The airline industry has undergone significant changes in recent years, driven by the rise of low-cost carriers and the proliferation of meta-search engines like Skyscanner and Google Flights. These platforms have empowered customers to find the best deals and have created expectations of low airfares. However, airlines face several challenges that can increase costs for customers, such as government regulations like air passenger duty (APD), volatile jet fuel prices, and investments in sustainability. Additionally, capacity constraints prevent airlines from simply increasing the number of flights to grow. These headwinds have prompted airlines to focus on customer experience (CX) initiatives to fuel growth.
CX initiatives present growth opportunities
In their annual reports, all major airlines have set out different CX initiatives to drive growth outside of the traditional airfare model. However, given the plethora of airline carriers and their different positions in the market and relationships with customers, they are pursuing different CX approaches. As data and technology evolve, the nature of these initiatives will progress. However, at their core remains the balance of value to the customer and growth for the airline.
1. Ancillary services: offering customers’ choice and increasing revenue per seat
Airlines have implemented various CX initiatives to cater to different customer needs. A common strategy is offering low initial airfares followed by upselling ancillary services such as baggage and seat selection. The poster child of ancillary services in Europe is no doubt Ryanair, with more than 30% of its revenue per passenger driven by ancillary services. This allows Ryanair to offer extremely low airfares, which are below the cost of flying a customer. While this approach provides customers with choices and low prices, it can also be perceived as opportunistic, leading to dissatisfaction. Therefore, airlines must understand customers’ expectations regarding base-level services versus what they are willing to pay extra for. For instance, customers expect more comprehensive services from legacy airlines like British Airways compared to low-cost carriers like Ryanair.
2. Commercializing customer data: monetization of personalized experience
Creating and communicating value exchange is crucial to creating outstanding CX. With increasing awareness of data privacy, customers are more cautious about how their data is used. Airlines must ensure that the use of customer data delivers tangible value. For example, United Airlines recently launched Kinnective Media, which uses customer data to personalize in-flight advertisements, creating a new revenue stream. The offering not only allows brands to reach United’s customers across their 100,000 seatback screens but also across their 100 million monthly mobile app sessions. While this can be seen as profiteering, it also helps keep airfares lower by generating additional revenue. Clear communication about the value exchange is essential to ensure customers understand how this data usage benefits them.
3. New revenue streams: deepening relationships in high margin categories
Many airlines are innovating and creating new revenue streams beyond traditional air travel. EasyJet, for instance, has expanded its packaged holiday offerings, targeting its customer base to increase its share of the total holiday market. This has led to 77% year-over-year growth in revenue from packaged holidays and £122 million in additional profit. The next phase of the ambitious plan will see them target a 10% share of the U.K. market and launch into new markets. Similarly, partnerships between airlines and travel providers, such as British Airways and Hilton Hotels, create synergistic relationships that enhance the overall travel experience while increasing the airlines’ share of travel wallet.
How airlines can grow through delivering more value for customers
Due to the diverse nature of airlines, they not only have different customers, but the same customer may have different expectations of different airlines. To succeed with these initiatives, airlines must understand what drives value for their customers as well as the growth opportunities they present:
- This starts with a solid foundation of their own first-party data, which can be augmented with data partnerships to gain a comprehensive understanding of customer preferences and revenue opportunities.
- To successfully implement any seamless CX initiative, customer touchpoints must be connected. This means that airlines not only need connected first-party systems to deliver seamless CX but where required, interoperability with key partner platforms is also a must.
- Finally, airlines must seek both quantitative and qualitative data to evaluate the performance of their CX initiatives. These should measure the growth achieved from the initiative and provide feedback from customers to ensure that value exchange is being delivered and understood.
By taking these steps, airlines can maintain low airfares while achieving sustainable growth.
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