Asian airlines en route to digital transformation

FOR one of the most unpredictable industries in the world, airlines have had a spell of good weather. 2017 was the third consecutive year the air transport industry generated a rate of return that exceeded its cost of capital, and the International Air Transport Association (Iata) expects 2018 to mark the fourth.

In the Asia-Pacific, the growth story continues on an upward trajectory. Asia-Pacific airlines are expected to generate a net profit of US$6.3 billion in 2017 for a net margin of 2.9 per cent, the second highest among the regions.

Home to three of the top five fastest growing passenger markets in the world - China, India and Indonesia - this is truly the region to be. But the good times are not without some dark clouds. Infrastructure constraints could hinder growth if not addressed by all stakeholders, competition continues to put downward pressure on profit, and rising fuel prices will be watched closely.

On the flip side, I see a deep hunger for innovation in this region. In my conversations with airlines here, digital transformation, merchandising and disruption management have been top of the agenda. Many are embarking on turnaround transformation initiatives, driven by a real will to address competition but above all to improve the customer experience.

Indeed, I would argue that the impetus to achieve that is greater here, as the Asian market expects and demands the high service levels that Asian airlines have come to be known for.

But it will take reinvention, transformation and a greater focus on customers than before.

FINDING THE SWEET SPOT

Unlike brands outside the aviation industry, airlines have for a long time been able to compete without needing to intimately understand their customers.

Before the emergence of low-cost airlines and their early adoption of sophisticated marketing techniques, consumers didn't always have a lot of choice in terms of who to fly with, or how they could buy an airline product.

But the story has changed today. And while more people are travelling than ever before, the reality is that 50-80 per cent of them are infrequent travellers. In an increasingly saturated market, loyalty can prove elusive.

The recent Singapore Airlines and Grab tie-up on reward points conversion and AirAsia BIG Loyalty's eStore online shopping platform launch are examples of airlines exploring creative ways to win customers and keep them coming back for more. But the crux of the challenge lies in working out what customers truly value at the moment they make that all-important purchase.

In our recent report, Embracing airline digital transformation, we introduced the "product versus service versus convenience" axis.

ENTIRE PACKAGE

We found that more than price alone, the value for each traveller lies in the sweet spot where they feel that the balance between product ("It's a long flight - I want as much legroom as possible"), service ("I want to feel like my holiday has started as soon as I step on the plane") and convenience ("I need a direct flight; I don't have time for a stopover") is achieved.

We discovered that 56 per cent of travellers said the entire package was important to them, while only 26 per cent valued the lowest price the most. It's worth noting that depending on their particular reason for travel and unique situation, the equilibrium between these three elements will shift. For example, a new mother travelling with a baby is likely to be very focused on the service experience. However, that same mother travelling for business will value convenience much more, for example, flight time, ease of booking and distance from the airport.

For airlines, identifying that sweet spot for each individual traveller every time they make a booking, and being ready to respond with relevant offers that will deliver something of value to them, then and there, will be critical to winning the customer over. To deliver this, the airline will need a range of building blocks in place:

As the late Steve Jobs once said: "Get closer than ever to your customers. So close that you tell them what they need well before they realise it themselves."

Owning data is only one part of the equation - all airlines have massive amounts of data. The winners will be those who can integrate it and use it effectively across the business. To do that requires digital transformation.

RETHINKING THE BUSINESS FROM THE GROUND UP

We have entered the "Fourth Industrial Revolution" - the era of datafication, constant connectivity and digital workforces. The reality for airlines today is that they are not competing with each other, nor are they competing with what existed before.

In this era, they are competing with every other aspect of the world customers live in: smart appliances connected to the ever-growing Internet of Things; apps that let you get exactly what you want, in a single swipe; and logging on to a Netflix or Amazon account and instantly being presented with highly relevant content, tailored to your preferences.

Harnessing the potential of the Fourth Industrial Revolution requires digital transformation - not an end in itself, nor a means to modernise isolated functions, but a journey that will challenge airlines to rethink their business from the ground up.

In fact, many airlines already have a clear vision and design for the customer experience of the future; what they may not have is the technology, processes or the right skillsets to implement it. Cultural resistance, legacy technologies and operation silos are real barriers. Yet change must happen.

Silos must be broken down to enable a new level of data-driven collaboration across all airline functions, with people, processes, technology and culture working in tandem. Only when they are able to look at the same information and work collaboratively towards the same goals, can the entire airline including flight and ground operations, marketing, sales and customer service come together to deliver a more unique and seamless customer experience. And this must start at the top, with leadership showing real commitment to drive real change.

LOOKING AHEAD

What's clear is that it won't be long before airlines run out of runway to prepare for changes that are either already here or looming on the horizon.

The good news is that many airlines are already embarking on their digital transformation journeys, though at varying stages and at different paces. There's a real drive to put customers back at the heart of everything they do, and we believe there's an opportunity to see Asian airlines lead in this area.

Virtual reality, augmented reality, chatbots and biometrics, which were once envisioned only in movies or prototypes, are now among the rising tech trends that have the potential to further reshape the customer experience in coming years. Blockchain technology can also help airlines interact with partners such as hotels, cars and tours in real time during the pre- to post-flight to enrich the overall traveller experience, such as upgrading a hotel room or providing an airport transfer.

Whatever new trends emerge, ultimately it all boils down to putting the traveller at the centre of everything we do. The road ahead is full of exciting possibilities. And in knowing the customer, pursuing collaboration internally and externally, and investing in the right technologies, airlines can take flight and be at the forefront of this digital revolution.

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