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WHAT DO AIRLINES REALLY NEED FOR RECOVERY?

The aviation industry, in particular, has suffered greatly over the past few years; but now it’s time for it to bounce back, and changing their approach to utilising customer data could be the key to not only getting passengers in planes but maintaining customer loyalty for the long-term. So what’s the real key to airline recovery?

Image Credit : Aappp, Shutterstock

Produced by: Lily Chai

Presented by: Richard Bradbury, Freda Liu

 

Podcast Transcript:

 

Intro/Outro:

This is a download from BFM 89.9, the business station.

Rich Bradbury:

Good afternoon, folks, and welcome to Enterprise Biz Bytes. What day is it today?

Freda Liu:

Today is Fri-yay.

Rich Bradbury:

It’s Fri-yay. All the way through until around 1:00, we’re going to be with you, maybe a little bit longer if you’re lucky. My name is Rich Bradbury. I’m in the studio with …

Freda Liu:

Freda Liu.

Rich Bradbury:

Today we’re talking about airlines, and what do airlines really need for recovery? I want to try and explore this idea, and I’m sure you guys at home have your own opinion as to what they need for recovery. Keep it nice and polite and friendly, please. Get us via WhatsApp 0187898899, and Twitter, we’re @bfmradio.

The aviation industry in particular has suffered greatly over the past few years, but now it’s time for it to bounce back. Changing their approach to utilizing customer data could be the key to not only getting passengers in planes, but maintaining customer loyalty for the long-term. So what’s the real key to airline recovery?

Safe to say airlines are facing their biggest test right now. Airline debts have grown to unimaginable levels over the course of the pandemic and must ultimately be paid off. It could be late in this decade before they shrink to the levels of earnings at which bank lenders’ warning lights stop flashing. Reducing that leverage will require growing revenues faster than ever before, but that’s risky when carriers are hoping to coax wary travelers back on board with attractive airfares.

Making things worse is that two years of COVID has scrambled every tool the airline industry uses to guide its pricing policies. Typically, carriers choose which fares to offer at which prices, depending on an analysis of air traffic the previous year, updated with more current database on the strength of ticket demand. That trove of information is almost meaningless right now, and the last comparable period is now three years ago.

Freda Liu:

Right.

Rich Bradbury:

Thanks to the way the pandemic has upended all of our lives, there’s no guarantee that 2019’s passenger behavior will bear any resemblance to what we’ll see in the future.

Freda Liu:

Yeah, I’m under the wary customer category. So what’s the first big step towards real recovery? Data, data, data. So according to Oliver Ranson, a former Qatar Airways QCSC executive that consults for airlines on pricing policy, they’re flying blind, either rely on the old data, he said, for instance, whereas traditionally, prices are higher closer to the date of travel because only urgent flights will be booked so late.

That might be reversed nowadays when only the most committed travelers would risk the border and cancellation turmoil that might result from reserving seats months in advance. A low-cost carrier has some advantages here. So with simple point to point flights, a longstanding need to fill every seat at all costs, they’re already using systems that depend more on real-time bookings than historical forecasts. That means they’re able to be nimbler than full-service carriers with their complex global networks could ever hope to be.

Rich Bradbury:

Also, while computer storage now costs less than 1% of what it did 20 years ago, so far, airlines have trailed behind other consumer companies in taking advantage of the UL of alternative data that’s available to predict demand. The systems that airlines are using trace their origins back 20 to 30 years, based on airline reservation systems with primitive data communications and data structures.

So what should airlines be looking out for? Alternative sources of information are likely to come in three main forms. Social media chatter could tip off airlines early to newly popular destinations, allowing them to raise prices or capacity to take advantage. Credit card data could also indicate when people are likely to start traveling more with spending on fine dining, jewelry, and theater tickets correlating particularly well with air ticket demand. Finally, information from mobile phone and communication platforms like Zoom can also show when voice traffic between cities is heating up, a potential precursor to physical travel.

None of this data will come cheap, of course, and one reason carriers are still using such antiquated legacy systems is that updating their ways of selling tickets is usually treated as a lower priority than coping with the day-to-day operational mess of running an airline. It’s been that case in previous years. It’s going to be even more important now as the aviation sector knits itself back together post-COVID.

Freda Liu:

Right. So back to the thing on data, how should airlines be approaching all of this data? So airline marketers say consumers are now more conscious than ever of the data they’re sharing, and if they’re doing it, brands must provide something in return.

Drawing upon an example of a recent loyalty campaign AirAsia India ran, Siddhartha Butalia, Chief Marketing Officer of AirAsia India, said it invited consumers to join the family and convey the point that being part of family is supposed to be a rewarding experience. He added, “What we’re also saying is that you can share a lot of personal information, because we are a brand that you can trust.”

Closer to home, our very own Laser Airlines created 257 new products since the start of the pandemic. V7 is still in use today, including the MH Explorer, a fully digitalized travel program for students. Lau Yin May, Group Chief Marketing and Customer Experience Officer for Malaysia Airlines, said this gave them a much better understanding of their consumers, which appeals to them, and how they can use this experience as a learning point for future product development.

Rich Bradbury:

So understanding data obtained from organic searches during the pandemic also helped some of these airlines to better respond to consumer needs. For instance, in the early days of the pandemic, consumers were looking for things like flexible ticketing and free changes. Japan Airlines immediately saw to it that these keywords were added to its webpages. Over at AirAsia India, it was observed that traffic from online check-ins had tripled, informing the airline of changes to website usage and a growing preference for a more direct engagement with the brand.

Elaborating on the value of direct customer engagement, Japan Airlines partnered with Chinese online travel agents to create flagship stores in China that allow customers to purchase a ticket without friction. So you have flown.

Freda Liu:

I have.

Rich Bradbury:

You flew to Kochi recently, right?

Freda Liu:

I’ve flown to Kochi. I’ve flown to Saba. So I haven’t done anything, sorry, where I require my passport yet.

Rich Bradbury:

Right.

Freda Liu:

So I have flown, and that’s because I would see how people are flying domestically first. There were no issues and all that. Then I trusted to fly-

Rich Bradbury:

Internationally.

Freda Liu:

Well, no, just still overseas.

Rich Bradbury:

Overseas.

Freda Liu:

Overseas. But internationally using my passport, not just yet.

Rich Bradbury:

Okay. Were there any issues? I know last week, you were trying to log into your family. There was a bit of an issue there.

Freda Liu:

Yeah, yeah, yeah. So I had to go to the airport early, just to make sure. I said I couldn’t find my booking online, but I had to do it physically at the check-in counter. So that was the first time, because previously, I booked on this airline as well, and it wasn’t an issue.

Rich Bradbury:

Right.

Freda Liu:

But you’ve also been in Langkawi. What was that like?

Rich Bradbury:

Well, we booked early, because we knew we going. We knew the dates where we wanted to travel backwards and forwards. This particular airline kept bumping my flight. So the original flight was supposed to be at 8:00 AM in the morning out of KL. By the time they’d finished bumping the flight, we ended up flying at 10:15 or around that time. We found out that the reason that they’d been bumping the flight is simply the previous flights has not been full. So they’ve been pushing people to get on the same flight together.

Freda Liu:

Yeah. So during this period, I’ve just realized with certain airlines, they’re behaving differently. So I was on my recent trip back. Coming back on this particular airline, it was smooth and out. My friend went on a different airline, and a flight that was supposed to be 3:00 in the afternoon became 1:30 in the morning the next day.

Rich Bradbury:

No. For the same reason? Was it for the bumping of the seats?

Freda Liu:

The bumping of the seats.

Rich Bradbury:

That’s crazy. The thing was on the flight back from Langkawi as well, there were barely any people on it. I think there were six people on the flight, maybe seven, and then the flight crew.

Freda Liu:

Have you removed the fear of COVID yet?

Rich Bradbury:

No.

Freda Liu:

Right. So it’s still that worry. So that’s the thing, right? I was thinking, “Long flight. I don’t know if I want to be in a plane for such a long flight.” So my first overseas will probably be in September, but that’s also less than three hours kind of thing.

Rich Bradbury:

Yeah. But even flying up to Langkawi, there were people on that. It was a full flight, but there were people on that flight that didn’t have their masks on the whole time that they were flying. There were people telling them, “Please put on your mask.” But people were …

Freda Liu:

Yeah, there were kids next to me coughing-

Rich Bradbury:

Oh, dear.

Freda Liu:

… and without the masks.

Rich Bradbury:

Anyway, time for a short break. Let us know what you guys think. Get us via WhatsApp 0187898899 and on Twitter, of course, @bfmradio. Now, just a quick note with borders reopening and restrictions lifting left, right, and center, how is the aviation sector going to use this opportunity to revamp? What information or resources do they need to utilize for not just recovery, but long-term loyalty? After the break, we’ll be hearing from Mark Ross-Smith. He is the CEO and co-founder of StatusMatch.com and editor of industry news site Travel Data Daily. For his thoughts, that’s coming up right after these messages. To take us in there, it’s Jimi Hendrix with All Along the Watchtower here on BFM 89.9.

Intro/Outro:

[foreign language 00:09:37]. BFM 89.9, the business station.

Rich Bradbury:

Back to Enterprise Biz Bytes. It’s 12:20 here in the studio with me and Freda. We’re going to be with you for a little while. We’re talking all about airlines and in particular what airlines really need for recovery. No messages so far, but if you want to comment and jump in, 0187898899 is the number on WhatsApp. If you want to send us a message or get us via Twitter, we’re @bfmradio. It’s been an interesting couple of years, of course. We saw a period where there were almost no flights at all, nobody coming in, nobody going out. This thing about loyalty programs, do certain airlines a attract your loyalty more than others, Freda, or are you like me and just go, “I’m just going to find the cheapest flight”?

Freda Liu:

Yes.

Rich Bradbury:

Yeah. Me, too.

Freda Liu:

Yes.

Rich Bradbury:

As much as I’d like to say-

Freda Liu:

Actually, not really also. Okay? So I don’t go on certain airlines as much as possible, because I don’t like the airport.

Rich Bradbury:

Oh, that’s interesting.

Freda Liu:

Yeah.

Rich Bradbury:

Ah. Okay.

Freda Liu:

So that gives me a headache.

Rich Bradbury:

Yes.

Freda Liu:

So I would rather pay a little bit more, knowing that I’ll be at a better airport.

Rich Bradbury:

Right, right. You see, the trip I recently took to Langkawi, I’m probably giving details away here, was fairly nearby, and it was a propeller airplane.

Freda Liu:

Right.

Rich Bradbury:

It was only the third or fourth time that I had flown on one, and I’ve realized I don’t like propeller airplanes. But it is what it is.

Freda Liu:

It gets you there.

Rich Bradbury:

It got me there. Certainly did. Anyway, as I said, we’ve got somebody on the line with us. We’ve got Mark Ross-Smith, the CEO and co-founder of StatusMatch.com, editor of industry news site Travel Data Daily on the line. He’s going to give us his take, especially drawing on his previous experience as the former head of loyalty and enrich for our very own Malaysia Airlines. So Mark, how impacted was the aviation industry by the need for digitalization during this pandemic?

Mark Ross-Smith:

So the wake-up call for airlines really a couple years ago was the inability to process customer inquiries, refunds, and basically acknowledging that they didn’t have the technical capability to process things en masse. Combine that with a lack of manpower, obviously, due to layoffs and things like this, and that brought a real urgency and a need to automate and bring airlines into the digital edge more so than they were before. We’ve all heard stories about people having problems with refunds and credit vouchers and things like that. So that’s what was driving a lot of this digitalization that airlines had to move towards.

Perhaps more importantly, though, there was a group of airline customers that were disproportionately impacted more than others, and that is the loyalty members. So you think about your silver, your gold, your platinum-type passengers. These customers represent about 5% of total loyalty membership base in most airlines, but they contribute about 30% of total airline revenue. So airlines were economically driven to put measures and processes and new digital things in place to help protect some of that revenue from these customers, as they represented the most valuable and the most important customers to the airline.

Freda Liu:

What are your thoughts at the moment on how the aviation industry is faring? Is it recovering well from the effects of the pandemic?

Mark Ross-Smith:

I think there’s a bit of a learning curve for some airlines to ramp back up, as there’s a lot of demand in the world right now. A lot of this is driven by the countries themselves, and borders are opening for more inbound passengers. I think airlines are just going to ride off the back of these borders and government restrictions coming down. So for example, once masks, vax status, app downloads, all this kind of stuff goes away for everyone, I think like magic, tourism and the economy will bounce back hard and fast in a big way, similar to what we’re seeing in Vietnam or UK or Mexico is a really good example, where it’s pretty much a free for all. Anyone can come. Because of that, tourism is booming, and airlines are making lots and lots of money.

Rich Bradbury:

So what kind of data points should airlines rely on?

Mark Ross-Smith:

So typically, they’ve relied on historical flight data, getting you from A to B. The really interesting one, and this is what they should focus on more, is credit card data. So airlines specifically in the loyalty programs, you’ve got the credit card. It’s got the airline logo on it. You earn some miles, that kind of thing. The airlines get spend data insights into that, so they know where you’re shopping when people are starting to travel more.

So there is an interesting study where they found a correlation between people that were eating out at restaurants more were more likely to travel more in the next six months. So looking at credit card data and seeing who is at restaurants, who is spending on this kind of spend, they’re more likely to travel. So these are the people you would send travel-related offers to. These are the people with the highest propensity to get on a plane and get back out there again. So airlines focusing on this kind of third-party data is extremely valuable.

Freda Liu:

Right. So how else can airlines improve or refine the way they utilize customer data?

Mark Ross-Smith:

So if we talk about the big guys, big airlines in USA, for example, they’re very advanced on data usage and monetizing that data. Part of that in specifically Southeast Asia is actually about a risk culture within airlines. Typically, you want your airline to be risk-adverse. You want safety first, because they’re airlines, right? But if you look at the customer loyalty side of it, it’s more of a marketing technology company. So you want them to take risks. You want them to invest more into data, to be more strategic about how they apply and use data in a meaningful way that can generate results for the airline, for the customer.

I’ll give you one really great example. There’s one airline that we work with that actually uses astrology data. So what they do is they obviously know when your birthday is, and they use astrology insights to send you very personalized things. So they go, “I know you’re a Pisces. I will send you this kind of little bit different email to get you to engage with the product in a different way.”

Rich Bradbury:

Mark, I’m a Virgo. Okay, now moving on-

Freda Liu:

Are you?

Rich Bradbury:

Yeah, I’m a Virgo. Yeah.

Freda Liu:

Oh. Well, we both are.

Rich Bradbury:

Okay. How can airlines then improve their customer attraction rates?

Mark Ross-Smith:

So typically, less than 10% of airline passengers will book a ticket because of price. So they’re booking it for another reason. They’re booking it for the seat comfort, for the direct flights, because they like the food, they want the loyalty points. The number one attractor, so about 40% of all airline passengers will make a decision based on loyalty. So that is earning the points and the miles in the program or the status benefits, the perks, the check-in, the extra bags, this kind of thing. So for airlines, obviously, focusing on this group, this group that represents about 40% of revenue is the biggest upside.

Freda Liu:

All right. As you’ve mentioned, many airlines have some form of customer loyalty program. To what extent do those assist the bounce back for airlines?

Mark Ross-Smith:

I’ll let you know a little secret. Airline loyalty programs are extremely profitable even throughout the pandemic, and this is globally almost every single airline in the world. For most airlines, the loyalty program business is often worth more than the entire airline group itself if you were to split it out as its own entity. In USA, for example, Delta Airlines, which is the largest airline in the world, their loyalty business was valued at 30 billion US dollars, while at the time, the airline group itself, which includes the loyalty program, the market cap was $15 billion.

Loyalty programs I think have a pretty big job post-pandemic to continue generating this cashflow for the airline group and to your point to attract new customers that previously might not have engaged with the airline loyalty brand and then obviously to retain them. Airline loyalty programs generate cashflow from their co-brand credit cards and selling points and miles to banks. So you might be familiar with the credit cards. They have the airline logo on it. You can earn the points and miles every time you spend somewhere.

When you do that, you earn your points and miles, and the bank is effectively buying those points and miles off the airline and then putting those points into your account. So imagine if you’ve got hundreds of thousands of people with this credit card spending, and even during the pandemic, you’re still spending. You still need to go to the supermarket. You’re still eating. You’ve still got your general living expenses, so you’re still putting things on your credit card. In fact, a lot of people were putting even more things on their credit card.

When you use that card, the bank makes some money, and the airline loyalty program makes money. What that is is new cashflow straight into the airline loyalty program. You get points in your loyalty account, and you may not use those points for one, two, or three years. So it’s like working capital for the airline. They sit on this cash until you’re ready to use those points for your next flight or maybe a gift card or whatever redemption is attractive to you.

Rich Bradbury:

Okay. Final question for you then, Mark. What other methods do you think airlines can use to help encourage customer loyalty?

Mark Ross-Smith:

I think like most businesses, competing on price is a bit of a bloodbath. So improving the loyalty program, which takes care of the top, top, top customers is by far the fastest and easiest way to grow the member base, grow the revenue for the airline, which ultimately benefits the airline. It benefits the customer. It benefits the travel industry. If everyone benefits, then ultimately, it’s more economically sustainable for airline companies to grow and add new aircraft and new routes and provide a better service for everyone.

Rich Bradbury:

Interesting then how a very short discussion here between the two of us and a very short poll said that loyalty for us two isn’t our priority.

Freda Liu:

No, but it’s convenience.

Rich Bradbury:

Yeah.

Freda Liu:

It’s other things as well. I think maybe our work, we’re not frequent flyers. I think if I was in that sort of business and I’m traveling a lot, then it might make a difference. But it’s not that often that I would’ve accumulated enough points.

Rich Bradbury:

Right. I don’t even have a credit card to be able to earn points with, anyway, unfortunately. But there you go. That’s just us here in the studio. Folks, that’s pretty much all the time we have for today, though, but an interesting discussion over there with Mark. Of course, we want to thank our guests. That was Mark Ross-Smith, the CEO and co-founder of StatusMatch.com, editor of industry news site Travel Data Daily.

Now we’re going to wrap up for today, but as usual, if you did miss any part of this show, don’t forget you can download the podcast wherever you normally get it from. We recommend the BFM app. That’s available in the Apple App Store or Google Play.

But don’t go anywhere, because coming up after the 1:00 news, it’s the Breakfast Grill Replay. In an effort to shore up the government coffers and more efficiently collect taxes from Malaysians, the government of the day is modeling to bring back the unpopular GST tax, which was abolished back in 2018, when the Pakatan Harapan took over.

The morning run weighed the pros and cons of reintroducing GST back to Malaysia in these times with their panel experts. It was Dr. Veerinderjeet Singh, immediate past president of the Malaysian Institute of Accountants, and [inaudible 00:21:19] Ong Kian Ming, former MITI deputy minister. Stick around for that. It’s coming up after the 1:00 news. We’re going to take you up there with some music and some ads starting off with The Breeders here with Cannonball. Have yourselves a wonderful weekend, and on behalf of myself and Freda, we’ll be back next week for Enterprise Biz Bytes, BFM 89.9.

Intro/Outro:

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