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Starting a New Airline: Now Harder and Easier

Starting a new airline in today's highly competitive and volatile market is a challenge that comes with substantial market and operational risks. While it can prove difficult to complete this myriad of complicated tasks well, it is even harder to differentiate oneself in the fast moving aviation industry with many established players. Having said that, there still is a great deal of white space on which to create new and original value, and that could allow the airline to out-innovate its tradition bound competitors. Using a technology driven service design approach, we look at how a digital roadmap can help a new airline navigate technology, while building digital capabilities, and engaging customers, employees and partners along the way.

Market Trends - An Industry in Flux

Major industry trends indicate that the global marketplace is undergoing mass transformation. Certain words frequently recur in airline reports to describe their outlook for the market: “challenging”, “volatility”, “uncertainty” are among the most popular. This could well be used to act in a new Airline’s favor. Structurally, established market positions are being challenged:  

  • The industry’s center of gravity shifts eastwards (a positive trend)
  • Stability of global airline alliances is threatened

Financially, the unbundling of rate structures and ancillary services has changed the game for airlines – they now have to act as merchants that sell airline services versus airlines that sell merchandize.  

Technology Trends – Shattered Future & SMAC

If we look closely at technology trends, it becomes clear that we are witnessing a shattering of input and output mechanisms – a “shattered future” of sorts. In the past, interactions with computers have been through fairly narrow channels. The vast majority of inputs have historically been via keyboard, and outputs were predominantly through a single fixed screen. We are now witnessing an explosion of digital channels. We can communicate with modern technology by tapping a screen (iPhone), waving our arms (Kinect), speaking (Siri), running (Nike+), moving through space (GPS), standing still (CCTV plus facial recognition), being close to something (near field communication), and having a pulse (consumer medical devices). The simple past and the strategies we developed to operate in that world are no longer useful guides to the future.

All this and the synergies between Social, Mobile, Analytics, Cloud [SMAC] and emerging ideas around the Internet Of Things have implications for all Airlines as a business. To be able to meet the challenges of the “Shattered Future”, airlines would need to evolve a digital strategy that empowers customers, employees and partners.

First Demand of Digital - Meet Minimum Requirements for Entry

Demands of the “always connected” consumer have created an environment where airlines must have certain capabilities to participate in their chosen market segment. A recent McKinsey study1 says that hotels and airlines are greatly exposed to the disruptive potential of digital.  Over the next five years their share of sales via digital channels will rise to 50 percent in mature markets. Digital is not an optional play for any airline.  

Customer’s expectations are evolving and airlines need to - at a minimum - keep pace with that change. Forrester has identified a shift in customer expectations when it comes to interactions with brands in their paper “Age of the customer”2. When applied to the aviation industry, we see that customers want:

  • To be treated as individuals - also referred to as the “segment of one”.
  • The brand to be easy to do business with.
  • To be able to access self-service options.
  • To interact with the airline via their smart phones both for booking, tracking baggage, etc.
  • Consistent treatment across channels.

Second Potential of Digital - Creatively Differentiate in a Tough Market

Going beyond table stakes, new and rich digital experiences provide a lever for competitive differentiation, driving revenues, increasing customer satisfaction and improving profitability. Innovative experiences that help customers manage their travel on the go could be a serious differentiator. In a highly commoditized industry, tapping available differentiators is strategically important.

The McKinsey study1 also detailed that while the average bottom-line impact that can be realized from digital sales over the next five years is 20 percent, the bottom-line impact from cost reductions could average 36 percent. Which area is a priority will in part be determined by the need for customers or cash as the airline goes through various periods of growth.

A Potential Digital Roadmap

To develop a digital strategy, we look to actively engage the marketplace and other internal stakeholders. To start with, we take a big picture view of a target customer experience - and evolve that vision as we build, test and learn. Marketing is a great starting point for digital initiatives, however it’s key to leverage digital technology across the business to improve customer experience and achieve operational excellence. Eventually becoming a fully digitally enabled airline: engaging customers, employees and partners alike.

With the digital strategy in place, work on building a set of digital capabilities covering both emerging technologies and the service design and delivery side – the innovation engine, if you like. Using this as a substrate, airlines can prioritize and rollout applications both for customer experience and operational excellence.

To seed the thought process, here is a broad range of potential digital initiatives:

  • Experiment with Engagement:  As early as possible, begin lightweight experiments in customer engagement.  Start learning about the unique needs of customers as soon as possible.
  • Connect to Customers:  Enable a platform for connection (website and/or mobile).  Mobile first strategies may be appropriate.
  • Encourage Loyal Advocacy:  A lightweight Loyalty platform provides additional tools for experimenting with customer engagement and allows pioneer customers to be rewarded and incentivized as evangelists.
  • Extend the Conversation:  Link into existing social media with an engagement strategy.  This one time differentiator is increasingly becoming an expected minimum offering.
  • Get Good at Leveraging Insights:  In today’s world, we cannot afford to operate in a business as usual fashion. Leverage analytics to develop insights and capabilities about your unique customer segments and service offerings. Then have a lean innovation capability that allows those insights to find their way into new business capabilities.
  • Extend the Mobile Strategy: Based on real customer insights, make decisions around mobile strategies such as, “reach versus richness” and functionality to be built out - online-check in, seat selection, shopping, booking, flight status, flight schedules and other ancillary services like tracking baggage.
  • Integrate more touch points:  Extend your omni-channel approach to kiosks and In-flight Entertainment Systems. As the strategy evolves, refine the approach to ensure consistent experience across channels.
  • Empower Your Teams: Equip crew with smart devices and passenger information - take Social Customer Relationship Management (CRM) to the next level.

More than “Just Digital” - Enterprise Technical Integration and Broad Service Design

From a technology perspective, there will be other digital projects that may need to fit in place - for example an e-commerce platform, a website supporting ancillary revenue enhancements for unbundled services, products, integration, etc. From a service design perspective, there will be many aspects of customer experience that lie outside of the digital toolset.  Shaping supporting behaviors and processes is just as important to the customer experience as the technology.

All airlines are on a unique journey of innovation - enabling technically driven business creativity will ensure you’re one step ahead of the game.

This article was a collaborative effort by Vinod Sakaranarayanan, Manjari Sharma, Dinesh Tantri, Dan Mcclure and Johnny LeRoy.




Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.

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