The Gold Mine
Big Data Drives Additional Airline Revenue
Airlines today are sitting on a gold mine of customer data they can access. If used correctly, this wealth of data, or big data, can help tailor a traveler’s trip to fit his or her specific needs and expectations, making the end-to-end experience much more pleasurable. As a result, customers are more likely to remain loyal to their preferred airlines, as well as purchase ancillary products and services along their journey, which naturally generates additional revenue for their airlines of choice.
In today’s society, information flows constantly from different directions. Businesses that know their customers have developed ways to analyze big data to implement successful strategies that can result in a positive customer experience and boost revenue. Examples include:
- A great inflight experience,
- A personalized offer on a special occasion,
- An upgrade on the next flight due to a poor service experience,
- A great offer in a market in which a passenger typically flies.
This, however, merely scratches the surface of what is possible, especially in an age where Facebook, Twitter, Instagram and a multitude of other channels capture millions of pieces of information every second.
How can this plethora of data be used to maximize potential revenue?
At the forefront, big data must be captured, organized and analyzed. By doing so, airlines can begin to form groups or clusters of passengers’ buying behaviors and develop strategies that reach these groups. Once airlines understand the specific passenger groups and buying behaviors that affect them, they can use this information to improve revenues and customer experience, resulting in customer loyalty.
One business area already experiencing financial advantages is the merchandising of ancillary products and services and other add-ons, which generate additional revenue for most carriers. Through data analysis, airlines can pair customers with the ancillary products and services each group is most likely to find valuable, based on their buying behavior and how it aligns with customers with similar purchases.
Ancillary revenue has become part of most carriers’ DNA and is built deep within their corporate strategies. The merchandising of ancillary items generates approximately US$30 billion a year, and it continues to evolve each year. Because this business now represents up to about 40 percent of an airline’s total revenue annually, it has become more than simply a side activity for most airlines.
Airline Ancillaries Generate US$30 Billion In Annual Revenues
Airfares have always fluctuated, depending on the economic climate. During the last few years, however, they have remained static, while revenues from ancillary sales continue to climb. Today, the merchandising of ancillary products and services are a critical component within most airlines’ strategies. And rightfully so, since they represent around 40 percent of an airline’s total annual revenue, and generate some US$30 billion a year.
A successful ancillary offering is most succinctly defined as the right product, presented to the right customer, at the right time. Who are those customers? Are they only the carrier’s top-tier frequent-flyer base, which can range from 3 percent to 20 percent of passengers on any given flight?
There are other passengers who cannot be identified by frequent-flyer numbers, but still make significant contributions to an airline’s bottom line.
It is important for airlines to understand why passengers choose them. Is it because they are loyal to a program that will benefit them? Or do they rely on a specific carrier that will understand their needs beforehand and react with an acceptable level of predictability and consistency?
How can an airline present the right ancillary opportunities to other groups of passengers – those who have not been identified through a customer-relationship-management tool or frequent-flyer-program database? Who are the passengers that chose to fly this particular carrier on this specific flight? Did they buy the ticket because they didn’t have another option?
Using these questions, an airline can develop a profile of an individual passenger and determine his or her preferences throughout the entire travel experience.
Once that information has been obtained, the airline can identify the right services and products for that individual traveler. Is it a greeting service at the airport in a foreign destination, or a pick-up service for bags several hours before departure? Perhaps it is a special experience onboard for a special occasion.
Clearly, there is no one “right” product or service for every person. It is the one the passenger needs to make a specific flight more productive, comfortable or special. This refers to passenger behavior, and not to status or class.
The product or service must provide a consistent experience, and passengers should expect timely, reliable delivery without fail. The key, however, is to correctly pair valuable products and services with the customers who will optimally benefit from them. This requires airlines to analyze the data and match historical behaviors with individual customers to ensure the right products and services are being introduced at the right times.
As such, analytics are a critical component in deciphering the complex and dynamic stream of incoming data airlines receive every day. Eventually, they prove that the carrier’s strategic view is understood and the proper plans to achieve its goals are in place.
Key to implementing a merchandising strategy is to capture the guest at precisely the right moment in the passenger lifecycle. The latest technique is for airlines to transform vision into action using a rules-based data platform, such as Sabre® Intelligence Exchange or SabreSonic® CSS Dynamic Retailer. This enables airlines to choose the ancillary products or services they want to offer specific guests at the right moment. Of course, not every offering is appropriate at all times.
For example, when a customer books a family vacation five months in advance, he or she may not initially consider the ancillary packages or add-ons. It may be better for the airline to entice the customer closer to the time of the trip, when he or she is ready to plan the details of the vacation.
Big Data Analysis
Airlines have access to a plethora of data that constantly comes from numerous sources. As part of a sound customer-experience strategy, they need to be able to effectively analyze all of the data to identify specific needs and desires of specific customers. Among other things, drilling down into the data and truly understanding its customers enables an airline to personalize its offerings to the right customers when they want or need them the most, enhancing the customer experience and increasing customer loyalty.
Analytics enables an airline to segment passengers based on behavior rather than simply dividing passengers into types or categories.
Based on the identified passenger behaviors, an airline can define a common objective that is shared with and understood by all areas across the company, from pricing and revenue management to the loyalty program and sales, all the way down to airports, operations, crew and customer service. All decisions throughout the company must be aligned with that objective, and it is critical that the processes and procedures that support those goals are well-developed and do not contradict one another.
Should a carrier simply copy the products its competitors offer? Should it invest resources beyond its capabilities to provide features that may not be fundamental for its markets and passengers without first getting the basics, such as consistent on-time performance and operational predictability, right?
Absolutely not. When the basics are clearly defined and practiced, passenger segmentation can take an airline to the next level. With merchandising offerings already in place continued analytics and segmentation of passenger buying behavior can optimize potential revenue as market trends continue to change. The only way to develop a successful strategy for merchandising ancillary products and services is to effectively use the information the carrier captures about its own markets and its own passengers.
By studying what its customers purchase; evaluating feedback they provide during the booking, check-in and follow-up processes; and then using segmentation analysis to lay this data over other purchasing patterns in the industry, a carrier can generate an idea of how its products and services are faring.
An airline can discover, in real time, if its ancillary offerings are priced right and how to make modifications to more effectively target specific customers who are most likely to make a purchase in a given situation.
The smart carrier will gain and retain customers by knowing exactly how to make the travel experience less about planning and decision making for the passenger and more about selling the right product or service package to the right passenger.
Taking passenger segments a bit further, data analytics enable a carrier to redefine the nature of targeting its customers and communicating with them. This provides the airline with a 360-degree view of individual customers, and it can now analyze not only who each person is, but the type of trip he or she is taking.
For example, a top-tier passenger in an airline’s frequent flyer program may book two flights in one month: one for business and the other for leisure with his family. Rather than offering him a standard package based a frequent-flyer-program tier level, the carrier offers valet service for the business trip and in-flight entertainment packages and meals for the family trip.
By analyzing the behavior of a given passenger, an airline can make predictive decisions at the point of booking, so repeated issues can be eradicated before they occur. Therefore, airlines are no longer responding to specific passengers but to the pinpointed behavior of a passenger when booking the ticket.
After identifying the passenger, the need and the right timing for the right product, only an excellent service or product offering can complete the circle to ensure passengers leave the arriving airport knowing exactly which airline they’ll select for future travel.