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Big Data - How airlines can boost their ancillary revenue

Posted on 9/06/2015 by Bill Woolf

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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 airlines 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: 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?


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