NIKLAS ANDREEN / JEROME MOISAN
New online technologies have opened up opportunities for direct contact with the air customer, but while airlines may have welcomed the chance to save distribution costs, their experiments have often been at the expense of building deeper relationships and earning greater commitment
There is no question that the airlines have leapt at the chance to open new direct relationships with their customers. The question is whether, in their haste, they have leapt in the right direction? The evidence to date is that they may have focused too hard on capturing the bookings and too little on building a lasting relationship. Like nervy teenagers on a first date, intent only on getting that all-important kiss, carriers, it seems, may have forgotten to call or write.
It is true that the first battle in the online travel wars went to the airlines. They have clearly succeeded in slashing distribution costs, largely at the expense of travel agent commissions and computer reservation fees. But victory in that battle may have come at a price. By focusing too narrowly on the cost savings from disintermediation, airlines have not kept up in the war to develop customer relationships. That lead in customer relationship management (CRM) has been assumed by the new breed of online travel agents (OTAs).
This loss of leadership hinges on three key weaknesses which stood in the way of implementing a true multi-channel approach to communicating with customers. First is the exclusive focus on using the new direct channels to carry out transactions. In the process they neglected the ability to build relationships too. A second weakness centres on the lack of common platforms. In the rush to add new channels, each was based on its own independent data platformcreating functional silos unable to interact. Finally, carriers missed the opportunity to integrate relationships in the corporate travel sector. The individual travellers and the corporations for which they work are still treated as two separate relationships. Each of these weaknesses bears further examination:
1. Neglecting the relationship
In the race to benefit from new technologies, the carriers have been almost excessively obsessed with shifting transactions towards direct distribution channels. These initiatives, mostly revolving around call centres and owned web sites, have added little value and allowed the customer to switch between airlines with ease.
By contrast, OTAs have built a strong lead in the leisure market customer relationship race, showing early on that they understand that customer intimacy expands beyond raw transactions. Instead, their approach encompasses the whole journey management process and includes the creation of "stickiness" through personalised services and unique content. Expedia, for example, offers a quick booking option for repeated travel. This saves personal details for the buyer and other people for whom the buyer has previously bought tickets, such as address, credit card details and passport number.
The lead is reflected in the high, and constantly improving, "look-to-book" ratios achieved by the OTAs. Some 6-9% of their site visitors end up buying a service, compared with the airline-owned sites, where only 1-3% actually buy tickets. Similarly, the OTAs have used their leisure market experience to take an early lead in the small-to-medium enterprise market segment. Over 30% of Expedia's revenue comes from unmanaged business travel. That is partially because it understood earlier than airlines that an online tool that allows price comparison is a natural fit with the price-sensitive buying behaviour of the smaller business.
Airline initiatives in the corporate market have too often focused on enhancing booking capabilities for travellers instead of building and expanding the mutual contract which the airline and corporation have signed across the entire travel process. The failure in the corporate market is illustrated by the very limited success of most airlines' business booking capabilities. Sabre estimates that despite its potential, less than 1% of all business air travel bookings in 2000 were made online.
2. Using non-integrated technology platforms
In the mid-1990s, most of the world's airlines began implementing multi-channel distributions strategies. However, given the internet frenzy at that time, the focus was on speed. As a consequence, little was done to accommodate the open-architecture demands of the internet era. This means most of the systems in place - including those dealing with such actions as booking and the administration of customer databases - are add-ons to in-house systems, which were built as stand-alone entities for separate channels. For example, until the completion of its Oceanwave project earlier this summer, British Airways had 10 separate customer databases, with customer relations, ba.com list server and the Executive Club all administered separately.
Multi-channel distribution has thus become compartmentalised into functional silos which are tailored to serve one customer, one purchase, one channel. In parallel, travellers quickly began to use whatever channel was best suited for their physical location and their specific needs - be it information, booking, re-booking or refunding - at that moment.
The result of this is that customers are returning to their travel agent. Among other reasons for this, users became frustrated at having to constantly enter their preferences and details into the same carrier's system because details added in one database of the carrier's system were not transferred to its other channels.
3. Separating the corporation and its individuals
Although airlines understood the interrelationship between corporations and their employees, most made the mistake of distinguishing between the company and the individual when they initiated corporate relationships. Under this regime, the individual is viewed as a distinct entity with specific preferences, but the corporation is perceived as being focused only on volume discounts. This approach has proved to have serious limitations.
Relationships with large corporate accounts are almost exclusively price-driven. Therefore no airline today can set targets and compete on measurable service performance. This forces them into selling a commoditised product, with price discounting and their networks being the main negotiating levers. This result runs contrary to their efforts at building differentiated products based on brand, service and integrated product offerings.
There is also an inherent risk that an employee from an airline's major corporate account will not receive the appropriate customer service. This person could be a key decision-maker at that company who simply happens not to be a frequent traveller.
Given these shortcomings, the competing online intermediaries have zeroed in on the traditional triangular relationship between the airline, the agent and the corporate account. Potential suppliers of online self-booking tools come from every segment of the travel value chain: from global distribution systems to travel agencies - Amex, Rosenbluth and Carlson all push their product aggressively to their largest business accounts - to new pure technology players such as KDS.
But the game is not lost for the airlines. They have extensive background in not just the booking process, but - perhaps more importantly - the customer experience game. In order to regain the customer relationship lead, there are several things they must do.
To begin, they should start not by focusing on technology, but making sure their strategy is right. Because CRM is a customer-driven process, and technology merely enables it, the IT solution should be made to adapt to customer needs, not the other way around. Indeed, CRM is not just something with which airline e-commerce departments must engage; it is a customer-driven ethos that requires all customer-facing departments to re-engineer the way they do business.
The battle for relationship-based business revolves around the ability of airlines to exploit customer intimacy through broader customer recognition and targeted marketing, sales and service efforts. This is true at both the individual traveller and corporate levels, regardless of the channel of interaction. To achieve this level of customer reach, the airline must first develop a coherent central repository of all the necessary customer and corporate strategy data.
Before the Oceanwave project, BA could not exploit the information it had on over 80% of its customers, as it was logged throughout different parts of the company. Now more than 2,000 customer-facing staff have access to a single customer record for 8.5 million BA customers, approximately half of all passengers. With this type of central data in place, the three multi-channel distribution weaknesses can be addressed and lost ground made up.
With one common customer repository, the airline leverages the fact that it can support customers in the entire travel process, including the pre- and post-travel phases. Traveller services that facilitate the total journey management process, like online check-in, re-booking and SMS alerts for flight delays and promotions, are easily aligned with each customer's needs.
Furthermore, the individual customer record that logs all interactions between the traveller and the airline will allow airlines to engage in meaningful one-to-one communication with its customers. The ability to see how the customer's previous experiences have been - for example upgrades, downgrades, delays and lost luggage - will enable the carrier to provide a highly personal level of service.
Also, CRM will allow the major airlines to add a key differentiating dimension - between corporate customers/key business travellers and one-off business travellers - to their yield and revenue management capabilities. This will allow the carrier to incorporate the concept of "lifetime value" and make a real-time distinction in levels of service given to profitable repeat travellers versus overflow leisure passengers.
Serving small businesses
Many major airlines have realised the implications of their inability to serve the independent business segment in a cost-effective manner and are now focusing on reversing that trend. The need to acquire reliable data has been a starting point.
Delta Air Lines, for example, launched in April a separately branded online travel management service exclusively for businesses with between 5 and 50 employees and which spend less than $500,000 each year on air travel. MYOBTravel.com (for "mind your own business travel") allows Delta to collect precious customer data, to be used in improving the quality of its marketing activities to that segment.
Likewise, the SAS corporate card also shows how airlines are relaxing their obsession with ownership of the transaction and instead focusing on getting better customer data. The card helps small corporations to reconcile all travel - regardless of provider - and other expenses, no matter what the purchasing channel and time (pre or during travel). While SAS gets better data and enhances its relationship with smaller businesses, the consumer enjoys reduced administrative complexities arising from purchasing from several sources.
To get the most from switching technologies, the new channels must be able to serve numerous different functions. Although this will be a strenuous, IT-intensive and time-consuming process, there is no turning back. While the new systems are being installed, there are several simple fixes that can improve the relation between the airline and its online customers. For example, a "call-me button" on the airline's web site can link consumers to the airline's call centre. Such a device increases first-time booking as the agent can see what the customer sees and help it navigate the purchasing process. BA estimates that this function is responsible for around $750,000 a month in incremental revenue.
Keeping businesses happy
Going forward, airlines can help to avoid such an intense focus on price in the business travel relationship. The solution is to develop an integrated approach which relates to both the corporate buyer and the traveller. With such a focus, carriers can alter existing relationships - currently little more than price reductions on given destinations - in three important ways.
First, organisation-specific service performance can be made a natural part of the contractual agreement. A possible example here could include a sliding discount/bonus scale driven by the airline's average delay or lost bags. Secondly, it will strengthen the travel manager's enforcement of the agreement by making specific services - such as guaranteed availability - dependent upon the contract being used for travel. Third, "corporate leisure" products can help promote the relationship with the individual traveller by providing such benefits as access to excess weekend inventory.
Delta's Corporates.com is an example of how a carrier can promote itself to valued customers. This programme makes its fares available directly to the corporation while using its web site to promote e-services - such as online check-in and baggage tracking - designed for its most important corporate relationships.
Carriers who achieve a unique and consistent customer record, a coherent CRM strategy, as well the technology capabilities to run those strategies, will have a significant competitive advantage over the airlines that do not. Also, a co-ordinated, comprehensive customer strategy will help airlines to regain lost territory in the customer relationship race against the OTAs, technology providers and travel agents.
However, those carriers that fail to commit the necessary management attention and investment toward moving away from their non-integrated technology platforms systems and towards true customer relationship management will be left powerless to stop the poaching of their most profitable customers by competitors with real customer-focused capabilities.
Source: Airline Business
