Digitalisation efforts could give SIA a much-needed boost, if done right
DIGITALISATION is going to shape the future of the airline industry.
Little wonder then, that Singapore Airlines (SIA), which is on a quest to reclaim the world's number one spot, is kicking its digital drive into high gear.
It is investing "hundreds of millions of dollars" towards building itself into a digital airline - efforts which come under the umbrella of its three-year transformation programme as it seeks to grow revenues, enhance operations and trim costs. This is against the backdrop of a highly competitive operating environment in South-east Asia, where yields are under pressure which, in turn, is impacting profitability.
The airline group has identified a number of areas that it plans to work on, such as data analytics, artificial intelligence, virtual reality and the Internet of Things (IoT), to name a few.
For instance, it is joining hands with a unit of the Agency for Science, Technology and Research (A*Star) to establish predictive maintenance solutions that tap data analytics. This allows the airline to monitor critical aircraft components and ensure that they are replaced or repaired ahead of failure. The idea is to reduce the incidence of aircraft delays - which can be a bugbear for passengers - as well as lower maintenance costs and keep planes from being grounded unnecessarily. Work has already started on aircraft components for SIA's A380 jumbo jets but will be extended to other aircraft types in the airline's fleet down the line.
Separately, a 3,200 square foot Innovation Lab is being established in-house to enable SIA staff to experiment with new ideas as well as to work with external parties such as startups.
In addition, SIA is using data to try and boost revenues and to enhance the passenger experience. It is leveraging on data analytics and algorithms to derive insights on passengers in order to push tailored products and services to consumers in a targeted manner. Apart from trying to reap incremental bookings in this way, it can also potentially drive additional revenue from the sale of preferred seats, cabin upgrades and travel insurance. At the same time, it says, it is studying passenger preferences and travel patterns to enhance the on-board experience for passengers.
Other airlines too, such as AirAsia and Lufthansa, are also using passenger data to their advantage. For instance, the Malaysia-based budget carrier is using predictive behavioural modelling to try and boost the uptake of ancillary items such as baggage and pre-booked meals.
The in-flight experience offers another prime opportunity for airlines to gather more data on passengers, such as via the in-flight entertainment system (IFE) or onboard Internet browsing, suggests transport research firm Crucial Perspective. Through the IFE, an airline could get a front-row seat to a passenger's preferences and even display targeted advertisements or sell products in real-time. Another potential avenue would be to eventually channel food and beverage orders through the IFE, delivering even more insights into passenger behaviour.
"We estimate that the collection and monetisation of in-flight passenger data is worth US$100 billion additional revenue per year for the global airline industry, a number that will dramatically increase with advances in IoT technology," said Corrine Png, chief of Crucial Perspective, in a recent report.
Ms Png estimates that successfully monetising passenger data could help SIA beef up revenues and net profit by S$2.3 billion and S$800 million per year respectively. In contrast, SIA's net profit for FY 2016/2017 was a fraction of that amount at some S$360 million. This could lift SIA's bottom line to over S$1 billion, a figure that it has not seen since the boom times of FY 2011, and be a "significant driver" for SIA's share price.
Known to err on the side of conservatism in the past, these days SIA is adopting an approach where it can respond more quickly to a dynamic operating environment. It is exploring new and emerging technologies while re-organising its structure so that initiatives can be rolled out swiftly and tweaked along the way, if need be.
This new approach will, no doubt, hit stumbling blocks now and again. For example, it recently came under fire from customers for auto-including travel insurance for online bookings, as well as for planning a credit card booking fee for Economy Lite fares. (The auto-inclusion of travel insurance has since been removed while the latter has been shelved.)
But with threats coming fast and furious on different fronts - from the Gulf and Chinese carriers to expanding budget carriers - SIA's transformation efforts are not just necessary, they are critical.
Digitalisation could be the edge that the airline needs to set it apart from the competition - as long as it gets it right.
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