As 2010 draws to a close, I find myself pondering on the changes in the industry and what is coming in the next 12 months. I’m sure that many of you are going through the same exercise. As a vendor to the airline industry, our success depends on being able to navigate trends and identify long-term solutions.
Based on the many conferences, articles, and conversations in which I’ve participated this year, I have identified several in-flight service trends worth watching.
Leveraging customer data to boost Ancillary Revenue sales
Airlines, and more specifically airline loyalty programs, have a vast amount of detailed information about consumers. The likes of Google would love to have access to the information airlines have at their disposal. However, many airlines have not adequately leveraged that information to build a retailing/merchandising machine that generates cash at many touch points.
At a conference in October, I heard the statement, “Statistician is the new sexy job.” Airlines should hire teams of statisticians and marketers to plow through the data and structure campaigns and targeted retailing experiences. Being in marketing, I read article after article talking about how great Facebook is for advertising. I hope to see articles about how great airline advertising and retailing are. The key to success though, is changing the old paradigm to one of a retailer.
Whether or not connectivity providers move towards profitability
I was very careful about how I titled this point. I don’t expect to see connectivity providers being profitable for a some time; so a move towards profitability would be encouraging. If you consider the amount of debt that has been incurred by some of the providers in combination with the low uptake of the service, then you have to start wondering when the revenue model will change or when the companies end up closing their doors. I have no interest in being a dooms sayer, but if you lose money on every product or service sold, you won’t make it up in volume.
Further, consumers are becoming accustomed to having the Internet available in-flight. And thanks to sponsors like Google Chrome, consumers are learning to expect the Internet for free. So connected airlines are now in a position where pulling the plug would effect the brand but upping the price would meet with resistance as well. This predicament is why I think that the profitability of connectivity providers is a key trend to watch for in 2011.
Selling pieces of the Internet instead of the whole pie
One solution to the connectivity conundrum that I have heard suggested by several companies and individuals is selling access to specific functions (e.g. email, SMS) instead of providing access to the whole Internet. Let me outline a few reasons why this approach is advantageous.
- Once you provide access to all sites, you’ve lost your ability to up-sell. For example, providing broad access means that the in-flight catalog now competes with Amazon.com, eBay.com and every other retailer. And I have rarely seen a deal offered in-flight that I can’t readily beat through another website.
- Many users only want to use email or check social networks. I had free Internet access on my last trip. I spent the majority of my time responding to emails and checked Facebook once or twice. That was it. Email and SMS consume a very small amount of bandwidth.
- Allow consumers to segment themselves by elasticity of demand. Forgive me, but I just can’t miss the opportunity to use a phrase from my college economics class. Selling the Internet at just one price does not allow you to collect money from consumers who are willing to pay less, but still pay. By segregating the services and using bundling techniques, you can collect revenue from everyone who wants to pay.
Move to more seat centric IFE systems
The introduction of the iPod, tablet devices, and smartphones has created a generation of personal device users. AVOD systems were a big break-through in IFE as it allowed each passenger to personalize the content. But AVOD systems pose large problems for airlines, such as weight, wiring, maintenance and cost. Next generation systems need to bundle personal content selection, ease of maintenance, low impact on operations, low cost and ancillary revenue applications.
What will ancillary revenue look like for IFE systems? Watch for more product and service shopping opportunities and targeted advertising. Circling back to my first point, leveraging customer data in innovative and unique ways will create a richer entertainment experience for passengers and more profitable in-flight product offerings for airlines.