Capturing more of the value chain
Many factors outside of airlines’ control nonetheless affect how passengers respond to them. Economics, politics and, of course, the weather play roles beyond anything a carrier can manage. Airports, while an intrinsic part of the aviation system, involve even more uncontrollable variables, including security and transportation issues.
Full-trip customer care and the power to address externalities
Airlines may be reluctant to take on the additional complexities of coordinating their operations with a bigger, more complicated and less integrated travel industry. But what was once defensible prudence has become problematic hesitation and resistance. Circumstances have changed, and technology has matured.
A single Web search involves more data processing than was used by NASA’s Apollo programme over all the years of its existence and the multiple flights it launched. Technology is no longer a barrier — inertia is. If the industry does not involve itself in a larger piece — arguably the entirety — of the travel value chain, another industry will do so to the peril of airlines.
The limits of hardware, the elasticity of data processing
Trains today travel about six times faster than they did in the mid-19th century—a rate of speed first achieved 50 years ago.
Planes fly about 10 times faster than they did in 1914; passengers first reached today’s average air speed for commercial travel, roughly 500 mph, in 1952.
If we consider electronic data transmission to have started with telegraphy and Morse code and that the initial rollout of Google Fiber represents the current high-water mark, then, between 1844 and 2012, the speed of data transmission increased by a factor of 256,000,000.
The rationale for focusing on data throughput as a way to improve both the economics and the experience of air travel derives from that stunning set of numbers. While land and air speeds have not increased recently, data speed has attained escape velocity—with corresponding increases in processing power and storage capacity. At the same time, costs for computing equipment and services—and the communications and sensing technologies that use data as a platform—continue to plummet.
These technological gains and economic efficiencies are the airline industry’s greatest unleveraged asset. Compared with hardware and physical infrastructure, moreover, changing and expanding the use of technologies in the digital sphere is much more under the unimpeded control of the industry.
Maximising efficiencies over the long term
A key measure of efficiency is being able to match capacity and demand. Flying empty seats, heating empty hotel rooms or leaving rental cars in their stalls — all are underused assets and represent lost revenue across the travel chain. Individual service providers do what they can to combat this: if the flight from New York, New York, to Denver, Colorado, is only half-booked, the airline cuts the price of the remaining tickets.
For customers, however, the value of that discount has to be weighed against all of the other pieces of a trip they are left to cobble together on their own. An entity that offers to handle all the resulting changes as a complete package — taking customer preferences into account, making best use of facilities across the full chain and delivering all at a good price — would transform its role from vendor to coordinator — a powerful and more profitable position.
A full-trip coordinator is able to efficiently deliver a more consistent customer experience across the complete journey because it has a detailed and complete picture of the customer’s preferences, needs and desires, as well as how all the parts of the trip connect. Its customers will experience a more coordinated and personalised trip than even the traditional personal travel agent could provide.
Airline and hospitality websites, along with online travel agents, are aiming to take on the coordinator role — but their offerings are still more aggregation than coordination. They provide access but not enough intelligence. Travel packages are not so much personalised as divided into silos — business, leisure, adventure, etc. In many cases, they can offer bargains, but not the personalisation and coordination passengers seek.
Information and communication are key
An excellent in-flight experience is less likely to be remembered as such when sandwiched between a traffic jam on the way to the airport on one end and missing the shuttle to an unsatisfactory hotel room on the other. While those are outside the scope of the airlines’ responsibility, travel segments blur together: a bad day is remembered as a bad day and the airline is included in that memory.
Full-trip coordination addresses these issues in a manner similar to a combined on-call travel agent and an unobtrusive personal assistant. A clear path through traffic jams cannot be blazed, but technology now provides a range of ways to keep abreast of kinks in the travel chain, to communicate with customers in a timely fashion and to offer solutions that either help work around problems or quickly address fallout if the problems are insoluble.
Particularly valuable is the ability to identify and adjust to problem cascades, for example, those caused by missed or cancelled flights. Years of cost-cutting have meant that a flight cancellation can result in hours of waiting to speak to a representative on jammed airline customer-service phone lines to rebook that single part of the trip — after which other time-dependent reservations and plans also must be adjusted. Passengers are frustrated, angry and out time if not money.
A full-trip coordinator would be able to see how, and therefore address, problems can ripple across the full trip; the coordinator could, perhaps, even have the power to bargain down or pay whatever change fees might be imposed. That kind of problem-solving and path-smoothing could make travellers more loyal to the coordinator than to any individual vendor.
An airline able to step into the role of efficiently solving problems can also use information in softer, more proactive ways, like making sure that a hotel greets arrivals from a late flight by providing them with information on restaurants in the vicinity that are open late and serve their favoured cuisine, for example, or offering expedited room service. This kind of personalisation makes for a tangibly better experience and makes travellers feel cared for as well. It builds loyalty.
Providing customer care at this level requires the meshing of several different kinds of information. The trip coordinator needs to know the customer, see the full trip and remain aware of the traveller’s evolving circumstances. This level of care combines the customising approach of the logistics and hospitality industries with the predictive analytics of the gaming industry.
Both customers and executives favour this trend towards integration, but executive interest (51%) is significantly higher than that of customers (31%). If customers don’t demand a feature, it’s hard to get an industry to invest in providing it. The problem may be that customers don’t yet see all the benefits of full-trip coordination. On the other hand, executives, who have their full-trip travel arrangements made for them (usually still by human assistants), are keenly aware of the value of this service.
Travellers want a faster transit through the airport. They can see the path and technology can deliver that experience. Technology can also facilitate the delivery of a much more integrated, cohesive and personalised experience across the full trip. Travellers do not yet clearly see that path.
Considering the interface
Technology can do a great deal to automate and drive down the cost of this level of service. Finding the balance between efficiency and a positive experience is tricky, however. E-mails and texts can be fast and effective; automated telephone agents can provide more flexibility in ramping up capacity when problems are widespread and demand spikes; the range of interactive avatars continues to expand.
But whatever technologies trip coordinators use — to provide services or to offer options — these technologies have to be reliable, accessible and not alienate customers.
Henry Harteveldt, founder and travel industry analyst at Atmosphere Research Group, cautions about moving too quickly or too far away from live agents. “We’ve seen airlines in the United States and Europe using [live] customer service as a competitive tool and winning,” he warns.
Nonetheless, it bears reminding: in 1980, many people were uncomfortable leaving messages on answering machines, but by 2014, people were completely comfortable having conversations with their phones via virtual personae such as Apple’s Siri.
The competitive landscape
A number of players in the travel sector are trying to step into this coordinating role. Airlines, the hospitality industry and online travel agents have been joined by data-centric companies like Google and Amazon, along with a host of start-ups.
Often through loyalty programmes, hospitality companies provide booking access to other parts of the travel chain: offering special deals, rooms at a discount and the ability to pay for related services like rental cars with points. While still embryonic, these efforts demonstrate that hospitality is making a play for owning the full trip. And the prowess the industry has demonstrated in profiling guests, differentiating market segments with ever greater precision and personalising the customer experience with increasing success makes the industry a formidable competitor.
On their websites, airlines often offer specials or package deals. Increasingly, the flight-booking process includes or leads to click-through options, connecting customers to partner providers of lodging or rental cars.
“The challenge is making the data come alive, so we get a better picture of the individual customer.”
– Jeff Foland, executive vice president of marketing, technology, and strategy at United Airlines
Meanwhile, online travel agencies range from those specialising in a particular segment to more comprehensive, but still-not-complete, booking services; others are offering added value by bundling in access to a travel advisor to help coordinate the trip and deal with problems. The online proliferation of what appear to be one-stop travel shops obscures the fact that far fewer companies are running the back end of the systems, whether hardware or software.
Branded services compete on price, but almost never have access to the full range of options within a travel sector or across the full trip. Some airlines, for example, require that bookings be made through proprietary websites. Entities like national railway systems can have similar policies. The struggle for all of these portals has been to differentiate themselves, to be seen as something other than wholesale travel warehouses.
Passengers left to do the work
But while customers are being offered a growing range of portals that offer to provide the full range of travel services, what they are really being given is a full box of puzzle pieces with which to assemble their own trips. Aggregation, putting everything in one place, is not the same as coordination, fitting all those pieces together. Nor does coordination necessarily mean personalisation.
Travellers have to build their own schedules, most often in a limited price range. Working within those requirements, they have to make choices about how they can personalise their trips. The information they have about a hotel or an airline, for example, will typically come from two primary sources: the vendor or experience. Vendor information may come directly from vendor websites or through various kinds of advertising. Experience may be personal or reported, either from a single trusted reviewing source or from online ratings and customer feedback.
Coherently organised and credible information — accurately matching services to need and preference — can help automate much of this process. Abundant information that is insufficiently organised just makes things worse. To be offered a choice in this sea of information can be more of a problem than a solution. Companies that can offer truly coordinated and personalised information will pose a far greater competitive challenge to airlines.
Big data enters the fray
In April 2014, Google licensed the technology of Room 77; its mobile hotel-room search app combines price and availability search — across multiple travel sites — with detailed information on individual hotel rooms, including simulated views out the windows. Many analysts have taken this as a signal that Google may no longer be hanging back from expanding its role in the travel industry.
Along with the companies under their respective corporate umbrellas, Expedia and Priceline are the dominant OTA players. According to Skift, the online travel news and information service, their combined Google advertising spend in 2014 is projected to be nearly US$2.5bn, close to 5% of the search engine’s annual advertising revenue, thus making it unlikely that Google would go up against them.
Google’s Flight Search and Hotel Finder are not prominent and are only nominally linked. Google acquired ITA Software, a developer of fare-search technology, in 2011. However, no significant moves seemed to have come from this transaction. The Room 77 deal, however, is seen as different. The full set of tools the company now has at its disposal, moreover, make it one of the most serious potential Big Data candidates in the full-trip coordinator arena.
Other Google services, knit together, constitute an impressive foundation. Google Maps is situationally aware, alerting drivers to traffic problems and suggesting alternate routes. Google reads online information like calendars and search histories, combines them with location data and then offers a stream of information likely to be contextually useful. And Google Wallet facilitates and tracks transactions. Smartphones with Near Field Communication (NFC) functionality — which enables “wave-of-the-phone” payment — could ultimately replace biometric ID and the boarding pass.
The role of “little data”
According to Mobile Commerce Daily, a majority of business travellers 30 and under now book using smartphones or tablets; they want to be able to book quickly and on-the-go. Price is still a factor in this demographic, but more so for leisure than for business travellers. Millennials (also known as the Millennial Generation or Generation Y) have been described as valuing experience over material possessions, expecting experiences to be personalised, paying a premium for “unique”. They gravitate towards whatever travel services or vendors can best meet those criteria, whether for discrete segments or for the full trip.
Room 77 is part of an ecosystem of what might be referred to as little-data companies that promise highly data-centric services — often focused on a specific part of the travel chain, but with some on the full trip. They are a direct response to the travel needs and expectations of millennials: speed, mobility and maximum personalisation with minimal effort.
Another such start-up, OLSET (“all set”) currently focuses on hotels and harvests customer data from the Web — from social networking sites like Facebook. Claiming to profile hotels with a much higher degree of specificity than other such services, its website lists “design/boutique,” “green/sustainable” and “unique,” among almost 30 preference descriptors. OLSET can be used as a hotel search engine; it can also be set to read customers’ calendars, anticipate trips and “instantly e-mail” a list of hotels that match the time and location with the customer profile.
Relatively small functions added to OTA sites — sometimes as a result of technology purchased or licensed from little-data companies — can also be significant and point towards potential problems for airlines. KAYAK Mix, for example, could be seen as the ultimate commoditisation tool: it constructs flights on a segment-by-segment basis to achieve the lowest price — round-trip from New York, New York, to Los Angeles, California, via Chicago, Illinois, could involve four different airlines.
Individually, these apps and services are not hugely consequential. Collectively, however, they show customers the services they are not getting from airlines or other providers. They also present the risk that a company like Google or KAYAK could buy them and weave them into a more comprehensive solution — a potential opportunity for airlines as well.
Competition and cooperation
How fast and how far Google will proceed is unclear. Facebook and Amazon both have their toes in the travel pool, though neither has made serious integration moves. In this context, the hospitality industry and airlines have a common interest in not having the travel business comprehensively disrupted by outside companies. Models are available that would permit them to compete with each other in some ways and cooperate in others — for example, allowing limited reciprocal access to each other’s reservations systems.
As providers, the airline and hospitality industries have a number of advantages over outside entities, from the OTAs to Google. They have different, potentially complementary, strengths. Both know a great deal about travellers’ habits, needs and desires. Airlines, as the heart of the network that physically moves travellers from place to place, have a broader information map of where and how people travel. Hotels have more space, a greater range of amenities to offer and, therefore, more information about which are favoured by different demographic groups and under which circumstances.
Looking to the future
Nawal Taneja, professor emeritus at Ohio State University’s Center for Aviation Studies and former president of a small airline, has long stressed the importance of helping travellers manage the journey across the complete travel chain. While this expansion increases complexity for the airline industry, he does not see moving in this direction as optional, given the availability of technology to meet customer expectations.
“If the airlines don’t re-strategise and become either travel facilitators or solution providers to the problems that people are facing”, he says, “if they say, ‘we just fly seats from Airport A to Airport B,’ people will still travel, but they will buy their travel services through new intermediaries”.
Mr Taneja, author of the recently published book Designing Future-Oriented Airline Businesses, argues for a higher level of “customer care” across the full cost spectrum as well, stressing that helpful interventions can be high value without being high cost due to new technologies.
“We’re not just talking about sending limos to first-class travellers,” he says. “We’re talking about sending a taxi to an economy-class traveller or suggesting to an ultra-economy-class customer: ‘we know where you live; three blocks away is a bus station; that bus will take you to the subway, which will bring you to the airport.’ In other words, providing some sort of solution to the entire travel journey for the full spectrum of passengers.”
“My overall view is very positive,” he stresses, looking 10 years into the future. “Travel is going to grow in all segments: not only at the low end, but at the high end. The winners will be those [airlines] that are able to provide more customer-centric and personalised service.”
“The winners will be those [airlines] that are able to provide more customer-centric and personalised service.”
– Nawal Taneja, professor emeritus at Ohio State University’s Center for Aviation Studies