Transforming Airlines

A Flight Plan for Navigating Structural Changes

Nawal K. Taneja

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000059021
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Aviation
• Index: Technology & Engineering

This book provides a flight plan for riding the impending connectivity transformation curve. It takes the perspective of actionability, highlighting initiatives that executives in airlines and related businesses can use from the insights of multi-industry executives. The emphasis is on execution, not on the concepts themselves.

There is a cluster of at least four distinct megatrends that may converge to form disruptive conditions: (1) elevated expectations of existing and new customer segmentations, those who expect available and accessible air mass transportation systems, and those who expect connected services and seamless travel on different modes of transportation; (2) new emerging technology, incorporated in the air and ground vehicles, that will create new opportunities for existing and new service providers to offer new value propositions; (3) platforms developed around the ecosystem of customers; and (4) the impact on travel that the fast-changing demographic and economic characteristics of two major countries: India and China. These megatrends could lead existing or new businesses to create value propositions specifically dedicated to the new segments once each reaches a critical mass. Drawing on the author's own experience in the airline industry and related businesses, this book discusses the "how", relating to reimagining the business, re-entrepreneuring the organization, innovating through partnerships, reengaging with customers and employees, and rebranding the business in response to these trends.

This book is recommended reading for all senior-level practitioners of airlines and related businesses worldwide.

1
Introduction

The airline industry has clearly gone through and responded to continuous change ever since the introduction of the jet aircraft (in the 1950s), the dawn of deregulation (in the 1970s), the emergence of the “low-cost” concept (in the 1980s), the introduction of electronic ticketing (around 2008), the unbundling of the product (in the 2010s), and the recent introduction of the basic–economy fares by network carriers to compete with the ultra-low-fare airlines. And this list does not include the management of exogenous events such as the terrorist attacks of September 11, 2001, the severe acute respiratory syndrome (SARS) of 2003, the stock market crash of 2008, the hike in the price of fuel in 2008, and the ash cloud in 2010 that closed part of the airspace. Clearly, leadership has been learning from these internal and external changes—not just to survive but also to remain viable—by trying to become more agile and relying, for example, more on investments in technology. Moreover, to remain at the forefront of customer experience, leading airlines have been trying to bring continuous improvements, as discussed in the next chapter, some on their own and some through their accelerator divisions, such as AirAsia’s RedBeat Ventures, Air France-KLM’s BigBlank, IAG’s (International Airlines Group) Hangar 51, jetBlue’s Technology Ventures, and Lufthansa’s Innovation Hub. Similarly, as discussed in the next chapter, airports have been implementing continuous improvements to increase efficiency and augment customer experience. In fact, to lead collaborative improvements, some airlines and airports have even begun to process passengers through e-gates and to experiment with driverless vehicles at airports to transport baggage from terminals to aircraft. The goal is to simplify travel and make it more enjoyable.

However, like the eerie calm on a beach just before a tsunami, so also might appear the stability and “level flight” of an industry like the airlines that has finally reached, since 2010, sustainable net profits. See Table 8.1. As such, there are indications of potential turbulence ahead created by potential points of inflection, and creating an imperative for not just improvements but also innovation, not to mention the speed of innovation. The next step could be disruption, in a world going through, as some call it, the Fourth Industrial Revolution—ubiquitous connectivity and convergence—and in a world that some call “VUCA”: volatility, uncertainty, complexity, and ambiguity. It is the uncertainty and the ambiguity components of the VUCA world that continue to hold management back from dissecting and debating the potential points of inflection, let alone exploring direction-setting and game-changing initiatives, for example, personalized and persuasive marketing to respond to the potential disruptive conditions that could adapt to the points of inflection. Fortunately, the inflection points may take a while to show up, providing time for management to, first, develop signal-sensing systems, followed by the development of the appropriate capabilities to manage the inflection points instead of resisting them.

Four distinct megatrends

There is a cluster of, at least, four distinct megatrends that may converge to form disruptive conditions. They could bring about sweeping changes in the airline industry and closely related businesses, with the potential to disrupt the dynamics, on the one hand, between airlines, airports, intermediaries, and other modes of transportation and, on the other hand, the traveling public. These four megatrends are:

1. Changing lifestyles and exceptional experiences from non-travel business sectors are raising the expectations of four segments of customers, (a) those who expect available and accessible air mass transportation systems that are much more efficient in the use of travelers’ time, both in planning and booking online and on mobile devices, as well as traveling in the shortest amount of time; (b) those who expect personalization ranging from escorted services at airports to the availability of hyper-personalized mobility solutions in real time, throughout the trip and at destinations; (c) those whose priority is on affordability, including simple-to-understand fares and, for a subsegment of customers, the ability to pay for the trip over time; and (d) those who expect connected services and seamless travel on different modes of transportation—intermodality. The first segment of customers will not accept indirect routings through hubs, opaque pricing strategies, and distribution limitations. These travelers want fast and efficient transportation, as “getting there is half the fun” is no longer a relevant slogan. They want flexible solutions with a simple click experience. The second segment will not accept journeys planned and experienced within the transactional framework—decisions based on travel destinations, followed by decisions on airlines, hotels, rental cars, so forth, with the bookings made piecemeal. This segment expects the existence of continuous and interactive relationships, contextually-based solutions at all stages of the journey including voice-activated search (as well as a voice-booking capability), and seamlessness to improve both customer service and experience. The third segment is value and price conscious and is focused on deals. This segment wants simple-to-understand fares and with no change fees to reservations, other than the difference in the fares for the changed flights. The fourth segment expects different transportation mode service providers (airlines, railroads, buses, boats, taxis, and so forth) to offer services that are efficiently connected to provide end-to-end trip solutions. The key point here is not just that customers want door-to-door travel arrangements, but that they want to have choices presented.
2. Emerging cutting-edge technologies incorporated in the air and ground vehicles, as well as customer engagement systems, will create new niche opportunities for existing and new service providers to offer new value propositions. In the case of the air mode, aircraft in all stage lengths promise to create attractive and cost-effective new options, especially in new nonstop markets (both domestic and, to some extent, international), as well as for intraregional urban travel. How about ground transportation vehicles? Four aspects of technology, coupled with the acceptance of ride sharing, are already expected to create a point of inflection in the automotive sector—autonomy, electrification, social “ownership,” and interconnectivity. Autonomy and the willingness to share cars have the potential to reduce congestion on the roads. Electrification will reduce pollution, assuming that the costs of the lithium-ion battery continue to decline to get the technology implemented in a cost-effective manner. And interconnectivity, coupled with robots being able to read maps and the infrastructure networks becoming intelligent, has the potential to reduce accidents. In addition to a reduction in congestion, pollution, and accidents, users will experience lower costs, as they will make payments based on use and on an on-demand basis. As for impact on the airline industry, there could, in the not-too-distant future, be a reduction in travel in short-haul markets, both for point-to-point travel and for travel in second-tier markets that presently requires connections through congested hubs. For an in-depth discussion of connectivity at airports, see the thought leadership piece by Guillaume Burghouwt in Chapter 9. And let us not overlook the potential impact, in some markets, of the Hyperloop, which takes the maglev concept to the next level. It is worth noting that a form of a maglev train is already providing service between Shanghai Pudong International Airport and the Longyang Road Station. The approximately 19 mile journey takes a little over seven minutes, with the train traveling at a speed up to about 270 miles per hour.
   Adding to the development of new vehicles, consider the use of artificial intelligence for personalizing products and providing a seamless experience. In very simple terms, artificial intelligence will enable machines to do some tasks that were previously done by humans, with a capability to use human-like logic. Moreover, algorithms could be used to make machines smarter by processing large quantities of data and also by learning from patterns in the data, to transform operations and revenue management, and to improve customer experience. While customer centricity is hardly a new concept, it is becoming more of a reality in the digital era. There is now more data on customers’ desires, needs, and preferences and more availability of intelligent technology (artificial intelligence, for example) to make shopping easier for targeted customers. At the same time, new technologies and new data can help airlines develop product differentiation while providing competitive advantages for them. Customer service and experience can, in fact, be improved significantly with the development of human-machine collaboration, facilitated by artificial intelligence and algorithms. Calls to customer-contact centers can be answered by intelligent systems within seconds on a 24/7/365 basis and with a high degree of accuracy. Moreover, calls can be transferred to live agents to answer complex questions, with most of the customers not even knowing that a call has been transferred. Even more important, the machine-learning capabilities can enable machines to learn from human agents the answers to questions that the machines could not provide, increasing their capacity to answer complex questions.
3. The use of platforms is not a new concept in the airline industry and related sectors. However, the platforms that have been used in the past are not able to solve effectively the new and emerging challenges faced by either travelers or airlines, or, in the case of business travelers, their businesses. Now, newer-generation platforms based on open systems that offer one-stop shopping capabilities are beginning to play a role within ecosystems that are developed around travelers. And these platforms can enable passengers to work with suppliers beyond airlines and work with smart applications to meet their needs. Besides the likes of Salesforce and Google, global distribution systems and online travel agents are also leading the charge. See the discussion in Chapter 5. And let us also not overlook the Next Experience Travel Technologies (NEXTT) platform that is being developed by the International Air Transport Association (IATA) and the Airports Council International (ACI), along with other partners, to improve customers’ experience and improve the reliability and efficiency of operations. Imagine IATA’s One Order and One ID initiatives (discussed in the next chapter) being included in the platform. Think also of the value of some platforms that have information on consumers’ preferences. Based on their location, these platforms can help identify consumers’ preferences and behavior. Amadeus has partnered with Salesforce, for example, which has a customer-centric platform that helps businesses integrate their core functions and their back-office functions and engage customers and employees much more effectively. See also the thought leadership piece by Farhan Mohammad in Chapter 9. Amadeus has also partnered with Adobe to integrate with Adobe’s Experience Platform as well as to capitalize on Adobe’s Experience Cloud. See the thought leadership piece by Monika Wiederhold in Chapter 9.
4. The fourth potential inflection point is the impact on travel of the fast-changing demographic and economic characteristics, as well as travel-related policies of governments, of two major countries, China and India. Both countries already have huge populations and growing middle classes. China is already forecast to soon overtake the United States, not only in terms of the economy but also in terms of travel, to, from and within the country. As for India, what is amazing is that not only is it forecast to overtake China in terms of its population, although not for a few more years,¹ but that its economy is forecast to become the second biggest by 2030,² below China, but above the United States! These projections depend, of course, on how the economies are measured. For example, is the GDP measured at the purchasing power parity exchange rate or the market exchange rate? As for government policies, both countries are relaxing their requirements with respect to passports and visas. In the case of China, the growth in its aviation activity will also be influenced by the government’s Belt and Road Initiative (BRI), previously referred to as One Belt, One Road. The rise of travel in these two countries, coupled with changes in the structure of their airlines, will have major ramifications for the global airline industry. Imagine if major brand-name airlines appear out of India with worldwide operations? And, what if there is consolidation within the airline industry within China?
   China and India are not the only two countries that could be part of the inflection point. There are other countries, such as Vietnam, Brazil (the largest country in South America), and Ethiopia that are showing the potential for high growth in the air travel space. Think also about the growing metropolises around the world, as discussed in the next chapter. Think about metropolitan areas with populations over 10 million people. According to one analysis quoted in the next chapter, there are 15 such areas in China, compared to two in North America and two in Europe.

Fundamental changes

It is the combination of these four megatrends alone that will bring about fundamental changes in the structure, performance, and conduct of the global airline industry and, to varying extent, related businesses, in particular the business models of airports and intermediaries. These changes imply that airline and airport management need to progress faster in going beyond the incremental changes, especially now that they have started to make some profits. To move to the next level, innovation (beyond the progression from websites to mobile first to the presence in social media), one can try to reimagine mobility from at least six perspectives.

• First, there could be a proliferation of nonstop services in many more markets, new services to airports that are more accessible and more efficient and that greatly affect the marketing, efficiency, and operational delivery of airline services. Imagine the emergence of single-aisle aircraft with 100–150 seats, with attractive seat-mile costs, transatlantic range, and operating from non-congested airports. The start of intercontinental services at some secondary airports could reduce congestion at some large capacity-constrained airports. The new service providers could base their propositions on lower seat-mile costs, reasonable service, and experience with the use of technologies and changes in processes, with a higher percentage of booking coming from direct channels.
• Second, there could be an emergence of disruptors relating to airlines and airports. Relating to airlines, disruptors could offer a broad spectrum of services encompassing (a) scope (all aspects of the end-to-end travel, including services at all to...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication Page
• Contents
• List of figures
• List of tables
• Acknowledgments
• Foreword
• Foreword
• Foreword
• Foreword
• Foreword
• Foreword
• Foreword
• Foreword
• Foreword
• Foreword
• Foreword
• Foreword
• Foreword
• 1 Introduction
• 2 Reimagining the airline business
• 3 Recreating a supportive organizational environment
• 4 Realigning partnerships for innovation
• 5 Reengaging with customers
• 6 Reengaging with employees
• 7 Rebranding for the new era
• 8 Going forward
• 9 Thought leadership pieces
• Index
• About the author