Survival of the Smartest

By Stuart Green

Globally, the airline industry remains in a fragile state. The industry continues to face challenges from macroeconomic uncertainties, especially within the Eurozone, as well as intense competition and rising fuel costs. Fuel now accounts for a third of every airline’s costs, up from 13% a decade ago. The International Air Transportation Association (IATA) estimates that total airline profits for 2012 will be USD $3 billion, down from the estimated $7.9 billion in 2011. In fact, the airline industry has suffered a multi-million-dollar global loss in seven of the past 12 years.

Compounding matters, the EU has unilaterally decided to levy a carbon tax. Though airlines have been steadily implementing and achieving environmental goals in recent years, there is friction over the carbon tax plan, a scheme that requires airlines flying within, to, and from the EU to monitor their CO2 emissions and, if necessary, pay for the exceeding carbon allowances. However, despite disputes from the industry, “climate politics” will continue to be an issue for airlines as pressure to curb emissions mounts.

With many airlines bleeding money and drastically cutting back on costs, 2012 has largely been about survival. Fragmented and populated with too many players, the industry is struggling to find its balance as the traditional business model shifts from a focus on market share to a focus on profitability. Consolidation is inevitable to remove excess capacity in the industry, especially as government aid dries up in key markets.

A few bright spots

There are, however, a few bright spots: Asia will still be the most profitable region this year despite the impact of the Eurozone, and an economic slowdown in India and China. Intra-Asia air traffic, driven by the economic growth in the region, remains strong and is growing. Furthermore, there has been a rebound in demand from the Japanese market following last year’s earthquake. North America will account for nearly half of the USD $3 billion dollar global industry profits. US airlines have benefited from a relatively strong domestic market with a focus on ancillary revenues, and sophisticated rewards and merchandising programs. The Middle East has experienced a sharp decline in profitability due to a heavy exposure to European air traffic. However, despite this, it is the Middle Eastern airlines that are driving consolidation and securing key positions globally. They also continue to outspend their competitors when it comes to new aircraft, passenger comfort, and technology.

Driving demand by leveraging the customer experience

Never before have airline customers been so diverse, informed, fickle, and demanding. Airlines that do manage to please make considerable effort to focus on the desired customer experience. They also deliver changes based on what’s critical, and avoid time and effort spent on what’s not.

These more “experiential” focused airlines know that customers want brand experiences that are relevant and appropriate — not just at a point in time, but on an ongoing basis, and often customized to their liking. Rather than weigh business decisions against the multitude of external factors out of their control (high operating costs, regulations, an ever-changing economy), these airlines use their brand as a decision filter and act with confidence that they’ll deliver what their customers desire. Here are just a few of the experiential innovations taking place in 2012:

Qatar Airways prepares inflight meals for Business Class passengers from the time of order. The airline has also teamed up with well-being guru, Deepak Chopra, to produce a “Tips to Fly Healthy” guide that can be found in the seatback pocket. Qatar will also be the first Middle Eastern airline to have launched the Dreamliner this summer. The aircraft will feature “TouchPMU,” an iPhone-like device that allows passengers to multitask and watch movies.

Virgin America is the only airline in the US that offers USB outlets in all seats and offers inflight WiFi. Adding personality and playfulness to the experience, one of its aircrafts pays homage to Steve Jobs by having his famous quote “Stay Hungry, Stay Foolish” painted on its side. Another aircraft is named “NerdBird” as a result of its high number of WiFi users traveling on the San Francisco-to-Boston route.

A key service differentiator is the airline’s inflight entertainment and communications system, known as “Red.” The nine-inch high definition touchscreens feature live satellite television, the first ever seatback digital shopping platform, an open tab service, and interactive Google Maps with terrain view that tracks the flight’s location. Passengers can also use the system to chat with other passengers, play 3D games such as Doom, offset carbon emissions for their flight, or purchase snacks, meals, and beverages. Flight attendants receive orders via a tablet device, and bring any ordered items directly to the passenger’s seat.

Korean Air is known to be the world’s most successful inflight retailer and has the lowest seat density on its A380s among all airlines. Sacrificing revenue from 13 seats to make way for the “first flying duty-free shop,” Korean Air has created Absolut Vodka-branded bars and lounges that incorporate display units of dutyfree goods. Duty-free offerings are showcased so passengers can sample the best-selling items before making a purchase. Any order placed is then delivered to the passenger’s seat.

British Airways is investing in additional training for its crew and equipping them with iPads to ensure the delivery of outstanding customer service. The iPads have apps that enable the attendants to store and receive relevant passenger details in real-time, such as travel itineraries and meal preferences, to allow for more customized service. The devices also show details of the inflight menu with pictures, as well as pre-loaded information about the arrival destination so attendants can give travel advice and recommendations.

Delta Airlines is the first to roll out mobile bag-tracking capabilities via its Delta app for smartphones, allowing passengers to track checked baggage in real time. The airline also introduced a premium service with Porsche at its Atlanta hub for its highest-tier Diamond Medallion customers. Selected arriving passengers are escorted from the plane to a waiting Porsche vehicle for a ride to their parked cars or other terminals for connecting flights.

KLM is differentiating the passenger experience by enhancing its cultural touchpoints and use of social media. In order to make Chinese passengers feel at home, KLM has localized elements of the onboard experience on flights to and from China. Each flight has three Chinese-speaking cabin crewmembers onboard; announcements are also made in Mandarin and Cantonese, while language assistants are available to assist passengers upon departure and arrival. In addition, KLM’s social media hub strives to answer every customer message via Twitter and Facebook personally, within an hour, 24 hours a day, seven days a week, in Dutch, English, German, or Spanish.

Though current conditions are not ideal for the airline industry, there is certainly ample opportunity to rethink strategy and put more emphasis on profitability. Airline marketers who focus on enhancing their brand’s customer experience can benefit from competitive differentiation, increased brand loyalty, advocacy, and revenue growth. There’s never been a more important time in the airline industry to focus on understanding customers and improving their experience.