NB: This is a viewpoint from Abhishek Singh, product manager for tourism and hospitality at Infosys.
As we all know, the airline industry today is extremely interested in two major trends – Big Data and ancillary revenue.
Everyone is seemingly talking Big Data, but what is it exactly and how does it help an airline to make money? And then, of course, we have the whole song-and-dance between passenger and airlines around ancillary revenues and customer experience.
A lot of airlines today are fixated on the point that the only way to make more out of their passengers is to charge them large fees for trivial and additional requests and, of course, to call them “stupid” for not reading the fine print.
For an industry which practically invented the concept of customer experience as part of the pre-flight and inflight services (remember United hiring its first stewardess in 1930s, or the on-board food services, the romance and adventure of the job) as well as some of the most successful customer loyalty programs (airline miles being at the forefront), it is quite disheartening to see it struggling for survival due to runaway oil prices and employee unions.
But just like any other industry sector, it’s time to get creative, not combative.
Big Data, as understood and accepted by most today, is high-volume, high-velocity and high-variety information assets which can create substantial economic value and help with operations, decision-making, risk management and customer service (think of it as 5 Vs).
But how does Big Data help to create “economic value”, for an industry that has suffered with a loss of shareholder value since 1993, at least.
As IBM strongly believes, Big Data is the “cusp of the next evolution” in the field of information and data management. So let’s look at some of the successful case studies first.
Background
The retail industry is one of those which has been at the forefront of technology consumption (and sometimes development) of constructive data analytics to increase sales.
In the past, Amazon and Netflix have been renowned for their successful recommendation algorithms in the ecommerce space, just like Target and Walmart have been hugely successful in competitive pricing and shelf placements using advanced data mining techniques.
But whereas so-called Data Warehousing was all about taking transactional data out of the transactional system and storing it elsewhere for offline (or non-real-time) processing, Big Data is more about processing large volumes of data in almost real-time, to create on-the-fly value.
Remember, data is perishable. It has a shelf life just like everything else and whereas Data Warehousing has traditionally been unable to handle the temporal deterioration in the value of data, Big Data aims to fix it with real-time execution.
So what can an airline REALLY do? Firstly, I think it should STOP thinking how to make more money from its passenger and change its mind-set to what can it do to add more value for its customers.
Secondly, with Big Data and real-time processing ability, it is no longer about one size fits all.
With greater value creation and increased personalisation, a higher pricing ability is natural. If I take a leaf out of the history of online commerce, it was always about selling the screen real estate to the highest bidder based on the demographics whose attention you wanted to attract.
Solutions
So in-flight merchandising and inflight advertising are two natural elements to this chain of thought, but not just random one-size-fits-all advertising.
In-flight social networking and in-flight entertainment are not too far behind. “Constant connectivity” – a primary human requirement that changed the world of telephony from fixed line to mobile to smart mobile is yet another value driver.
So airline ancillary revenue should not just be about baggage fees or unbundling, but should aim to create value propositions based on increasingly real-time information about customer preferences and needs and using that information for targeted services.
Here are some other questions that irlines can start asking themselves:
- Are all my passengers going to need roaming facilities on their mobile phones when they travel away from their native land? Can I help them lower their roaming charges? Can I pre-stock local SIM cards of the destination I am flying to? (think:Â British Airways and JetStar)
- For customers who are travelling on a business trip, can I help them arrange local transport like taxis? Or mobile phone chargers? Or International plugs? Or arrange for a pre-paid taxi from airport to hotel from the flight?
- Inflight advertising? But caution must be exercised to do it tastefully and without intrusion. Mixing it with free Wi-Fi access and premium inflight entertainment could make it seem reasonable. One could target teenagers and low fare customers before premium passengers in a personalized manner.
- Can I negotiate for priority immigration clearance for my business travellers who are authenticated by their employers for a certain fees? (think: IATA’s STB initiative)
- Does the Airline know if a passenger should get a gift for his/her spouse because he/she happened to be in-flight on their Anniversary day? Can it help? Does it know the names of all the passengers who are travelling away from their homelands on Valentine’s Day with their partners? Christmas? Holidays? How does it make these passengers feel part of the celebrations and not like they are missing out on something being away from their loved ones?
- And if you are an airline, that just want to focus on your core-competency of operating flights – safely, can you outsource pre-flight, inflight and post-flight ancillary operations to an entrepreneur with the highest potential? When you can outsource back-office operations, why not ancillary revenue operations? United Airlines with partnership with DirectTV, and Singapore Airlines’ Krishop being operated by DFASS are just two shining examples of the potential opportunities. With Airlines collecting valuable passenger information, these outsourcing partners can generate substantially higher values than the airlines can do themselves.
So, can we put back the romance and adventure in flying that it once was? It’s time to get creative and move up the value chain. The next generation of passengers demand not just a flight but an experience, a personalised one at that. Are you ready to serve?
NB: This is a viewpoint from Abhishek Singh, product manager for tourism and hospitality at Infosys.
NB2: Data airline route image via Shutterstock.
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About Special Nodes
What does this screed really have to do with Big Data? Sorry, but this article provides little concrete information and a lot of bold assertion.
What do questions like this:
> Can I negotiate for priority immigration clearance for my business travellers [sic] who
> are authenticated by their employers for a certain fees?
…have to do with Big Data by any stretch of the imagination? This and the other bullet points might be items a creative marketer might be interested in, but their implementations don’t require enormously expensive new Big Data “solutions” from rapacious vendors, new IT initiatives that require the hiring of new technical staff with special skills, enormous I&D costs, and massive bills from consultants and contractors for training and application implementation.
> So, can we put back the romance and adventure in flying that it once was?
Sure. It’s easy. Provide comfortable, convenient, and reliable service in coach with no added fees, and pay the flight crews enough to make them happy with their extremely stressful service-based jobs.
What? That’s economically impossible you say? Well, too bad, but spending untold millions on a Big Data solution that has some imaginary relation to ancillary revenue is not going to make people more happy with flying in excruciating cramped conditions on flights that are often delayed or canceled, paying unexpected fees for routine service, and being considered a criminal actor in TSA’s security theater improv troupe.
Hi Miramon,
Big Data solutions are now available on Cloud with pay per use models. So you don’t need to invest millions of dollars. Check out BigData Edge from Infosys.
As for ancillary revenues, they do exactly what you yourself expressed – give more leg room to passengers. They reduce the cost per ASK.
Feel free to connect directly with me, if you want to further understand the tremendous opportunities that Big Data solutions are creating for Airlines and their revenue streams.
All the best in your pursuits as well and thanks for reading and commenting
Hi Abhishek !
Excellent article ! Thanks for your valuable insights ! I’m very much interested in various Business Opportunities in Ancillary revenue particularly in airlines industry & how Big Data will play a important role.
Could be please suggest where I can find more info on the same ?
Thank you !
Sanjith
Hi Sanjith,
Thanks for reading and your comments. For more information on Big Data I suggest you can read up technology providers websites like IBM, Oracle and of course us – Infosys (http://www.infosys.com/bigdataedge/). Infosys has a Big Data product we just launched.
Tnooz and Sabre is also hosting a webinar around the same topic which you might find interesting (http://www.tnooz.com/2013/02/11/event/webinar-event/tnooz-sabre-free-webinar-airline-ancillaries-what-is-working-in-todays-marketplace/)
Sabre, SITA, Amadeus and IATA are also exploring new ancillary revenue opportunities for Airlines. They regularly publish white papers and blogs around it.
Please feel free to connect with me and I would gladly explore this area of common interest further with you.
This is a great article. The airlines must read it. Thank you for showing the way what future would be like.
Another Idea would be to show the traffic density to the destination so they can revisit their commitments. Its a plug in available from Google navigation.
You’ve got me thinking now !
Hi Yogeesh,
Thanks for your comments and your suggestion. Would explore Google Navigation further.
Look forward to hearing your thoughts soon.
It would help if airlines actually offered value. 8 dollars for an inflight movie? 7 dollars for a can of beer or glass of wine, screw that, I will drink water or fruit juice, it is better for me anyway.
Forget big data, try smaller prices. I know I am a captive in the cigar tube but I object to being scalped.
Hi Greg,
Absolutely agree with you. The objective of ancillary revenue should be to create “Value” for the customers, not to “scalp” them. With greater information, greater ability to generate revenue, I believe that Airlines can create more value for each customer by leveraging economies of scale. Also I believe “outsourcing” to specialist providers like DFASS for merchandising, Pay-per-view operators for movies, etc would help the Airlines get better cost advantage.
Your thoughts, please.
Airlines probably lose margin by outsourcing their duty free sales. There are gains in other areas, but extra margin is not one of them. Airlines that run their own inflight sales have a huge margin advantage over airport retailers, who pay high concession fees. Self run operations are probably less costly. The issue is that some of this (potential) extra margin is not being used to attract business away from the airports who have 61% of the market, or from the 70%+ of consumers who don’t buy anywhere.
When it comes to external consumer communication related to inflight sales (be it duty free or food) most airlines still see this as a sub department and not their primary focus. If you check all world airline sites for their inflight offer (as we have done for our online database) most key consumer information related to this is an after-thought, it has been bolted on after to the main website, is not in the booking path and it is manged by a different department.
They only time they have it right is when they have farmed out onboard sales to a concessionaire, who is more proactive. Until such time as (many) airlines get over the idea of “free money” from the booking path, ancillaries such as baggage and coming to terms with paying for external marketing, they will lose the opportunities. This is why they only have 7% of the world duty free market!
Hi Smith,
Agree with you totally. Which is why I am a strong proponent of focused duty-free sales as well and agree with Singapore Airlines approach to use a duty-free specialist like DFASS to manage the inflight sales
We had 60,000 search strings in October 12 alone asking for details about airline inflight duty free sales. If the airlines or their concessionaires are properly servicing the consumer interest, why are these searches coming to us? And, why do their airlines not acknowledge this. Answer simple, the traditional modus operandi is “captive audience marketing mentality” and not external (paid) marketing. Until this mentality changes, those 60k or 600k searches are wasted and not “monetised”…. end of!
Agree with you
This is a somewhat fluffy view of the issues confronting airlines. That the airlines lose money is due IMHO to their inability (in the past) to understand HOW to make money. Now it has to do with their ability to leverage their position. Delta is a good example of an airline who finally figured it out and has started to mine a seam of consistent profits. Conversely Air France KLM Group and Lufthansa are not firing on the right cylinders
I tend to side with the first comment from Miramon that this article is too general and has little to do with big data. (small b small d). The airlines are drowning in data. That is clear ,and they could do a lot more with it than they do. Many of these inadequacies are related to the internal (read silo) structures of these organizations. Airlines are very good at operational processes and pretty useless at many other things.
Clear de-commoditization of the product is a good trend for them but lousy for the customer. And its not going to get any better. As a frequent flyer (200K plus average a year for the past 20 years) I can assure you that the perception and reality of airline data use is a chasm uncrossed.
However the articles’ argumentation has to be undermined by the clear issue that the airlines are now in (most markets) a supply side favoured market. One cannot look backwards for trend data to support any position because this fundamental change is a recent phenomenon.
Airlines largely have 3 major costs:
Capital
Labour
Fuel
Managing all 3 effectively is not a trivial task. But examining each and the ups and downs – demonstrates what can happen and does happen. With today’s environment – the airlines individually are now TOO BIG TO FAIL. Just one of these airlines experiencing a disruption has a major impact on the economy as a whole. (Look no further than what Spain is going through now).
Airlines have fallen behind in innovation for the consumer. I would argue that Frequent Flyer programs are no longer a marketing advantage – they are a drug addiction to be managed. One that the airlines have found easy in their new found power of devaluing at the earning level and decidedly at the spending level.
That big data and associated activities can work to the advantage of the airline is an undeniable fact. Whether they do and HOW they do needs better analysis than what has been presented here.
In my view analytics and use of Big Data alone is too facile a view of the complexities of the Airline and customer interaction. What is needed as a critical rethink of the relationship and the manner of interaction which is in greater part data driven. BUT that only works if the coal face staff are armed with the data in a useable form to make a decision.
How many times have you experienced the blank face of the airline customer service agent when you need something?
Changing that paradigm and arming the Fight Attendants, CSRs, PSAs etc with the tools to service the customer will turn things around. IF the airlines feel they need to do it.
And that caveat is probably the crux of the problem
Cheers
Hi Timothy,
I agree with you completely. Airlines are indeed drowning in data and have serious issues managing the three main costs that you highlighted. However, I just want to explore Big Data as a technology to create ancillary revenues here.
Cost Management, improved data management, loyalty management /CRM and most important issue you highlighted “Customer Experience” are further areas of improvement for Airlines that you so eloquently articulated. Customer Experience happens to be another area that I am working for Airlines and would love to hear your thoughts around it. Do feel free to connect with me from my link above
Main problem with airlines is they have no understanding of customer service. I don’t mind the prices and fees if I didn’t have to deal with rude and apathetic airline employee at every turn.
Hi Raj
Customer Experience for Airlines is another area that I am working on. Would love to hear your thoughts on it.
I agree with all the comments about how general this article is and the lack of any correlation between the generic marketing slogans and Big Data. it looks the author also agrees as he agreed with the people who criticized it for the same reason. As another frequent flier, I am sure Big Data can help airlines increase ancillary revenues because the technology has already done so for retailers. But it won’t put the romance back in travel or make travel more comfortable or the crew members more polite and engaged.
Hi Nya Koi
My argument here is that with Big Data, airlines can increase revenue, something you seem to agree with. However, with that increased cash, whether they chose to increase their level of customer experience or executive-pay-packages, would be for them to decide. Hence, my closing remarks
Appreciate the time taken to read and comment
Good article, suggesting Airlines should be more pro active in data utilisation to increase profit and develop travel experience of customers.
Flights prices are now considered as acceptable, Airport and Aircraft accessibility are now the first reason of choice.
Email check Inn, self Tag luggage, automatic boarding gates, SMS informations, all thes new services are fast adopted by customers and it’s a traduction of basic needs as Consideration and Authonomy.
People are stressed about their waste of time and most are ready to pay to reduce it and get more information during the trip.
Not so difficult to listen to people but constrains of volume are big data creating…
Thanks Gregoire for identifying with the viewpoints I put across in this article. Look forward to more engagements with you.
My offer is to start thinking like Google. Everybody knows they made their million out of Ads using big data. Why Airlines are not doing the same? It can be very simple implementation and make dramatic results. There are low hanging fruits of customers being ignored by the current Ads solutions.
Absolutely agree Noam. It’s good to see that you are on the same page as me.
From the physical space to the Digital, Airlines are sitting on so much of under-utilized advertising potential
I have to say I am of two minds. I agree that there is a lot of digital real estate available that the airlines could utilize for generating non-transactional revenue. The issues arising of gaming the consumer and destroying the somewhat fragile trust from them remains hard to manage and creates conflicts. One of the real problems that exist within an airline are that the silo’d management structures means that there are conflicting ownership battles that are fought on a daily basis. If an airline is truly focused on revenue maximization and customer value – then those silos would be swept away. Only some airlines are doing that.
Cheers
Timothy – your point about organisational silos within Airlines extends to even data silos further complicating the issues that you articulate. I wish sometime in the near future, Airlines could become about revenue maximization and customer value. like you mention, without complex organisations around it.
In general, the idea behind the article is commendable. But the execution that is necessary is so complex that well, the ideas thrown about here border on over-simplification. Sorry, but with the state the airline industry is in today in most parts of the world, “customer value creation” is but a soundbyte for TV interviews on strategy. It certainly isn’t going to be your focus if you’re operating on razor thin margins of 1% or less. I’m not saying it’s useless, I’m just saying that it’s a great concept more than a realistic or easy one to practice.
When broken down and applied across various revenue streams or business units in an airline, I can imagine how “Big Data” may be used to drive up ancillary revenues – but that’s just me as an ex-airline guy talking. In the spirit of customer value creation, how about we turn this question over to the average flyer today (not your lounging corporate whose Biz fares are paid for, but the “real” average…). Does big data matter to them? No. It matters as much as the idea of 4G or LTE in mobile telephony – great as a concept but invisible in practice and “dang, my smartphone still takes forever to load a web page!”. Perhaps a more discerning flyer may even look at Big Data as the next weapon in airlines’ arsenals to start charging more money for something.
So we come to the point at which we ask – how relevant or useful is the application of Big Data when it comes to helping the bottom line of airlines. The simple answer is – it depends. On so many, many different things, not the least of which is history, economic performance of nations, the competitive landscape, and even cultural pre-dispositions (to holidays, shopping, flying etc.). I realise that sounds suspiciously like a dismissal of the discussion, but to be fair, not every airline can be an Air Baltic or an Air Asia (the latter who, btw still earns a pittance from ancillary revenues relative to other streams of income). The issue at a theoretical level may be about “Big Data and Customer Value Creation” – and how that might potentially allow airlines to lower ASKs thereby offering more leg-room. Realistically, it isn’t going to happen until or unless airlines start earning healthy margins again, by which time I suspect we would have colonized Mars.
Hi Vimal,
Although generally I see where you are coming from but my intent here is to explore revenue streams other than just the ticket price for Airlines to increase margins. What you are suggesting is increase margins before exploring alternative revenue streams. Correct? So your suggestion is directly opposite to mine but aimed at the same end-goal. Increase revenues and margins for Airlines.
Having said that, my intent is not to be prescriptive but exploratory in approach. So I would love to hear more suggestions around how you believe Airlines could create more “Customer Value” without adversely increasing costs disproportionately. If there are technology hurdles to be solved, believe me, I think the technology available today is far more sophisticated than what is being deployed, so that should not be a challenge. But are there ways and concepts to increase this value proposition without exploring new revenue streams and affecting costs? Now that is something I would love to hear about….
Hi Abhishek, I realise I didn’t make my points too clearly in my post so I’ll try now when I’m fresher in the morning!First – it is unrealistic to expect airlines to jump on the bandwagon of “customer value creation” when they operate with high fuel and labour costs (to the tune of more than 70-80%). Add to that capital expenses…really, the room to think of “value creation” is pretty small.
Second – and I didn’t state this clearly at all in my earlier post – many of the avenues you explored in your post can be done today WITHOUT using what we have come to understand as “Big Data”. Remembering birthdays is not a function of data, but of training and resources. From an internal CRM system that could link to check-in systems, to the check-in agent in whose face your birthdate stares, to the gate staff who compare bpasses to your passports etc. none of these require “big data”, just the will and effort to look, observe and acknowledge. You other example of outsourcing merchandising and duty free sales to concessionaires – again, depending on the model chosen for the services, airlines can lose a lot of margin (someone already pointed this out) or they can be very clever about retaining margin in-house. But we’re talking of a small pie in comparison to overall airline revenues. AND duty free or inflight sales depend on so many other factors than simply whether it is done in-house or outsourced.
Third, airlines are generally no strangers to the concept of “Big Data”. Revenue Management teams from the best airlines (the most profitable ones) have already – since the 90s and even before – been using systems with complex built-in algorithms that track price, demand, timing etc etc. across multiple facets, including point-to-point and 4th-6th freedom rights in order to manage yields. So my point – again no stated clearly above – was how has this impacted “Customer Value Creation” through the decades? Not much I would argue.
So finally, my contention is that it’s not “Big Data” that is going to be used by airlines (not until we colonise Mars
) for “Customer Value Creation”. It’s the simple, often “hygiene” factors that airlines need to provide – comfortable seating, good food, intuitive booking engines etc. – and provide consistently well. These are the “value creators” that customers expect and want, and may not always want to pay for. Fundamentally, the idea of “Customer Value” is defined by the customer, not the airline. So my thesis is in fact probably very different from yours – that by using “Big Data” airlines are trying to define what “Customer Value” is, but that definition is based on services/products they do not want to/care to/cannot afford to etc. provide. So it’s great circular logic – because we don’t provide it, we now define it as a “Value” offering, and then start charging people for it. My comment to your other post Abhishek, deals with this – as you yourself said, the trust between customers and airlines is strained; what customers really value and want is not what airlines want to give as free. What is expected is not given. A lot of this has to do with customer expectations shaped by a pre-9/11 world and pre-high-fuel-cost world…but that’s another discussion altgether.
Implementing BI / DWH / Data Mining is year 2000 solution.
It requires large IT investment, long processes and finally success depends significantly on human involvement across the organize. I suggests kipping the old school solutions and implement intelligence-driven, industry-specific online storefront engagement solution draw on big data from either internal or anonymous third-party sources to analyze each web site visitor. Then, using advanced behavioral prediction models and taking into account the Airline unique business goals, dynamically modifies the Airline storefront in real time for each individual to maximize visit value.
Indeed Noam. Agreed.
Aimee was founded by experts in big data to enable Airlines to gain maximum value from each online visit and digital content. Aimee is like the ultimate business analyst who can profile the customer walks through the door and offer the most appropriate ‘content’ (product, service, offer…) according to business priorities.
Aimee’s behavioral prediction technology is taking into account your unique business goals. Aimee dynamically optimize & modifies your website. With Aimee, your business strategy determines and shapes – In real time – the online visitor’s experience. Aimee is based on a single tag inserted into the web page, and with no impact on site load time you have an Online Big Data working at your Airline. Bottom line is you will make more money out of the website through the use of Aimee Airline Ads solution. Your website Ads will become smart as Google’s.
Great Concept… This is exactly what Airlines should aim for going forward.
I get the impression this conversation is straying away from Big Data back to analytics. What we should be looking at across the board is a better sense of acquiring more relevant data and processing it smarter and in real time.
Unstructured data is the elephant in the room.
Cheers
Timothy
Indeed Tim – Big Data is the elephant in the room…
Probably one of the rarest articles no web clearly highlighting the distinction between traditional analytics and Big Data. Real-time processing comparison..absolutely spot on.
Thanks Sumeet for the kind words… That was one of the intents, to bring into perspective that data analytics is not new but Big Data is… and that the two are different….
We can connect on LinkedIn, if you wish to discuss further… see you around…