Hitting Reset on Airline Retailing: Part 2
There is no doubt that today’s generation of mobile-device connected travelers will demand much more from airlines, with higher expectations from the travel industry after the disruption of the coronavirus. Customers have long expected a more personalized, “concierge-like” service from airlines and a more frictionless shopping and booking experience, but often times, legacy technology, siloed organizations, and non-airline direct distribution strategies have made it difficult for airlines to build digital relationships and keep up with customer demands.
If we look outside the world of airlines, we have seen unprecedented changes in other industries, such as telecommunications (iPhone), music (Spotify/iTunes), movies (Netflix), tv (Hulu), and even within - disruptors such as Uber and Airbnb bring new business models and ideas to the travel industry. We’ve all become accustomed to being able to listen to any song, at any time, and without having to take out our credit card. When Spotify recommends a new music artist, playlist or genre, we don’t question it, because we know that their product understands our musical tastes based on previous music that we have played. Could an airline trip recommendation be as smooth and personalized as a Spotify or Netflix recommendation?
One of the attributes that all of these new-generation business models have in common is deep, digital connections that give them an understanding of their customers. They know when a customer is using their products or services, who they are, where they are located, and all of their previous purchases and actions. In addition, these companies make it mandatory to be connected via an account profile to utilize their services and payment is something that is set up once, at the beginning of the relationship, and that takes place behind the scenes for all subsequent purchases. In return, users get more personalized content and a digital experience that is intuitive, seamless and improves over time with the constant learning happening in the background.
The concepts below borrow from the retail successes of companies like Spotify, Uber, and Airbnb, which emphasize an initial “set up” or digital connection to their customers and then hassle-free purchasing and/or use, on-demand and as needed.
Unlimited Flight Passes
One form of a prepaid voucher is an unlimited flight pass. Most unlimited flight pass options available today have been launched by low-cost carriers like AirAsia and Azul, but If you look back to the ’80s and ’90s, American Airlines offered one of the first unlimited airline passes, the AAirpass for $250,000, which was sold as an unlimited, first-class ticket for life. It was offered until 1994 and purchased by 28 individuals including Mark Cuban and Michael Dell.
In our recent survey 72% said that they would consider buying a yearly unlimited airline subscription or pass for a flat fee. For an economy seat 28% were willing to pay 500 to 1000 euros, 25% 1000 to 2000 euros, 23% 3000 to 4000 euros, with 15% willing to pay 3000 to 5000 euros. For a business seat 33% were willing to pay 5000 euros, 41% 5000 to 10,000 euros, 18% 10,000 to 15,000 euros, with 7% willing to pay 15,000 euros or more.
Q: If an airline pass gave you unlimited economy seat flights per year, how much would you be willing to pay?
Q: If an airline pass gave you unlimited business seat flights per year, how much would you be willing to pay?
AirAsia X made headlines in early March offering a $118 USD “fly as much as you want” pass that offers unlimited long-haul flights (must be over 4 hours) for a year within the Asia-Pacific region. As expected from a low-cost carrier, the pass covers only the base seat fare and excludes airport charges, taxes, regulatory fees and all ancillary items such as seat selection, checked baggage and meals. This isn’t AirAsia’s first attempt at offering alternative ways to purchase flights. Back in 2017, AirAsia offered the ASEAN Pass which offered 10 flights in 30 days or 20 flights in 60 days starting around $290 USD.
Edmonton-based Flair Airlines announced in February that it was offering passengers unlimited flights for three months for $700 CAD or a $500 version with blackout dates which includes Fridays and Sundays. Both versions of the pass do not include taxes and fees. The flight pass was aimed at students, small-business owners and families for whom more frequent visits or an extra getaway would otherwise be unaffordable.
Azul has Airpass which offers unlimited destinations inside Brazil for 10 days for $399 or 21 days for $499. The pass was created for tourists visiting Brazil who need the flexibility and freedom to explore the country at a set discounted price.
Unlimited flight passes have many advantages for both the airline and the customer. While it might not be the best time to sell an unlimited “forever” flight pass, the willingness of customers to spend thousands of euros upfront to buy yearly or seasonally unlimited flight passes is clearly there and could accelerate an airline’s financial rebound.
For airlines, an unlimited flight pass generates immediate revenue, establishes an economic indicator for a known period, and creates instant loyalty. An unlimited flight pass also creates an opportunity for the airline to establish a much needed, personalized relationship with the customer, in which they can cater their airline ancillary and 3rd party ancillary offerings based on previous booking habits and purchase patterns. The airline can then use dynamically priced ancillary offerings to maximize revenues via flight add-ons and upgrades.
On the customer side, an unlimited flight pass provides unparalleled flexibility and freedom to travel when and how they want. Paying upfront for a number of flights potentially removes the stress related to purchasing and could positively impact travelers’ willingness-to-pay for ancillary products and services pre-, during and post-trip. It also binds them to a brand for a longer period of time, which opens up the opportunity to build a stronger relationship with customers, understand their needs and learn from their digital experience. Since an unlimited flight pass would be assigned to a particular customer, there would be no need to enter passenger details or payment data which would make reserving or booking a flight extremely fast and hassle free. In addition, modifications and cancelations would not have to take into consideration financial reconciliation, providing additional flexibility to the traveler and reducing customer service time by the airline.
Many airlines may fear that unlimited yearly flight passes, or subscriptions, may jeopardize their revenue. Rather, we believe that the digital relationship being established with the customer and the corresponding, personal add-on products they can offer to them will create more revenue while building true, locked in customer loyalty. Let’s use an example from outside of the travel industry - Apple iTunes. At first, Apple offers a personal account which allows users to listen to and download unlimited music at a set price. Apple then gets users hooked on their product and soon they started offering add-on services at additional fees, such as a Family Plan, based on what they know about the users' personal situation. Users can add an additional recurring service with the click of one button and no mention or hassle of payment.
Pay as You Go (FLY)
Subscription-based services and automatic payments are found throughout our daily lives, from Apple to Spotify to Netflix to Uber, but they are scarcely found in airline consumer retail offerings. Uber is probably one of the most well-known examples of a travel industry application and service where customer profiles and payment options are preconfigured for seamless ground transportation and post-trip payment.
Several airlines have offered “pay as you go” services in the past, such as Lufthansa and Scandinavian Airlines (SAS), but the features were offered primarily via corporate or business programs only, not through their core retail offerings for consumers.
Similar to unlimited flight passes, subscription-based travel has the opportunity to offer huge benefits to both airlines and travelers. With the use of pre-stored user profiles, preferences, and payment details, customers can skip much of the traditional airline booking process, offering much-needed flexibility and saving time.
Book Now, Pay Later
For airlines who want to deliver to consumers who are looking to take advantage of low fares but want to pay for flights over time, they should consider “book now, pay later” programs. Several airlines including British Airways, American Airlines, KLM, and Southwest offer a form of payment that allows customers to pay for flights over a period of months.
British Airways offers the option to book online with nothing more than a low deposit if you book a package, either a flight + hotel, or flight + car. American Airlines has a “Fly Now Payment Plan” which gives you six months to pay off the flight with no interest for American Airlines Credit Cardholders. KLM allows you to checkout with PayPal and choose ‘Bill Me Later” - giving you six months to pay off the balance with no interest.
For those people who are anxious to fly after being confined in their homes for weeks or months, but without the necessary budget to do so, this option may be the best to increase willingness to book without having to pay for the entire flight upfront and all at once. Research also shows that customers who pay for purchases using credit often spend more than those who pay with cash and derive more enjoyment out of what they consume because they are decoupled from the stress of how much the travel costs.
Change in Retailing is Welcome
It is clear from our survey results and the multitude of ideas that we have received from others, that now is a good time for airlines to introduce new ways to sell a seat on a plane - with only 7% of those surveyed saying they prefer to book a flight the way they are currently sold.
Customers have long desired more personalized services from airlines and with this pause in travel, it creates an opportunity for airlines to look at new revenue streams and reconsider how they offer their products. The first step in making many of these ideas come to life though is making customer profiles and authentication a priority.
Q: Out of these alternative retailing options, which do you feel is the most likely choice for you to consider today?
When we asked survey participants which alternative flight booking product they would prefer, ~30% preferred prepaid discounted flight vouchers that could be redeemed within two years, 23% said an unlimited one year flight pass, and 19% said airline memberships.
For a full look at the survey results and digital retailing ideas, check out our recent webinar with Diggintravel’s Iztok Franko and download the associated infographic. Check out our first blog post in this series: « Hitting Reset on Airline Retailing: Part 1