A Conversation about Digital Transformation on the Path to Recovery, with Iztok Franko, Season 3, Episode 4

Airlines are on the path to recovery, and digital transformation is an important landmark on that path. In order for airlines to build successful digital products, they need the right set of skills. In this episode, PROS' Stanislava Yordanova and Diggintravel's Iztok Franko discuss the upcoming launch of the Digital Retailing Academy, a collaboration between PROS and Diggintravel. Find out how you can be part of it!

Full Transcript

Aditi Mehta: Hello and welcome to the third season of the PROS Travel Podcast, the view from 30,000 feet. I highly recommend you check out the first two seasons if you haven't already. This podcast is about digital transformation within the airline industry. This season, we're focused on the recovery of the industry from the pandemic and sharing how key strategies around digital transformation are still as important today. Now sit back, relax, and enjoy the flight....

Stanislava Yordanova: Hello Iztok, thank you for joining this episode of the view from 30,000 feet.

Iztok Franko: Hi, Stanislava. Glad to be here, talking to you today.

Stanislava Yordanova: Yeah, me too. I was looking forward to our discussion. And as you probably heard, the season's main theme for the podcast is digital transformation and airlines path to recovery. So during our discussion today, I really wanted to get your perspective on how you think airlines recovery is shaping in the context of digital marketing and retailing. How have you seen airline digital strategies change over the past few months?

Iztok Franko: It's definitely been a shock. As we talk about the recovery, we thought it's going to be much more, I'd say predictive. So even when the COVID started, we thought, okay, this first reaction will be, this will last for three, six months, and then the recovery will start. But now we see it's much more volatile. So it's not, it's a lot of uncertainties still. So these initial shock. We've seen digital budgets shrink. A lot of people were unfortunately, let go. So in general, very difficult to plan, not longterm, but even midterm. My friends and fellow travel analyst, Henry Harteveldt, recently reported that Delta normally finalize the schedule 90 days in advance, but is now because of the COVID-19 uncertainty, making scheduling decisions in 40 days. So this is four times faster. So I think that strategy is marketing eCommerce and especially airline digital initiatives need to reflect this new situation, this much faster volatile world. I read research also that COVID-19 accelerated the digital transformation efforts by six years on average for companies. So another example, US eCommerce penetration for retail needed 10 years to go from 5% to 16%. And now in three to six months it went 27%. So it almost doubled. So as I said, airline strategies, especially digital one will need to adapt to that and accelerate as well, which I know is very hard to do in the current situation, but we will all need to accept that there is new consumer behavior, which means more uncertainties, less advanced planning. So we'll need to invest in data, in agility, digital agility. We'll need to accept that this is more like, new digital touch less world with more digital self-servicing, which probably, in the short term will mean less investment in customer acquisition and more in user experience. And I think conversion optimization will play a crucial role to maximize the effect of our current marketing campaigns.

Stanislava Yordanova: Yeah, definitely the situation has changed dramatically over the past few months. And I think it is clear that it will definitely take some time before the travel industry sees the passenger numbers come back to the levels before the pandemic. So therefore airlines, I also believe will need to learn to do more with less, but what do you think will be critical for that period of recovery short term? So let's say in the next six months to one year.

Iztok Franko: Yeah. You use the term that I personally also use a lot that the airlines will need to do more with less, especially in marketing, in digital, which means short term we'll need to be more agile. We will see smaller teams. We already are seeing smaller teams, smaller funds. So we'll be, we'll need to be more agile. We need to be better with data, faster analyzing trends and proactively identifying new opportunities. So this means probably doing agile fast user research to understand questions our passengers, our potential customers have. Understanding friction points and then be faster than we were before in addressing them with communication, with user experience, with even product changes, flexibility, vouchers that are flexible for example, travel passes that we've seen. So in general, I think we'll need to be more systematic and better, better prepared at how we convert this traffic that will come once the, hopefully demand picks up because this will be crucial. As I said, short term, tactically, airlines will see pressure on margins. So increasing conversion and conversion optimization, higher conversion will be crucial because it means lower customer acquisition costs. And it means better effectiveness of existing marketing funds, or remaining marketing funds that we will have.

Stanislava Yordanova: Trouble demand will come back that's for sure. And we see it rising slowly in different regions of the world. What strategies will be needed for airlines to be able to capture more bookings? You talked a lot about optimizing conversion, but what do you think airlines will adopt as strategies to drive that?

Iztok Franko: Yeah, so short term, as I said, I think with existing demand or the demand that is there, we'll need to focus on optimizing conversion, increasing marketing effectiveness, increasing ROI. And this is what conversion optimization and higher conversion brings. But longterm, I think there are different aspects that we'll need to address. So one is the agility that I was mentioning. So we need to be more proactive at identifying strengths, identifying data and turn around faster because even when demand returns, I don't think it will be even across the world. We see it even now, I think situation with different regions, with different markets, even with different passenger segments will change. So we'll need to be faster. It's identifying this and reacting, like we said, with Delta, they are reacting four times faster now. The second thing is, and this is more longterm. We need to focus on these new consumer behaviors. So the digital adoption of new customer segments. So for example, as I said, with US and retail eCommerce penetration that's doubled in less than six months. We've seen new customer segments like elderly people or people that were not used to do digital transactions before, being comfortable with doing that now. We see undeveloped markets where digital infrastructure because of the COVID improved significantly in the last few months, and we see trends like touch less, contactless appear. So I think we will need to address that. We will need to accept that this is the new consumer behavior. And if we do that and if we will do this strategically, if we will address this or airlines will, I think there will be opportunities. So for example, airlines strategically, especially the traditional ones struggled with, to increase their [inaudible] share. So this is definitely with the new consumer behavior, one area where I see opportunities for airlines. Also, to increase web checking adoption, to automate some processes, like baggage self drop, or even develop new scenarios that can bring new ancillary opportunities. Like for example, airport food and retail pre-ordering and pickup. This scenario, for a lot of people was a very unusual before. But now because of the COVID, I think there are a lot of people who are exposed to ordering delivery via their phones, picking them up or doing the delivery. So I think, and I see already some innovative solutions developing here, that the airlines can connect. They have the passenger data, they can connect with retail and built innovative digital solutions to take leverage of this new opportunities.

Stanislava Yordanova: I agree that there are a lot of opportunities related to digital in the current situation, but we all know that there were some barriers related to digital retailing and eCommerce before the pandemic hit, where do you see airlines struggle today? What do they need to overcome as challenges? Where do you think are the talent and skill gaps in order to take advantage of those opportunities?

Iztok Franko: I think, and this is what we also see in our yearly research and research we publish in the research papers. Sometimes it seems like we see two worlds with airlines. So on one hand we have, let's call, we call them in our research, the digital leaders who really get it, and they invest in skills in digital skills, and they have digital people with digital background and they do this systematic process of eCommerce of digital optimization. So they have clear defined analytics. They measure how, they measure and know what's happening in their booking funnel. They do regular user research and optimization. They do testing and it reflects, it reflects in their eCommerce results. It reflects in their user experience. Then on the other end of the spectrum, we have somewhere, this is still very undeveloped. And the key challenge here is I think adopting this digital mindset and even having the understanding that digital marketing is not just about customer acquisition, about digital campaigns and social media email marketing, because with them, I see that 90% of the digital budgets are still focused on customer acquisition on digital advertising. So I would say for them, the first step is to learn this process, to understand why it's important, why converting is equally important, if not even more important than bringing new traffic to your website, bringing new users, so advertising, and what kinds of the effect it has on your business, on your customer acquisition cost and your profitability. So I would say that key gap in skills is having this holistic understanding that digital is not just advertising, but it's the whole end to end process. And we need to understand this end to end process.

Stanislava Yordanova: Yeah, that's a very good point. I think there are a lot of direct benefits of understanding the entire digital process. Maybe you can give some examples from our industry or also other digital businesses.

Iztok Franko: Yeah. Maybe it may not sound that exciting. But what I say usually is if you do this process, systematic process, end to end process longterm and on an ongoing basis, eventually what it will make you to do is you will become more customer centric and this will result in higher conversion rates and higher retention. So this is, as I said, not a very exciting example, but it's just the fact. On the example site booking.com started and adopted this systematic digital optimization process, end to end process way back in 2010. And in 2012, one of the wall street advisory companies identified this as one of the Bookings key competitive advantages. So they said that because of this process, Booking has two to three times higher conversion rate than the rest of the industry, which means they can reinvest because of the higher margins, lower customer acquisition costs. They can reinvest again back into their product in digital product. In our industry, we see, or at least I saw a similar example with Lion Air back in 2010. I think it was identified as the worst travel website among the 40 analyzed in UK and investment they put into digital and in digital product in the last year. So I think it became one of the best. So the change in user experience, and I would assume that it also reflects in higher conversion rates, was just amazing.

Stanislava Yordanova: Yeah. Some great examples you just talked about, but we did also discuss a lot about digital skills and understanding that the digital optimization process in order to really build that type of successful digital products. I think it's time that we talk about the latest project you're working on with PROS, the airline digital retaining Academy. Let's tell our listeners why we decided to launch this Academy now.

Iztok Franko: Yeah, I am more than happy now. There is a spark in my eye because, this is a project or this is a thing that I wanted to do for a long time. And I'm really passionate about, so why we started now, I think there are two reasons. Yeah. So one is this gap in skills that we said, and there is still gap in the understanding of end to end digital process in our airline industry. So we wanted to share our knowledge to address that. And we gathered this knowledge from five years of our research of doing digital conversion optimization, digital retailing benchmarks. The other reason is to address what we talked initially. So the beginning of our conversation is to address the challenges that COVID-19 brought, the accelerated digital transformation that needs to happen. So we want to bring and help airlines with modern digital skills and bring them this end to end understanding of what it takes, what it will take to face with the challenges, but also to leverage and take the most out of the opportunities that we talked about.

Stanislava Yordanova: And I think it's going to be a unique learning experience, but can you maybe share how is it different from other digital events and webinars out there?

Iztok Franko: Yeah. Maybe let me share a personal story here. So I also do my own podcast. It's called the Diggin Travel podcast. And when I started to preparing to do the Diggin Travel podcast, I wanted to learn how to be good at podcasting. So I enrolled into this podcasting fellowship workshop, which is done by and branded by Seth Golden, which is one of my marketing idols. And I love Seth, but when I started the podcast fellowship, I bought it because I want to learn from him. I want to engage with him. But at the end it was 400 people in the program and we didn't have any access to mentors. So we mostly watched the videos, but there wasn't any real engagement with the experts, with the real leaders that I wanted to learn about. So that made me think, and I wanted to change that. I wanted to make this Diggin Travel Academy, a learning experience. So we wanted to make learning and experience again, meaning, we want to engage with people one on one, we want to give them access to mentors. We want to give them access to these great experts, digital experts that we will have in the program. And we want to stimulate engagement with their peers. So this is why we build this micro community environment, which is fits for, let's say approximately 30 people. Because if you want to do this personal touch engagement, engagement with mentors, with speakers, you cannot do it at higher scale. So we really wanted to make it an authentic experience where people will be able, not only to learn about new concepts, but also ask their mentors, their teachers about it, engage, do some stuff, hands-on, we will have a lot of practicable hands on examples. So all in all, we wanted to humanize the learning again, because I think now with this work from home and a lot of webinars, a lot of online videos, it's very difficult to have this personal humanized learning experience again. And we want to show that can be done even in a remote digital environment.

Stanislava Yordanova: It sounds very exciting that we are able to deliver a differentiated learning experience for airline professionals. And you mentioned something very important that it will help airlines in the current context of recovery. Can you share, what are the skills that you think airlines will focus on developing by enrolling in this five week part time program?

Iztok Franko: Yeah, so I was talking about this end to end understanding of the whole, let's say digital or eCommerce process for airlines. What I see in the industry, because our industry, the airlines have huge companies. We had a lot of silo departments and a lot of silo views on different parts of different elements of this eCommerce and digital process. So we had, I don't know, digital marketing experts, eCommerce experts, ancillary experts, pricing experts, revenue management experts. And they worked on, often times in their silo processes and have even their own KPIs, which they measure. So what we want to do with this training is give them this end to end understanding of the whole process, because I think now to solve complex problems that airlines face now, we will definitely need that. So we will need people who have much broader skillset who understands the process from beginning to the end. So our curriculum and our five models that we built or were built to give airlines digital PROS, this end to end knowledge. If I go from the beginning in model one, what we will do is, we will give airlines the strategic outlook, where this industry is going with digital, with retailing, with ancillary avenue. So to put things into perspective, we'll start with really high level strategic outlook. We will also develop some retailing concept or introduce some retailing concepts of friction versus revolt that are used in retail, but we will then later explain how to use also for airline digital optimization. Then are in model two, we'll an overview of digital optimization process. So how? What are the key elements of how we build an optimized digital product? So we will introduce the concept of analytics, of user research, of testing and experimentation and how to develop and build digital products. Then in model three, with my colleague, Bustian, who is great at analytics. So he's certified at the MIT and Harvard advanced analytics, he will show, and we will deep dive into this analytic process. So he will show how to use data, because it usually always starts with data. We need to start finding and understanding what is happening. So we always tell about the what, so we analyze the trend and this is where we start, is with data. So we try to understand the what and digital analytics model, model three will be all about that. We will also check how to set the right KPIs for the airline booking funnel, and airline digital retailing. Then in model four, with Amanda, who is one of the most popular LinkedIn instructors, we will go from, what? So in analytics, we understand what is happening to the why, where we try to understand why this is happening. We try to put context to data. So to do that, we need to understand your users, friction points, revolts, and Amanda will explain us how to do this agile fast user research, how to do user research in remote environment like we are facing now. So how to be really quick and agile, but with the goal to really understand our key user friction points and pain points. Then in the last model, with your colleague, Mike from PROS, who has a long history of developing digital solutions and leading digital development things, we'll put all this together. So data and analytics, user research, and insights, testing and optimization process. We'll put all these learnings together into how, into how we can build great digital solutions, great digital products, even more in this last model five in the second part, we'll go back to the beginning. When I said in model one, we'll talk about the strategic initiatives, where the strategically the industry is going. We'll try to address this and see how this whole process of end to end digital process can help us address these strategic initiatives and changes to really innovate, to build some innovative digital solutions, even innovating digital products, like subscriptions, maybe new retail concepts. So at the end of the whole program, I believe that people, that enthusiastic airline experts who want to learn, we'll have a much better data and analytics skills, we'll know how to understand their users better, how to experiment and test. And I think when they put all this together, they will be much better at everything digital and longterm. I think that it can really enable their digital innovation.

Stanislava Yordanova: I'm excited about the Academy program and all the topics you just talked about. Maybe you can tell our listeners in a summary, who again are the speakers and the mentors.

Iztok Franko: Yeah. So this is also apart from the concept of this, let's say mentored community model and peer to peer model and this personal one on one touch that we wanted to embed in the Academy and the curriculum. I think what we've put a lot of thought, is also who are the main people that will teach in our program. So we have four great digital experts. And what I think it's even better is that each of them has a unique background and skillset. So my role in the program is to teach airlines, the strategic outlook of the industry, with digital retailing and ancillary and especially digital optimization. So I'll try to share my background and my history of airline, digital research, digital retail and research, and what I learned by talking to more than 100 different airline digital people in the last five years. Then, as I mentioned, Bustian, he's all about data. He's really great at analytics and visualization. And I think as we said at the beginning, that airlines will need to be more agile, more proactive with predicting demands, reacting to the trends faster. I think this is really a key and it's not only, it's not only reflecting in model three, but Bustian, as one of the other mentors, we'll try to add this analytic flavor, analytic view on all other five of the models. Then Amanda Starkville, she is based in US and she is doing all kinds of UX research, consulting, workshops from startups to big companies. And she is teaching about agile user research on LinkedIn. She will bring this user centric approach. So she is really good at, as I said, understanding your users, leveraging various user research methods, how to do that and how to be more, how to build empathy with your users. Then Mike, Mike Sloan. So from PROS, as I said, he is a industry veteran, led many digital teams. What I really like about him is, he's out of the box thinking and his innovative approach. So at the end, we will try to put all this together, I think we will do some brainstorming exercises. And what I think, where Mike is really good at is putting some, maybe also provocative ideas out there to test and validate and see if we can change some of the, let's say, things that we are doing in the airline industry, the same way for the last 20 years, how to change that with maybe digital innovation.

Stanislava Yordanova: I'm looking forward to hearing those speakers and mentors live during the Academy this October. So Iztok, we really like to end each podcast on a personal note. Can you share with us and our listeners your most memorable travel experience?

Iztok Franko: I'm lucky that I traveled, or at least I did before this COVID, a lot for business. So in the last year or year and a half, I visited places like Osaka, Cairo, London, Edinburgh, Barcelona for business. And I am a huge history junky. So wherever I go, I try to learn about the history of the place. So this is, let's say, this is why travel and traveling new places and learning about them is really exciting for me. But on the other hand, in my leisure time, I'm also a windsurfer. So I like to privately for holidays, I like to go with my family to places where it's good for windsurfing, so places like Greece, Edina, I've been to Egypt, Cape Canarian Islands. And I'm really missing these now, because I think at least for me personally, I appreciate it even more and appreciate now even more, the things that travel brings us, which is engaging with new people, learning about new cultures, new places, as I said history. So I hope that airline, as a key part of this, we'll be able to provide people this opportunity and enable them to travel and do these stuff again, because personally, like I said, I'm certainly missing it a lot.

Stanislava Yordanova: Yeah. I think we all are. There is no replacement for travel. And I think that's one of the reasons why this industry will come back stronger. And Iztok, thank you very much for sharing your insights today with us, it really was a pleasure. PROS is proud to be part of the launch of the Academy. And we're looking forward to sharing our knowledge around building customer centric, digital products with the airline community. To all our listeners, if you want to learn about the digital retaining Academy and register, be sure to visit thickintravel.com/academy.

Aditi Mehta: Thanks for listening to the PROS Travel Podcast, the view from 30,000 feet. Special thanks to our guests and our producer Genevieve Todd. We hope you enjoyed this episode. If you have feedback, a burning idea or know of an industry expert we should feature, shoot us an email amehta@pros.com. That's A-M-E-H-T-A@pros.com. You are now free to move about the cabin.

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