Big data is permeating every aspect of daily commercial activity—from financial services, retail, logistics to production lines.
Airlines are now having their moment of epiphany with big data. Take the case of AirAsia, one of the leading low-cost carriers (LCC) in the ASEAN region.
At a recent Credit Suisse Asia Investment conference, its chief executive Tony Fernandes made a pitch for AirAsia becoming a digital retailer (and not just an airline).
Michael O’Leary, the chief executive of Europe’s leading LCC Ryanair has previously stated that his airline would eventually become the Amazon of travel.
There is no doubt that airlines are moving beyond the legacy model (or monoline) of ticket sales, and are building a strong ancillary business. Think about it.
If you are a frequent traveler to Lagos with Kenya Airways, there are high chances the airline doesn’t know you. Yet a flight is just a secondary part of your journey. Upon disembarking, you will need transfer from the airport, as well as hotel accommodation; and you may also want to discover a bit of the city in between business meetings (for instance, the best restaurants offering authentic local cuisines).
Often, legacy airlines show little interest in non-flight part of a passenger’s journey. And for an airline of the stature of Kenya Airways that flies close to five million passengers a year, that’s a lot of data that they accumulate.
With a little mining, they can begin to know their customers better and make mouthwatering propositions.
They even begin to bundle and personalise products better and stop mass advertising as much because as you get to know your customers better, you begin to go directly to them (I get a lot of junk e-promos from KQ).
Ancillary business, which is not an entirely new concept, is now top of mind for almost every airline. In 2018 projections from the International Air Transport Association (IATA), the industry lobby, showed that if the potential in ancillary revenues were to be harnessed, the income would cover half the annual fuel expenditure.
The same report noted an increase in cost of fuel against the same number of airlines from an approximate $149 billion in 2017 to $188 billion in 2018.
So we are looking at airlines generating nearly $100 billion in ancillary revenues. At the root of this growth has been the unbundling of ticket prices, or the core ‘air’ ancillary products.
They comprise offerings such as assigning of seats, extra legroom, onboard shopping and checked baggage as part of the package.
However, ‘non-air’ ancillary services are also fast becoming mainstream. On its website, AirAsia offers users hotel accommodation deals, car rental, credit cards and even travel protection (insurance).
When you want to travel to London, for instance, your first point of interaction is with an airline(s) when checking out ticket prices. What if the airline also offered you airport transfer and hotel accommodation?
It’s no wonder AirAsia generated 22 percent of revenues from ancillaries in 2018. However, Spirit Airlines, an American carrier, still stands out after generating 47 percent of its total operating revenues from ancillaries.
In 2018, Kenya Airways jumped into the ancillary bus by introducing an enhanced seating propositions (extra legroom and preferred seat) and significantly growing its distribution scope to all relevant direct booking channels, generating an additional Sh8.3 billion (which was just a paltry seven percent of its total revenues).
As airlines become more agile, the aircraft will become merely a tool to acquire customers. An airline executive even talked of giving free flights to passengers in exchange for a holiday booking on their platform, which is not a far-fetched concept. All thanks to big data.