Digital transformation has become a core strategy pursued by global airlines and airports as it has shown a positive impact in revenue optimizing while allowing cost reduction and productivity improvement opportunities. However, we rarely observe airlines and airports discussing a joint digital strategy in order to implement a mutual beneficial business model that will allow them to increase revenue per passengers among others. Therefore and by working in silos, both continue missing important commercial and risk mitigation opportunities. On the other hand, a truly seamless and stress-free travel experience can only be experienced if airlines and airports work together on different fronts one being technology with the end goal of easing passenger"™ pain point in order to increase satisfaction levels and maximize revenues through repeated business transactions.
Nowadays and as unit cost increments and lower margins are forecasted, airlines and airports need to further trim their cost structure while at the same time push incremental revenue through ancillary products and fees. Both are pushing for product differentiation, strategic segmentation and product innovation as well to stay ahead of the competition. But for many, how airlines and airports should work together to improve passengers travel experience and differentiate from the competition is not clear.
Digital technology is one example on how airlines and airport can collaborate to stay ahead of the competition as it creates significant business opportunities for both. Today, one can observe many global airlines partnering with vendors at passenger"™ home base. For example, a Chinese carrier have partnered with online retailers to offer passengers a selection of goods they can purchase via the airline in-flight entertainment system for delivery to their homes. Likewise, other airlines allow passenger"™s own device to book destination service options such as trips, dinners, cruises and concert tickets. Moreover, a number of airlines are also planning to allow passengers to pre-order groceries in-flight for next (or same) day home delivery. Likewise, airports have close commercial ties with their retail partner to push incremental revenue to the next level. However, we don"™t observe many well-defined commercial relationships working between airlines and airports.
On that front, one of the challenge airlines have had is limited distribution of in-flight products (and sometimes associated with limited in-flight internet access). Therefore and related to digital revenue realization, such limitation translates to diminish revenue for airlines. On the other hand, most airports have a close and direct relationship with airport concessionaires including retailers, but they don"™t have detailed customer data as airline do which is in fact essential to personalize an offering and get an incremental revenue per passenger. Therefore, is there an opportunity to work together? Definitely, yes.
Besides being data sharing a key point to customize unique offerings, one example is the opportunity for onboard passengers to buy airport retail products through airlines in-flight apps, picking items up after landing or even getting those items delivered at home. Likewise, any app development costs could be shared between the airline and the airport which will help (among others) to mitigate any risk associated with it. Moreover, connecting traffic at airports is another commercial opportunity that should be pursued as passengers typically waste 2 to 8+ hours on the ground. In addition, airport business lounges are another commercial opportunity that should be jointly pursued under the same philosophy, that is passengers could purchase airport retail products from the lounge and get those items delivered to their gates. Therefore, data exchange and digital cooperation between airlines and airports need to occur if both want to maximize revenue per passenger.
As global air travel growth is expected to double in the next 15 to 20 years, implementing a sound and joint digital strategy is key for both airlines and airports as those that work together will be able to differentiate their product offering, maximize revenues, reduce costs and improve overall business profitability.
At the end, a successful joint digital strategy will depend largely on how technology can be adapted, applied and optimized to improve passengers experience and commercial opportunities. In addition, it is key to have a clear top down digital leadership commitment that includes not only the vision but also resource allocation and support to execute a win-win strategy that will facilitate to transform a business.
To conclude, airlines and airports need to partner to maximize revenue using technology. Key areas include exchange of passenger data to influence and personalize offerings as well as navigation toward commercial areas at terminals while on the ground and develop in-flight joint apps to facilitate retail goods can be ordered onboard. Likewise, it is key to consider new terminal designs and/or modifications based on revenue conversion potential.
By René Armas.
International consultant who manages a number of global consulting projects with key focus on revenue optimization, cost reduction, business restructuring, strategic planning including digital technology, risk mitigation and process streamlining. ACI and IATA instructor and a regular contributor for a number of air transportation magazines in Canada, USA, Europe and Latin America including AerolatinNews. He can be reached through his LinkedIn page.
