companies should put a laser focus on improving cost efficiency and quality of experience — both of which have taken a huge hit from COVID-19 protocols — to make more money and revenue from leisure travel.
But before that, they need to further digitize and improve their technology in operations. The aviation industry continues to struggle with complex and discrete legacy systems and processes that make for sluggish, time-delayed operations, and a far-from-ideal travel experience. The customer journey, from planning to ticketing to reviewing, is fragmented because data from one system does not flow seamlessly to another. By embracing digital transformation, with the help of technologies such as predictive analytics, artificial intelligence, MRO augmented/virtual reality, and the Internet of Things (IoT), airlines can unify their technology landscape to gain visibility into operations and access to real-time data. The resulting insights can guide them to all the pain points in operations and experiences that need fixing. The following are a few of the big ones:
Use airline data to identify inefficient operations
Granular, high-quality data enables the aviation industry to discover hidden inefficiencies in operations. With fewer people taking to the skies, airlines may want to consider using smaller, cost-effective planes, rationalizing the frequency of flights, optimizing routes, etc. As traffic changes frequently and unpredictably – people stop traveling if there’s a hint of rising infections, and many countries continue to ban flights – airline companies need a constant stream of current data, network optimization, flight planning, improved revenue management, and automation software, etc., to make decisions related to flight ops, fares, and dispatch. Also, when the airlines are able to predict demand, they can plan their requirements of the crew, ground staff, supplies, and maintenance more efficiently. It is even possible to use live sales data to adjust demand forecasts; the technique improves both speed and accuracy of forecasting.
The benefits of digitization can be felt in daily operations as well. From the cockpit, pilots can cut through the red tape by uploading their reports digitally using a device that is connected to the gate. Ryanair has provided 3,500 pilots with electronic flight bags on iPads, eliminating paper manuals and charts. Pilots can also benefit from apps providing graphic representations of important data, such as weather, to choose the safest route.
On the ground, smart fuel trackers give flight operations staff insights into areas with potential for optimization. To comply with ICAO recommended reporting of in-flight position every 15 minutes, airlines are using new systems that automatically send out an alert if an aircraft doesn’t notify its position.
Getting personalized with airline data
In his book Onward, former Starbucks CEO, Howard Schultz writes, “The only number that matters is ‘one’. One cup. One customer. One partner. One experience at a time.” In theory, the airline industry agrees: in a 2019 survey, 78% of respondents said customer centricity and personalization were critical for digital retailing. Yet, only 2% said they personalized their offers based on data, as opposed to 48% who made the same offers to everyone. The limitations of legacy IT systems, including inflexibility and absence of capabilities such as dynamic pricing and personalization, were clearly the largest problems.
By adopting a modern digital platform, airlines can personalize things, such as bag fees — which are standard today — based on context; this would increase ancillary revenues, which is a top priority for the industry. One airline claimed that using data to personalize offers could reduce advertising spends, and improve revenue by nearly 3%.
Airlines should also leverage their ecosystem partnerships to drive non-air ancillary sales, such as insurance, accommodation, transportation, and tours, to become “all-in-one” providers or online travel agencies (OTAs). This is not just about cross-selling such products piecemeal, which they have been doing for decades, but about providing an integrated travel experience in its entirety. The issue is that few airline companies use APIs – the foundation of a seamless, complete travel experience; even the leaders in ancillary revenue earn a minuscule amount from hotel and vacation packages. With the right digital platforms, retail shopping tools, value-added services both in-flight and on the ground, airlines can earn much-needed ancillary revenues that they’re currently leaving on the table.
In 2019, U.S. airlines mishandled 2.8 million bags: the best performing airline mishandled 0.15% of total bags; the worst, four times that at 0.6%. Bad rap apart, such incidents can cost airlines a fair bit ($2.5 billion for the global airline industry in the same year). By connecting systems so that a bag can be tracked throughout its journey, airlines have managed to slash baggage mishandling by half over the past 10 years, globally. But they need to drive it down further — especially given their terrible financial state — for which a robust data and analytics backbone is key.
RFID tagging — used in baggage tracking — is a rich source of data for baggage systems. By applying AI to this data, airlines can make baggage intelligent, so that it provides its real-time status throughout its journey to everyone who needs to know. BahamasAir executed this at Miami and Nassau airports within seven days. At the other end of the world, Hong Kong airport used AI to create a real-time baggage trolley supply system to eliminate trolley shortages. Baggage tracking data has other uses as well – it identifies improvement areas in operational processes; allows airlines to push updates to customers, so they are fully informed at all times, and serves as an input for machine learning and computer vision technologies for making predictions.
Airline data was turned on its head by the pandemic
The pandemic has turned the air travel revenue model on its head, leaving airline companies to depend on the far less profitable leisure segment for survival. Airlines can increase profit by focusing on the data to remove cost inefficiencies and earn additional revenue by providing better experiences. A strong digital backbone, complete with a platform, data, and technologies, is essential to this agenda.