When it comes to travel, digital behaviours, online retail expectations and strategic airline investments, COVID-19 has truly changed the game.
Lockdown digital consumption has accelerated e-commerce across the globe. In the United States, the share of e-commerce increased from 11.8% to 16.1% between the first and second quarter of 2020; meanwhile, in the United Kingdom, the share of e-commerce rose from 17.3% to 20.3% between Q1 2018 and Q1 2020, to then rise significantly to 31.3% in Q2 2020. Similar changes are also observed in China where the share of online retail between January and August 2020 reached 24.6%, up from 19.4% in August 2019. (source: OECD)
This is a revenue opportunity ripe for the picking.
For airlines, this is not only a revenue opportunity but also a service and brand opportunity. Airlines that leverage their direct channels to deliver a superior digital experience will, in turn, increase revenues and play a much bigger role in the end-to-end customer journey. This means that airlines need direct offer control at scale and a digital partner to drive retail innovation at a pace expected by customers.
For true retail success, long-established airlines have the opportunity to be ‘bold’ with digital investments. No more applying ‘digital lipstick’* (as McKinsey describes) to traditional technology. Airlines ought to aim higher when it comes to their IT and digital investments to make the bold digital moves of top performers. Airlines spent roughly 5% of their revenue on IT before the pandemic, which is relatively low compared to other sectors such as retail at 6% and financial services at 10%. **
Therefore, should airlines spend more and if so, where should the expense be?
This could mean investing in entirely new digital offerings from the outset versus digitizing existing products which, in any case, may not be fit for purpose. The old way of doing things – technically as much as commercially – has to change. Retrofitting legacy systems or waiting for some to catch up with true retailing, will not be the fastest path to growth.
Pricing innovation is one important area which Datalex sees great potential in. Much as many airlines would like to remove the PSS, or DCS, most recognize some sort of schedule and inventory management is needed. After all, why does the airline’s direct strategy, including retail and pricing, need to be secondary to or attached to the legacy PSS? Why not insert specialist tech players that can drive retail and pricing innovation and act as a key profitability driver?
Let’s not forget the rapidly changing competitive landscape. The airline start-up scene is hot with 42 new airlines launching in the past 18 months*** such as flypop, Play, Flyr and Breeze Airways. They can use more cost effective, as well as more flexible modular technologies that are not constrained by legacy limitations. These new digital challengers will shake up the old distribution traditions.
As the time comes to replace existing IBEs, established airlines have a unique opportunity to introduce a more flexible, agile and digitally sophisticated retail engine that is:
This is a time for new beginnings. A time to be bold with digital investments.
Alison Bell, Senior Vice President, Sales & Marketing, Datalex