Accelya’s Air Transformation Lab and Atmosphere Research Group worked together to get the industry’s take on its future. In their Airlines: A Path Back To Profitability report, they dig into the issues that are holding airlines back from recovery and provide insights into post-Covid opportunity.
The report reveals that industry executives are aiming for more than recovery when operations ramp up. Many regard the Covid-19 crisis as a potent catalyst for much-needed change that will ultimately enable the airline business to progress further, faster than before.
Nearly every airline executive questioned in Accelya’s report agreed that the situation has created opportunities for positive transformation. For example, one airline executive reported that “partnerships between our departments are more important than ever before. Normally, this transition would have taken three years, but because of Covid, it took three months. We’re building a new culture.”
To take advantage of this opportunity, airlines are looking to take greater control over their commercial strategies and, ultimately, their own destinies. Here, we look at five ways they can successfully do so:
1. SHIFT TO MORE DIRECT RETAILING AND DISTRIBUTION
One of the driving forces behind NDC was giving airlines back control of their inventory and increasing transparency of offers sold through third parties by enabling them to connect directly with distribution partners.
The report reveals that interest in NDC adoption has gathered pace over recent months. Today, 68 percent of airlines use or intend to use NDC as part of their retailing and distribution strategies, and three out of 10 airlines committed to NDC have already negotiated agreements with some or all of their GDS partners to sell flights and ancillaries via NDC.
“NDC is part of our digital ambitions — it’s very much an enabler and gives us the ultimate flexibility. NDC is … a way to make distribution better,” said one surveyed airline executive.
At the same time, the drive toward direct bookings has intensified. By 2023, direct will account for 56 percent of bookings — a 12 percent increase in three years. The report findings show the distinction between the two channels blurring, and that airlines will be in more direct control over selling and servicing over the coming months and years.
2. IMPLEMENT RETAILING-FOCUSED TECHNOLOGY
The report highlights airline frustration with the ability of their passenger service system to support retailing strategies. For example, more than one-third of airline executives agree that their passenger service system “does not meet expectations” in offering personalization or product delivery/merchandising.
“Passenger service systems aren’t market-driven like we need. They work well, but we need to create something different for the future,” commented an airline executive.
The report recommends that airlines “shed their technology debt and embrace flexible, contemporary, customer-centric technology solutions optimized for authentic retailing to achieve this.”
3. PRIORITIZE DIGITAL RETAILING
Digital retail purchases were already growing among consumers pre-pandemic, but e-commerce sales went through the roof during lockdown. The pandemic has accelerated the shift to online purchases. “Passengers now see themselves as digital ninjas,” highlights the Airlines: A Path Back to Profitability report. This new breed of customers demands better online shopping experiences, as well as greater flexibility to manage the booking and everything that goes with it.
The report predicts that the customer-centricity of leading online retailers will be the benchmark against which airlines will be judged and calls for a doubling down on efforts to meet new customer demands for sales and servicing, which was a particular pain point at the start of the Covid-crisis.
4. FOCUS ON DYNAMIC AND CONTINUOUS PRICING
Dynamic and continuous pricing will be key as well, and the report found that it’s becoming increasingly top of mind for airline executives. One in three executives said they found innovation in dynamic and continuous pricing to be extremely important before Covid. This increased to 39 percent during business recovery.
Airlines need to be more responsive to changing market conditions and evolving passenger needs. As such, dynamic pricing provides greater pricing flexibility to meet customer needs and market shifts.
“We see more people willing to book the premium cabin, especially when the flight time exceeds three hours. They’re almost all leisure travelers; they’re paying for this, not their employers. We have many flights with higher load factors in premium cabins than in economy,” explained an airline executive surveyed.
5. DOUBLE DOWN ON PERSONALIZATION
Personalization remains the loudest buzzword in the business and will be even more vocal as the industry recovers. The importance of innovation in offer personalization has jumped substantially between pre-Covid and business recovery. Only 19 percent of executives considered offer personalization extremely important pre-Covid, while in business recovery 49 percent believe it will be extremely important.
Importantly, innovation doesn’t always have to be complex, expensive, or time-consuming. The report recommends incremental innovation, such as allowing passengers to pay using cash and loyalty credits, building itineraries based on affinity or attribute-based inputs, and using NDC standards to distribute offers across all meaningful channels.
6. FINDING THE PATH BACK TO PROFITABILITY
“We view 2020 as the lost year for airlines. But far from being discouraged, we see airline leaders ready to make big, bold, and even unconventional moves to get back on track,” said Henry Harteveldt, president of Atmosphere Research Group. “Those airlines that are wise enough to take reasonable risks will be best positioned to advance their commerce and retailing.”
The path to profitability is starting to become visible again, and the most effective way for airlines to fully clear the way is to take control of their inventory, sales, and servicing and embrace retailing advances. That way, they will not only achieve profitability but will have used Covid as a catalyst for change to advance their commercial operations, further and faster than before.