The top five questions airlines need answers to in a post-COVID-19 world
What business models and strategies promise the biggest likelihood of success for airlines as well as F&B and travel retail stakeholders in post-COVID-19 world? How can airlines generate revenue after the crisis? And what role do airports, marketing, Omnichannel and digitalization in general play in the equation? These, and many more, were questions raised during a recent webinar, jointly hosted by Vimal Kumar Rai (Founder & Managing Director, Trace Consulting) and Kian Gould (Founder & CEO, AOE). The webinar, “Strategies for the post-COVID-19 future of airline travel retail and F&B”, welcomed more than 900 hundred high-caliber stakeholders from aviation, F&B, Travel Retail as well as airlines and airports and gave participants the opportunity to ask those burning questions the entire industry is seeking answers to.
From the global economic impact to the shift in customer thinking and the role of digitalization, Kian and Vimal examined a series of key issues that will determine the effectiveness of airline revenue strategies across travel retail and F&B in the post-COVID-19 market. They addressed the concerns of industry players across the board to answer five of the most-pressing questions airlines currently have.
Using an existing channel for growth
At the top of the list is the question of how airlines can use their E-Commerce websites to generate revenue, particularly in times of low to non-existent travel demand. Key to recovery and revenues is that airlines must rethink their fundamental business strategy. Instead of focusing on selling seats and everything that goes with that (baggage, car hire, hotels, etc.), airlines should reposition themselves as lifestyle companies thereby expanding their value proposition to more than just these core products. Here, airlines can benefit from the strong brand equity and trust they already have in the minds of customers. Simply put, having the right digital retail options after the COVID-19 crisis could make a double-digit million-dollar difference to the decline in ancillary revenues. This approach is also a great way for airlines to grow their relevance and their engagement with customers.
“The key to economic health always has been and always will be the passenger. Airports need to capitalize as much as possible on the passengers they do have (post-COVID). The first and foremost decision any airport executive must take is to focus on passengers’ safety and sense of confidence that the airport is a safe environment in which to eat and shop. Passengers will in any case be more likely than before to pre-order online rather than wait in line or visit crowded shops. This is where the opportunity lies for growth.”Kian Gould, Founder & CEO, AOE
Airports and airlines are interdependent and must work together to focus on recovery and new growth
With the significant decline in passenger numbers that are guaranteed post-COVID – and with it the decline in associated non-aeronautical and ancillary revenues – the competition between airlines and airports needs to change into one of interdependence. Passengers are spending less and less during their travels – a trend that the industry has been observing with growing concern for years and one that will likely grow in impact, as, in future, passengers will be even more likely to pre-order goods.
Therefore, one key to recovery for both airports and airlines is creating digital solutions, while collaborating to capitalize on those passengers that actually are travelling, targeting them with relevant and engaging information, content and offers.
Another vital element is focusing on what is controllable and desirable, for example, passenger perceptions and sentiments. This can be done by directing all traveler engagement onto existing digital platforms and applications thereby enhancing the viability of these platforms in the eyes of travelers over time.
What about marketing?
Airlines might think of marketing as pointless during these months of the pandemic, but that’s because they equate it with advertising – which means seats, first-class services, new aircraft, etc. Airlines should take a different approach, communicating with their customers in a human manner, not as corporate entities without soul. The industry should show that it has character and empathy. Above all, stakeholders need to show that they care about more than just the “business” of flying. Coming back full circle – this is what it means to be more of a “lifestyle” brand.
Singapore Airlines KrisShop
An example of this approach to marketing on a more human scale is KrisShop from Singapore Airlines. As part of its overall concept, KrisShop has several shop-in-shops dedicated to specific aspects of the retail experience. One of these is called “Singapore Cares”, where all products on offer are built by people with disabilities in Singapore. The majority of profits go to local NGOs. This is just one great example of doing much more than just selling products and creating a sense that the brand is something that people should care about.
In the final analysis airlines need to create a sense of uniqueness, something that can be called a “sense of place”.
“Airlines need to communicate authentically. And they need to do so in a human manner, not as corporate entities. They should speak to the passengers about their commitment to safety, security and sanitization. They should show character, empathy and humanity. In a word: They should show that they are human. All other marketing is noise and irrelevant.”Vimal Kumar Rai, Founder & Managing Director, Trace Consulting
Omnichannel is the key – but what about the costs?
As with all tech companies, the answer to how long it takes to implement an Omnichannel E-Commerce solution – and how much it will cost – is, “it depends”, mainly on the scale of the solution. Full-scale implementations covering most of the functionality can be achieved in approximately one year. However, viable solutions can be achieved much faster, if airlines don’t go for the big bang, but develop a continuous process of innovation and evolution. Adding more features, channels, products and benefits after initial startup clearly helps to continuously increase sales in any given digital shop. The most important item to consider is that the ROI of rolling out proper Omnichannel E-Commerce can be achieved in less than two years. A number much more relevant than a simple balance sheet.
“If done right, the return on investment of rolling out a proper Omnichannel E-Commerce solution can be achieved in less than two years.”Kian Gould, Founder & CEO, AOE
Omnichannel best practice and inflight barriers to digital solutions
Once airlines have decided to invest in an Omnichannel proposition they need to answer two questions: What is the best way to run my business and what are the main barriers or hurdles to overcome in the adoption of digital solutions for inflight retail?
Although there are numerous models for airlines to approach an Omnichannel business, two options are particularly promising:
- The joint venture model: The JV model is the one used by Singapore Airlines. Here airline, ground handler and duty-free supplier created a JV to align the interests in a much more harmonious way than in alternative models – where both retailer and airline try to squeeze the margin, making for very little alignment of interests. In the JV model, each stakeholder collaboratively performs their specialized role, thereby offering comprehensive shopping and fulfilment options to passengers.
- The digital concession model: In the digital concession model, the airline hands out the concession for digital E-Commerce-only sales to a company such as AOE who then handles the entire value chain from sourcing the products to promoting, selling and delivering them on a global home delivery basis, integrated with seat delivery if the airline requires. This model is an outsourced one, albeit purely digital. The advantages: The airline only needs to assist on the marketing side while still maintaining control on the overall brand experience, and the digital concessionaire is a specialist in the business of digital E-Commerce, unlike traditional concessionaires.
The main hurdle to a seamless digital retail solution for inflight is that there are different generations of aircraft flying throughout the world with inconsistent systems and connectivity. One solution to this issue could be for passengers to bring their devices, as the airline can then create a consistent customer experience across the entire fleet utilizing onboard caching on local servers with in-cabin WiFi-based streaming.
The problem here is that airlines still have a long way to go to provide true high-bandwidth Internet connectivity inflight. The smarter thing to do would be to focus on marketing and selling to a passenger pre- and post-flight. For this, an airline essentially has around three weeks, time in which they can sell services and products to the customer – and not just wait to provide this merely during the flight. Inflight should really be about the experience and creating that sense of belonging to the airline brand, rather than trying to make inflight sales the main revenue proposition.
Passengers are vital to industry recovery
To summarize the learnings regarding their five most pressing concerns, airlines, airports, F&B – as well as all other industry stakeholders – need to consider these five key factors:
- They must rethink their fundamental business strategies, evolving from transportation providers to lifestyle enablers.
- Having strong multiple revenue streams based on digital business models could make a double-digit million-dollar difference to the decline in ancillary revenues.
- In driving recovery, airport executives should focus on the passengers and give them a sense of security and safety as well confidence that they are being taken care of. At the same time, airports need to place a high priority on digital platforms to account for the change in passenger browsing and buying behavior.
- Stakeholders should neither be afraid to take risks nor fear that the costs (of digital transformation) might be too high.
- Finally, airlines need to create a consistent customer experience throughout the passenger journey and across the entire fleet, while taking into consideration that they have a captive audience for at least three weeks, not just inflight.