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High-flying success: Airline industry banks on passenger experience for a turbulence-free 2013

It may not be the profit-rich sector it was back before the days of deregulation, but like many verticals (journalism for one), which continue to innovate despite tough times, the airline industry has struggled to find a new normal.

 

But as we conclude 2012 and look toward 2013, there are growing signs of health – both from nimble low-cost carriers like Ryanair, (which recently raised its half year revenue forecast to between €590 million [US$767 million] and €520 million [US$676 million]) and their legacy counterparts. Take American Airlines, for example. In late 2011, the company was the last major US carrier to file for bankruptcy and in October 2012, a spate of loose seats in cabins landed the airline in the jokes of late-night talk show hosts. On-time flight percentages plummeted. Even so, American still might be the last ones laughing. About a year later, and AA – the USA's third-largest airline – is on pace for a speedy early 2013 bankruptcy exit, possibly beating out United and Delta which went through similar industry-evolving growing pains. They’ve also led the industry in several revenue-per-mile statistics for the last six months.

 

Bumpy ride be gone
Success or failure for the airline industry at large depends in part on capitalising on customer travel needs throughout the booking path, or pre-flight, in-flight and after landing. Specifically, that comes down to enhanced ancillary revenue offerings (fee and service based), increased use of social media for passenger communications, as well as booking and standalone point-of-sale technologies. While all three witnessed gains in 2012, 2013 has the potential of being a year of explosive growth – especially as even the LCCs in 2011 saw profits down by half to US$1.3 billion.

 

As the airline industry takes off for the New Year ahead, here’s a sneak preview of where the passenger experience is heading and what technologies will help keep passengers engaged – even if the “Fasten Seatbelt” sign has to come at least once or twice.

 

Ancillary revenue

US$22.6 billion in estimated global airline ancillary revenue in 2010, US$32.5 billion estimated in 2011 and US$36.1 billion in 2012. As a percentage of total airline revenue, ancillary sources netted 4.8% to 5.6% in each of those years. Noticing a trend here? You should. On one hand ancillary revenue continues to grow, surging 11% in the last year. But that growth relative to the size of airline total revenue has remained stuck in a narrow margin, fluctuating only eight-tenths of a percent. While fee-based ancillary revenues, e.g. checked baggage fees, food and drink, headphones, pillows and blankets will remain vital revenue generators, service-based ancillaries, especially services linked to airline loyalty programs (like Virgin America and its Elevate FFP which includes benefits like priority check-in, security clearance and boarding, and free checked bag offerings) will pave the way in moving the ancillary percent-of-total revenue needle beyond 5.6%.

 

In-flight entertainment

IFE is a particularly attractive approach. Airlines can monetise the experience in two ways. First, they can charge a nominal fee for passenger access to the in-flight retail store (opening the pathway for additional revenue), downloadable movies, music, and games, or they can charge for personal Wi-Fi access –research shows that one-third of passengers (and much higher in sub groups like business travellers and younger adults) already carry their smartphones or tablets onboard, for similar entertainment and retail connectivity, making for a viable and accessible revenue source. In fact, a recent survey by IMS Research found that on flights lasting longer than one hour, passengers spent upwards of 40% of their time onboard using their smart devices. 8% of those surveyed said they used their devices during 80% of the flight. That’s practically the moment from when the captain allows the use of electronic devices after takeoff, to when landing preparation commences.

Social media

Beyond monetised IFE and loyalty programmes, airlines continue to experiment with social media. Not just by having a Facebook page, but by using it as a place to spark genuine passenger dialogue and even allow remote booking, and taking this a step further with the ability to share information about their booked flight, or place a fare on hold, with social networks. Overall, more than 70% of airlines surveyed in a recent SimpliFlying study said they plan to increase their social media budgets. In 2011 only 40% of respondents were similarly social media engaged.

 

Twitter, too, has proven and will continue to prove a fast, efficient, and transparent way for airlines to communicate with their passengers. It’s also a way for passengers to immediately shower praise or express contempt over their travel experience back to the airline. Combined, the top 10 airlines using Twitter have a total of 5.6 million followers, or nearly the same size as the cities of Chicago, Houston and Philadelphia combined. Here, too, that number is likely to grow. Beyond the “Big Two,” look for social media campaigns on other platforms like Pinterest (a combination photo-sharing and pinboard-style idea-sharing website) to attract and retain loyal passengers. British Airways, which boasts 1,092 followers, is but one example of an airline dabbling with this social media newcomer. Expect Pinterest to go from eager startup in 2012 to full-on Major League in 2013. At 25.3 million unique monthly visitors, as of October 2012 the company cracked Comscore’s list of top 50 US websites. And a related study by Bizrate Insights found that Pinterest users are 72% more likely to have found an item to buy on Pinterest than on Facebook.

 

Point of sale technology and kiosks

While kiosks aren’t exactly new technology, look for their scope of abilities to increase in the year ahead, as the trend of fully automated baggage check-in gains momentum. In Europe, for instance, the Bologna Giuseppe Marconi Airport in Italy, announced this summer that it will be the region’s first airport to allow passengers to reserve seats onboard their flights and check baggage in a single operation. Boarding pass barcodes will also be read off smartphone screens instead of traditional paper passes. While four such kiosks are being tested now, 10 more are slated to come online through the end of 2013. In the USA, in December 2012 it was announced that Tekserve, (New York state’s largest independent Apple retailer) would be teaming up with airport food and beverage operator, OTG to deploy iPad kiosks in restaurants at both John F. Kennedy International and LaGuardia Airports. The move is to bring heightened transaction efficiency and higher volume to airport restaurant sales.

 

Considering that tablets are becoming ever more commonplace and Apple remains the tablet leader, iPad kiosks will be instantly usable for many travellers, unlike current kiosks, all which have their unique interfaces.

 

Mobile

Where would a conversation about tablets and Apple be without smartphones? Mobile technology will be more prevalent in the year ahead, especially as global adoption rates continue rising and the flying subset of that group grows even faster at around 70%. According to analyst firm Strategy Analytics, more than one billion people already own a smartphone and the two-billion mark could be crossed by 2015. For airlines seeking to improve their passenger engagement and reach, mobile must be part of the equation, giving passengers enhanced mobile booking, check-in and traveller itinerary capabilities (that is to say easier to navigate and update) and mobile apps that avoid the need to view a mobile webpage to begin with.

 

Contactless and wireless technologies like Wi-Fi, Bluetooth and NFC all will help play a role in doing away with the paper boarding pass – a dated and costly part of the air travel process. While only 21% of passengers from the 2012 SITA/Air Transport World Passenger Self-Service Survey said they used a mobile boarding pass, there’s every indication that 2013 will witness further momentum. Underscoring the trend, as of November 2012, fully 10 airlines, Air Canada, American Airlines, ANA, Lufthansa, Malaysian Airlines, Porter Airlines, Qantas, Turkish Airlines, United and Virgin Australia have joined Apple’s Passbook app (an aggregator and organiser of multiple companies’ digital loyalty programme cards, tickets, coupons and gift cards launched in September 2012 with the release of iOS6) to allow for mobile booking. British Airways and Delta are literally waiting in the wings to join up too.

 

 

Smoother skies and open wallets ahead
Think of the above technology and consumer trends as the building blocks to an effective airline passenger experience and monetisation strategy. Why? Because all of these technologies in one way or another will help airlines jet to success as they collectively work to undo the traditional ancillary revenue stereotype. That is, the (false) belief that passengers are increasingly nickel and dimed for services they once had.

 

If fact, if I had one wish for 2013 it would be that ancillary revenue stops being seen as a “dirty phrase.” It’s not. And never was. And the last time I checked, mobile technology, in-flight Wi-Fi, digital IFE and self-service kiosks weren’t available decades ago. In short, these are new experience-driven services and passengers repeatedly say they can appreciate these revenue resources – especially if the services are delivering something that’s never been possible before.

 

Of course, that’s not to say there won’t be headwinds. Airline mergers will continue, some global economies will sink, others will soar, and jet fuel (averaging US$129.9 a barrel in 2012) isn’t likely to get any cheaper. But solutions come in little steps – each advance a further bulwark against current and new challenges. And capitalising on and further monetising ancillary revenue, IFE, social media, POS technology and mobile is the surefire way airlines will enjoy smoother skies ahead.

 

In other words, innovations in pre-flight, in-flight and post-flight technology are helping airlines find that “new normal,” jetting them to a heightened level of fiscal and travel experience success.

 

About the author
Raphael Bejar is CEO and founder of Airsavings, based in France with offices in Singapore. Bejar has more than 15 years airline industry experience and founded Airsavings in 2001 to meet the unique and growing needs of low-cost and mid-sized airlines, combining group buying techniques with web services technology to provide ancillary revenue solutions to those airlines. Its group buying expertise,combined with the knowledge of airline internet booking engines, has uniquely positioned Airsavings in the area of ancillary revenues – now a vital lifeline for airlines. Airsavings proprietary industry platform, AirlinePlus, enables carriers to deliver a multitude of ancillary services that they find most useful and with the greatest potential for mass adoption and profitability.

 

22 December 2012

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