The number of passengers traveling around the world has grown tremendously and that growth is only predicted to increase. A large part of that growth is attributable to low-cost, hybrid, or regional airlines. This sub-set of airlines has opened more destinations to travelers at price points that are more accessible than ever before.
A lot of the success attributed to these airlines is their laser focus on cost-cutting and operational efficiency to remain competitive against the large, full-service network carriers. In contrast, many legacy or larger network carriers are grappling with how they can become more like their counterparts to remain competitive while appealing to a growing passenger base.
Each of these groups have their own strategies and business models, but it’s interesting to see how it has shaped their approach to digital transformation. In a recent study by PROS/Hanover Research, we asked close to 400 airline managers and leaders globally to assess their thoughts around digital transformation. Interestingly enough, network carriers have the highest expectations for revenue increases resulting from digital transformation initiatives, with more than half (53%) of network carriers expecting revenue impact to be more than 10%. Conversely, less than a quarter (24%) of low-cost carriers expect the revenue impact of these initiatives to be more than 10%.
Could this be because network carriers are still bringing their infrastructure up to speed, modernizing mission-critical systems, and pushing digital retail initiatives so see digital transformation as a way to drive much-needed margins? Could it be that low-cost carriers, being younger and nimbler, have less to worry about when it comes to digital transformation? Or, are many of the low-cost, hybrid, or smaller regional airlines solely focused on cost cutting rather than driving revenue through digital transformation?
These are hard questions to answer, but I do think it’s worth talking about the value that digital transformation can bring to an airline operating in a very competitive environment. Beyond cost cutting, digital transformation could dramatically impact the bottom line by shifting the focus to the customer. Through digital transformation, airlines can help lay the foundation for competitive advantage that goes beyond price wars.
A core component of digital transformation includes being able to listen and learn from the markets an airline operates in. By having the right systems in place to collect data, mine it for insights, and then apply learnings, airlines get a better product and customer experience. In turn, this can allow airlines to create offers that match what customers and the market want and are willing to pay for. As Chris Amenichi, Vice President of Pricing and Revenue Management at Copa Airlines explains, revenue management is a core part of that process:
“The fundamental truth in the business is this, the customer is happy when they've gotten the thing they paid for. And so, our job is to figure out what is the right product for the customer and what is the right price for that customer. And lastly, deliver the service. Now, revenue management doesn't necessarily deliver the service, but our policies can be simple enough to make our front lines deliver the service appropriately. The combination of the two with technology, a lot more signs, and a lot more intelligence starts to give people what I call the customized choice, to the extent you can do that in the airline business.”
So how can low-cost, hybrid, and regional airlines also capitalize on digital transformation?
- Turn complexity into your friend. Carriers are operating in extremely competitive environments where geopolitical events, mother nature, or demand shifts can strike at any time. But this complexity shouldn’t hinder airlines from investing in technology to drive revenue. In fact, that technology could be what helps shoulder the rapid changes and create a safety net. With the right solutions and processes in place, you can better understand the environment you operate in and make strategic decisions that are right for your unique business.
- Trust the Science. To navigate through that complexity, airlines need science to parse through the tremendous amounts of data and drill into what matters most to them. AI-based solutions can give airlines an advantage by automating certain decision making, identifying gaps, and driving revenue. That, in turn, frees up your analysts and managers to focus on other ways to shape a better product, price, and service for your customers.
Both of these key steps require a peek into your revenue management strategy. To learn more about how science and simplicity can drive incremental revenue, take a look at this eBook: Driving Revenue Growth through Digital Transformation.
Despite operating different business models and having different strategic focus areas, low-cost, hybrid, and regional carriers tend to be customer-oriented. They look to identify how to create value for their customers, determine what they are willing to pay for, and then offer products and services that meet that demand. All of that can be possible by rethinking the digital transformation process from the ground up.
About the AuthorMore Content by Aditi Mehta