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Digital transformation is still in its infancy for airlines

(Image credit: Image source: Shutterstock/gudron)

Like many other consumer facing industries, airlines are no longer feeling the gentle nudge of customer expectations – it’s more like a shove. With more of us flying now than ever before, we have come to expect the same level of seamless, intelligent digital experience that is commonplace in other industries, such as banking and retail.

What’s transpiring however is a pretty large discrepancy between the experience of researching, purchasing and managing trips with airlines, compared to that of other sectors.

Unlike other e-commerce transactions, travel can be complicated, time consuming, and owned by many different players. Airlines that haven’t been able to quickly transform their digital storefronts, remove the friction in booking flights, and create a holistic end-to-end customer journey, are losing market share or facing demise. To stand a chance of remaining competitive and gaining (or even maintaining) market share, airlines must start investing in technology to transform the way they engage with customers.

Research has shown that digital transformation is a major priority for airlines in the coming years, with more than 90 per cent of leaders saying they are looking to digital initiatives to improve customer experience, airline performance, and to stay competitive. And airlines around the world are backing up these claims by making tremendous investments; 68 per cent of airline leaders agree that upgrading their IT infrastructure and software is a major priority.

However, despite a clear appetite for change, digital transformation initiatives are still in the early stages in the airline community, with only 8 per cent reporting three years or more of actively working on these innovation-driven projects. For those not in the airline industry, this may feel like slow progress, but the fact is that the industry has long been plagued with legacy technology and IT infrastructure that has handcuffed many airlines from innovating their pricing and distribution strategies.

Personalising offers

On top of this, airlines lose quite a bit of control of their products and services when selling through intermediaries like global distribution systems, online travel agencies, metasearch engines, and more recently, Google Flights. Over time this has eroded their direct channels (their own website and mobile apps), resulting in the inability to differentiate their products beyond the lowest price.

Many carriers have already tried to combat this through a race to the bottom with ticket prices, and they see competition and consolidation as a constant threat. However, now airlines are forced to find other ways to appeal to new customers, drive loyalty, and identify sustainable revenue opportunities.

Digital transformation is a key initiative to bring about this change. By upgrading IT systems, investing in e-commerce and technology like AI or machine learning – similar to other retail industries, airlines stand to transform the way travellers shop, book, and travel.

AI and machine learning in particular will play a huge role in this transformation. Unlike some industries, airlines have never had a shortage of data. Airlines have years of historical booking data to measure how many, and when, seats were reserved before a flight took off. They have customer loyalty data that can help them understand their most frequent customers – what they book, what they see as a fair price, and how often they travel. They can even record transactional data on their online channels to see how travellers move through a booking flow, what add-ons they purchase, and at what point they may abandon the cart. The next step will be using AI to sort through this tremendous volume of data, so that airlines can learn about their travellers while turning the information into actionable insight.

From this process of listening and learning, airlines can then create more personalised offers – better pricing and seats combined with add-on services that a passenger wants to buy.

It takes time

Currently, airlines are handcuffed by traditional technology and can only price seats according to 26 pre-filled fares (one price for every letter of the alphabet). If that sounds old-school, it is. For a few years now, airlines have been pushing for technology to help create more continuous or dynamic pricing – pricing that is based on science, understanding of the customer, and ensuring airlines are not leaving much needed margins on the table. It’s then about seamlessly integrating additional services and products like extra-legroom, priority boarding, meals and Wi-Fi based on the context of the passenger and his or her trip. Today, many airlines can’t successfully upsell products – even though the evidence is there that passengers are willing to share more of their wallet in the right context, and at the right price.

Once an airline can create more personalised, contextualised offers with the right mix of products and services, they need to be able to sell those products in a retail friendly, customer-first way.

In the context of travel, this means that in the future your airline could help you to research your next family vacation based on budget or region of the world you’d like to visit. You wouldn’t have to whip out a credit card, but instead use digital payment tools right on your phone. If there are changes or add-ons before you fly, the airline has a friendly interface for you to manage your trip. No need to call anyone unless you want to. And, friendly push notifications can remind you to book a ride-share to the airport, or sell you an upgrade or lounge access when you have a longer layover.

This all said, it takes time and investment in technology to transform traditional systems into ones that can better serve consumers. As the pressure for airlines to compete and differentiate their products increases, digital transformation progress will have to accelerate – and fast. In a customer-centric relationship where airlines can influence the passenger from the point of research to check-in to after landing, both customers and airlines stand to benefit.

Aditi Mehta, Solution Strategy Director for Travel, PROS