Roadmap to Retail Transformation: Owning the Next Generation of Offer
As the airline industry continues to evolve, competition becomes more rampant, costs continue to rise and customer expectations along with them. These present both challenges and opportunities for airlines to embrace.
The key to driving revenue and creating better experiences is in making smarter investments and owning the next generation of offer management to further fuel and create value—for both the airline as a business and the customer.
Challenges & Opportunities
Airlines today face many challenges. High operational costs, a shortage of skilled workers, aircraft delivery delays, infrastructure deficiencies, and the ever-changing needs and expectations of passengers to name a few. Airlines need to adopt flexible growth strategies and leverage the use of advanced technologies to stay ahead of competition.
Adopting and owning the next generation of offer management provides airlines with an edge. It also gives them the opportunity to gain full control over their products and pricing. By leveraging AI and data analytics, airlines can speed up innovation and provide their passengers with tailored offers that meet their needs.
First-to-Wallet Concept
Surain Adyanthaya, President, Global Industries at PROS, recently introduced a new concept around first-to-wallet, which can be a powerful concept for airlines to understand and embrace.
In the travel buying experience, airlines are often first-to-wallet– whether it is for leisure or business travel. For example, when a person begins to plan a trip, they most likely purchase their airline tickets first – before booking accommodations, other ground transport, or on-site excursions and activities. And that is a massive opportunity for the industry. As the first company a traveler does business with, airlines have a strategic advantage in their ability to incrementally grow share of wallet.
Source: Forbes Advisor, Average Cost of Travel Statistics for 2023
For example, a family of 4 traveling domestically in the US for a 3-day vacation spends 47% of the share-of-wallet on airfare (that drops to about 31% for an individual traveler). Airlines can offer seamless trip planning by forming partnerships with hotels, car rentals, or restaurants at their destination. This approach creates added value for the airline, its partners, and the customers, who now have more time and don’t have to book everything separately. That’s game changing.
Unfortunately, this is not the reality today.
Understanding the Changing Retail Landscape
Rising Customer Expectations: Consumers aren’t just online, many of them are digitally native. They not only shop around on mobile, but they are increasingly buying on mobile, too. They are getting personalized experiences everywhere they buy online, and they expect this from their travel buying experiences as well. Airlines need to adapt their strategies and offer tailored services and a seamless booking process to meet rising customer expectations.
Role of AI and Technology: Not only are consumers online, but technology and AI are becoming ubiquitous in the user experience. AI-powered chatbots or agents could provide on-time customer support, and AI-driven data analysis can help airlines understand and predict customer expectations.
In the age of AI, every touch point retailers have with customers becomes an opportunity to further build trust, generate tailored promotions and deals, recommend packages or bundles, and automate experiences. Consumers are becoming increasingly familiar with the use of AI in the buying process.
In fact, a study from EY notes that consumers have a relatively high level of trust in AI. 61% of consumers trust AI-generated tailored promotions and deals, and 53% trust personally customized recommendations.
Source: EY: How consumer affordability, loyalty and trust were redefined in the age of AI
Current Limitations: The airline IT ecosystem doesn’t support the future of offers and orders or meet customer expectations. It centers around operational complexity and doesn’t allow airlines to truly own offer management and take advantage of all the great technology that is available today, that could drive ROI within time of implementation.
To support future offers and orders and create a flexible infrastructure that can meet growing demands, airlines need to transition to a more modern IT ecosystem.
Ancillary Revenue: Ancillary revenue continues its rapid growth. Ancillaries are becoming a larger share of revenue for airlines and powering better customer experiences by enabling customers to pay for what they want (and not for what they don’t want). Modern technology is allowing airlines to explore dynamically pricing ancillaries to drive even more value creation.
What do all these have in common? Technology. Technology is the enabler of the future, and airlines must make smart investments that drive value creation.
Steps to Owning Offer Management
There are 5 steps to owning offer management and fueling revenue growth:
Step 1: Maximizing revenue across every seat, flight, and market.
Utilizing Revenue Management to maximize revenue across every seat is the backbone of every airline revenue model. If done wrong, the rest doesn’t matter. Revenue management technology continues to evolve and grow in sophistication, utilizing advanced AI models to segment customers and predict their willingness-to-pay. Modern revenue management powers many sophisticated revenue and pricing strategies that were never possible before.
By leveraging the most advanced revenue management technology, airlines can ensure their offers are relevant and delivered at the right time, through the right channels, to the right customers.
Dynamic pricing will help unlock even more value by adjusting fares in real-time based on availability. Enabling continuous pricing drives incremental value by generating an optimal price and helping airlines to price outside of filed fares.
Step 2: Investing in people to drive maximum ROI of technology.
An airline can have the best technology, but if it hasn’t trained its people, aligned its processes to best practices, and adopted broader change management programs, this technology will not be as effective. Airlines need to upskill and reskill their employees to ensure digital literacy.
Investing in comprehensive training, strategic change management, and process optimization is essential for empowering employees to effectively adopt and leverage modern technologies, driving organizational growth and maximizing ROI.
Step 3: Taking advantage of the fast-growing ancillary market.
The future of offers is in optimizing both the fare and the ancillary. It is important to leverage the latest AI-powered forecasting and pricing available to optimize fares. Airlines also need to optimize the ancillary component of the offer, whether that is through ancillary merchandising and bundling, or AI-powered dynamic ancillary pricing.
Ancillary merchandising helps airlines offer a variety of a la carte services and bundles, extending ATPCO capabilities or supporting a fully standalone ancillary catalog. By using merchandising strategies, airlines can provide more rich content and maximize the likelihood to purchase, driving even more value for each customer and the airline.
Step 4: Maximizing direct and indirect channel distribution; optimizing costs.
The first step is to optimize direct channel distribution by acquiring and converting more travelers through the airline’s direct channels. Airlines need to use strategies that enhance the effectiveness of their distribution channels.
The challenges of legacy distribution – and legacy distribution costs – remain. But with Airline-led offer creation and retailing, airlines can achieve shopping accuracy, scale, and speed, while reducing distribution costs.
Step 5: Taking control of portfolio to transact dynamic, optimal offers.
Portfolio management is key to owning the offer. And, to key parts of Order to ensure an open ecosystem.
Airlines need to take control of the portfolio by transacting dynamic, optimal offers. This can be done by leveraging advanced technologies to create and manage offers that meet customer needs and maximize value.
Conclusion: The Path Ahead
The future of airline retail is bright but needs some strategic thinking.
The future is open. Open technology and interoperability between ecosystems, IT, and vendors is the only way to drive success in modern retailing.
Airlines need to ensure they are working with modular systems, best-in-class technology that fits their needs and future operations versus what is easiest today. Strategic partnerships and co-development are also essential to ensure speed, innovation, and reliability.
The decisions made today and tomorrow, not next year and the year after, are what makes the difference between leaders and laggards. Shifting expenses to focus on investing in technology that drives value creation will help airlines secure long-term success and profitability.