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Airline Industry Digital Outlook: From a Changed Traveler to a Changed Airline

Iztok Franko

Airline Industry Digital outlook 2021

Those of you who follow Diggintravel’s content regularly know that we try to provide you with the best insights for different airline and digital experts. So, when I saw my colleague Henry Harteveldt from Atmosphere Research had published new research about the airline industry digital outlook and latest digital retailing trends, I had to talk to him.

The research commissioned by the Accelya Air Transformation Lab and conducted by Atmosphere Research is called “Airlines: A path back to profitability”. It’s a great analysis of the latest airline retailing and other industry trends.

Now, Henry is not only a great researcher and an industry expert, but he is also somebody who I can call a friend, and we can really talk openly about what is going on in the airline industry.

The airline industry digital outlook with industry expert Henry Harteveldt

Listen to the new episode of the Diggintravel Podcast to learn about the airline industry digital outlook and digital retailing trends, or read on for key highlights from our talk with Henry:

And don’t forget to subscribe to the Diggintravel Podcast in your preferred podcast app to stay on top of the latest airline digital and retailing trends!

Early Optimism for Travel Recovery

Before even discussing the airline digital outlook and retailing trends, I had to ask Henry about his latest insights on travel recovery. Henry is based in California in the United States, and it seems that because of the progress they’ve made with vaccination, we’re finally seeing optimistic signs for travel recovery.

There is a travel surge occurring here, which is a good kind of surge. American Airlines has stated that its reservation volume is approximately 90% of pre-COVID levels, 2019 levels – and that’s without the benefit of much business travel taking place and without much long-haul travel taking place. So that’s very impressive.

Now, of course, volume doesn’t equate to profitability, as we know in the airline business. You can have full planes, full airports, and still not make money. But I was talking with the chief innovation officer at the Cincinnati Airport earlier today, the day we’re recording this podcast; he said that they are just a few thousand passengers below their pre-COVID normal level of passenger boardings and they are seeing enough demand return. They’ve begun reopening concessions; the parking garages are not only full, but they’ve had to reactivate some of the garages that they temporarily shuttered during COVID.

There are all of these positive signs that are emerging, at least here in the U.S., about consumers’ willingness and comfort with travel. But I think we have to acknowledge that the recovery is going to be uneven, it is going to take a long time, and there are factors that the industry is going to have to manage – not just the virus itself, of course, and its uncertainty, but borders reopening, policies.

These are some encouraging signs, but as Henry pointed out in our chat (listen to the full podcast to learn more), there are still many open questions that our industry will need to address.

Are We Seeing a New, Changed Traveler?

The main reason I wanted to talk to Henry was his latest research. The biggest impact COVID-19 will have is the impact on people’s behavior, on how we travel. Henry talked about the “changed passenger” in his research, so I wanted to know: what will this changed traveler look like?

What I think we’re referring to is, yes, there will be a different audience. Near term, we’re going to see fewer businesspeople traveling than we once did. I think over time, business travel does recover. We believe, by the way, at Atmosphere that the recovery will take at least 3 years in terms of business travel. It may take a little bit longer. Again, we have to acknowledge the fact that COVID recovery is uneven, and it’s a function of vaccine availability, willingness to be vaccinated, border reopening, all of these things we talked about. I’m hoping that 3-4 years from now, we are back at a healthier level of business travel. But I’m not sure if we get back to 100% of pre-COVID levels. We’ve been saying all along we think it’s at least 10% less. It may be as much as 20% below pre-COVID levels of business travelers.

That means that this changed passenger is going to be more leisure-focused. And look, the leisure passenger travels less frequently, is less likely to be engaged with loyalty schemes, is less likely to carry co-branded airline credit cards if they exist, may want and expect different things in terms of what they buy, what they value, may want to pay us in different ways, may prefer to shop through different channels.

Airline Passenger loyalty

Source: “Airlines: A Path To Profitability,” Accelya Air Transformation Lab, Q2 2021

We’ve already seen the industry pivot to meet them. We heard repeatedly from airlines that flexibility-focused fares or products were more popular because COVID created this uncertain landscape, and we had to be more opportunistic as travelers. We were booking closer in, and if COVID surged or borders changed or lockdowns occurred, people wanted to get their money back. Governments in some cases dictated what airline boarding procedures could be. So we couldn’t sell priority boarding, but people were more willing to pay for, say, seats that offered extra legroom because it afforded them the psychological comfort of extra physical distancing as well as the tangible physical comfort of more legroom. We’re seeing younger people traveling. We’ve seen a lot more first-time travelers taking to the skies during COVID.

Henry raised some interesting points: new travelers will be more leisure-focused, will be less loyal in the traditional sense, will expect more flexibility, and will be more digitally savvy.

New Digital Benchmarks Have Been Set

The last point about more digitally savvy travelers was really interesting to me because I think this will have a big impact on the airline industry digital outlook.

We have to remember something as we record this in the middle of April of 2021: a lot of us have spent the past 12 to 14 or 15 months doing so much more online. Our banking is accelerated online. We are buying everyday goods online, whether we are having those delivered or picking them up at a store. We are ordering our groceries online. We are ordering food for pickup or delivery online. There are new businesses that have sprouted during COVID to serve us as digital consumers. The consumer who comes to your website as an airline has really exercised their digital muscles during this COVID crisis.

Future airline customer will be more digitally savvy and expect more

Source: “Airlines: A Path To Profitability,” Accelya Air Transformation Lab, Q2 2021

This huge surge in online shopping and other digital scenarios during the pandemic probably means higher digital expectations, right?

Right. Their expectations have been further elevated and accelerated. They’re going to look at your planning, your shopping, your checkout, your payment experiences, your merchandising, the way you present information, the way you present optional products, the way you engage with them post-purchase (to the extent you do, by the way, as an airline engage with them post-purchase), the way you handle check-in and all of that through very different, far more sophisticated digital consumer lenses. They have experienced all kinds of digital customer experiences outside of the airline business and they will be carrying the good and the bad over to us.

Does a Changed Traveler With Higher Digital Expectations Need a Changed Airline?

How are airlines adapting to this new reality? How can you be ready for a more dynamic customer with higher digital expectations? What Henry found through his research was that many airlines have adapted to the pandemic by becoming more ready for change and innovation.

For example, one of the “aha” moments: 96% of the people we surveyed said that this was an opportunity for collaboration and innovation, that they knew they needed to make changes for their organizations to prosper. 79% of the participants said that COVID was the most challenging time in their professional careers.

There is a thirst, a desire for innovation, which I wasn’t sure we would see because we’re not an industry that always welcomes innovation. There was more acceptance of NDC than I thought. But there were also some interesting differences, for example, between network airlines – which were surprisingly more engaged with NDC than low-cost and ultra-low-cost airlines, which were not. The thirst for innovation varied. It was just very interesting to see all of this.

Covid-19 accelerated airline digital transformation

Source: “Airlines: A Path To Profitability,” Accelya Air Transformation Lab, Q2 2021

Leaner, faster airlines

One challenge that many of you, the airline digital professionals, talk about when we talk about new digital initiatives and innovations is organizational silos. Traditionally, airlines are large organizations with many departments, so things move slowly.

I think there’s an understanding that there is a need to change, there is a motivation to change, there is a motivation to innovate. No one we spoke with, and really in the research itself, said “I’m fine with the status quo. I want everything to go back to the way it was before.” The only thing we want from the way it was before COVID is the strong volume of passengers and the healthy levels of profitability.

What I found really, really encouraging is the fact that so many people said, “Organizational silos have been knocked down, and we want to make sure that they don’t get rebuilt. We don’t want the calcification, the old ways of doing business, to creep back in. We want to keep things nimble, agile. We don’t want the bureaucracy.” As one person said, “It’s nice when the inmates are running the asylum.”

So I’m hopeful that we will keep this entrepreneurial or intrapreneurial spirit that has emerged going as business recovery returns. Doug Parker, the CEO of American Airlines, said last year in an interview that the management organization of American was approximately 30% smaller at the time than it had been pre-COVID. He said he didn’t want to see the management ranks swell back up. And that wasn’t anything about the individuals that were involved; it was about nimbleness and improving decision-making and being more market-focused. My hope is that all airlines will continue to be as nimble and as collaborative as they have been.

Does a Changed Airline Need More Skilled People?

That last insight that Henry shared from the CEO of American Airlines means that fewer people will need to do more. If you are an airline professional, this also means you’ll probably need new digital skills.

Henry provided information on another positive trend related to people and skills:

People are being forced to learn new skills. When you have a smaller management organization, when you have had to say goodbye to many of your talented colleagues through no fault of their own – simply the need for airlines to shrink their employment in order to financially survive – we are all having to do new things. We are all having to learn new skills.

What’s been encouraging is there’s been a willingness to do this. I haven’t heard anybody say, “Oh, it’s not my job.” I think we recognize that, one, it’s necessary to ensure the survival of our companies; two, it’s necessary to ensure the survival of our own jobs; and three, it’s good for our own professional careers. We’re being introduced to new skills, new tasks that will make us better at what we do, that will allow us to be better managers and leaders going forward.

Many airline professionals Henry talked to during his research saw the need for re-skilling as an opportunity.

And frankly, for some, they’re looking at this saying, “This is going to give me access to some capabilities that will make me more employable if I ever decide it’s time for me to look for a new job.” And that can’t be underestimated. Not that anybody should leave an airline; it’s the greatest thing in the world. [laughs] But the retailing people, the people who go to Diggintravel Academy, the people who are heavily engaged in commerce, are already enormously skilled. What’s great is we’re being given the opportunity to become even more skilled and to become stronger and more adept in different ways. It challenges us professionally. It’s good. We’re learning.

Some airlines, like AirAsia, identified this need for re-skilling and invested heavily in new digital skills for their employees during the pandemic. In fact, AirAsia founded their own Redbeat Academy, and here is what Dr. Ram Gopal, Redbeat Academy’s Director of Strategy and Innovation, said about their employees’ willingness to re-skill:

During the Movement Control Order (MCO) 1.0, we received about 1,200 applications [for programmes in the academy] from our employees of different backgrounds including cabin crew, ground staff and even baggage handlers.

The 1,200 applications they received were from employees of all backgrounds. AirAsia trains for many different tech and digital career paths, from data, software, cybersecurity, and digital marketing to UX (user experience) design path.

Experimentation, Testing, and Digital Optimization as the Way to Smaller, Faster Innovation

Here at Diggintravel, we “preach” a lot about the new modern airline digital skills. We see agile use of data, doing fast user research cycles, and running experiments to create new digital products as a key part of innovating and building modern airline digital products. During his research, Henry found that the pandemic made airlines more open to innovation and more willing to test and to take calculated, intelligent risk:

One thing I’ve heard from almost everybody, in almost surprise and delight, that they’re more open to innovation, that COVID forced them to rethink things. As we call it, there’s lowercase ‘i’ innovation – smaller, less expensive, perhaps more tactical innovation – and there’s still uppercase ‘I’ Innovation that is more strategic, maybe more long-term, could perhaps be more of a capital expense. There’s going to be a mix of both.

Experimentation and the systematic process of digital optimization are the core of the lowercase ‘i’ innovation that Henry is talking about. And based on Henry’s insights, it seems that the pandemic has accelerated the adoption on this front as well.

I’m hearing a lot more airlines talk about “We’re doing A/B testing. We never did that before” or “We outsourced that. We didn’t have the same level of insight into it. It was more infrequent. We only did it for larger things.” Expedia and other digital travel companies are doing hundreds of A/B testing experiments every day across almost every page on their websites around the world. Airlines need to be just as engaged in that as a digital travel company or a digital retailer or any other digital organization.

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Iztok Franko

I am passionate about digital marketing and ecommerce, with more than 10 years of experience as a CMO and CIO in travel and multinational companies. I work as a strategic digital marketing and ecommerce consultant for global online travel brands. Constant learning is my main motivation, and this is why I launched Diggintravel.com, a content platform for travel digital marketers to obtain and share knowledge. If you want to learn or work with me check our Academy (learning with me) and Services (working with me) pages in the main menu of our website.

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