Airlines’ Digital Transformation: Glass Half Full – Or Empty?

“I think what airlines need to do now is look outside their own data. This crisis was a ‘black swan' event so our past data and past trends don’t have the same value that they had in the past. Instead, airlines need to be agile and find external data to identify new trends, new demand potential and react,” says Diggintravel’s Iztok Franko.

While technological experimentation is generally viewed as an easily expendable cost to cut, a report from airline e-commerce and digital marketing consultancy Diggintravel shows that digital advancements are more important now than ever.

As Diggintravel’s third annual Airline Digital Research and Yearbook (reg. req.) makes clear, “digital transformation and optimization” was already a critical strategy for airlines to adopt even before there was a devastating global health crisis to contend with.

The topline findings from Diggintravel’s survey and analysis of 49 airlines found a fairly clear split between the respondents regarding assessments of current programs to expand digital and data-driven efforts around retailing and passenger services:

• 45 percent of airlines say digital optimization and experimentation are recognized on an individual or departmental level, while 35 percent of airlines claim they have top management support for experimentation.
• 45 percent of airlines said that they don’t have a budget for digital optimization and experimentation.
• 51 percent of airlines use only simple testing and user research tools. 51 percent also claim that their internet booking engines (IBE) are not flexible enough to allow experimentation.

We checked in with Diggintravel founder, and the report’s author, Iztok Franko to get a sense of what the impact of Covid-19 will mean for airline operations and for the industry’s ancillary strategies, as airlines wrestle with business challenges unlike any they’ve faced before.

Kambr Media: The report notes that 51 percent of airlines have a “documented and structured digital optimization program” – how do you view that percentage? Is this an optimistic and positive “glass slightly more than half full” view? Or did you expect that number to be higher?

Iztok Franko: I’m usually an optimist, but see this as glass half empty. I think that percentage is unfortunately realistic; so we really need to reflect on this - half of the airlines don’t have a structured digital optimization process.

Imagine having a store and you don’t know what’s happening in it? Now, a portion of the half that said they don’t have a structured process still do have optimization activities; but the function of those initiatives is to improve user experience on the long run, as systematic process is crucial.

How important is a structured digital optimization program to airlines right now in terms of managing (or just surviving) the crisis caused by Covid-19?

To be honest, these things (digital optimization, experimentation, data-driven marketing, experimentation) were important even before the crisis. However, most of the airlines’ marketing budgets were focused on user acquisition and advertising. Now, with industry in turmoil and reduced budgets airlines will need to do more with less. 

And, digital optimization helps here because when you increase conversion you improve the performance of your advertising, higher conversion means lower customer acquisition costs. So, you make more with less.

This is what I call a “short-term,” tactical effect of digital optimization. In the long run, digital optimization helps you understand your customers and their key pain and friction points in their customer journey.

With Covid-19, people will want an even more frictionless, touch-less journey and digital will play a key role. Without a structured digital optimization process airlines will be guessing what works and what does not. 

What are the primary benefits to airlines of having a structured digital optimization program at this time versus “normal times?”

What is amplified today is that customer behavior is changing faster. Also, the situation [involving] travel restrictions, virus situation, etc. is changing faster.

Digital optimization and experimentation enables you to understand what is happening (proactively see patterns in your data, do agile user research to understand why) and test new ideas. Experimentation is key because you de-risk ideas and new concepts, and I would say now more than ever airlines cannot afford to take uncalculated risks.

Data analysis has become such an integral part of the digital retailing programs airlines have undertaken. At a time when historical pricing and route planning models might not offer real guidance right now, how should airlines be managing and analyzing data right through the crisis?

I think what airlines need to do now is look outside their own data. This crisis was a “black swan” event so  our past data and past trends don’t have the same value that they had in the past. Instead, airlines need to be agile and find external data to identify new trends, new demand potential and react.

For example, we help airlines by analyzing metasearch flight data. One can look at google search data, or any other source that can help you see new trends. There are also accessible databases that show the Covid-19 situation per country or city, so you can put the demand data in context.

When it comes to revenue management, I would say we now need to go from forecasting to fast cycles of pro-active analysis and making changes based on that. Old forecasting algorithms based on past data are probably wrong. 

What is your sense of how digital optimization can help airlines revise ancillary strategies right now? Or is it not the time to develop new ancillary strategies, since everything is in such a state of flux?

The role of ancillaries won’t change much. Airlines need every source of additional revenue they can generate. And digital optimization can help you maximize the ancillary revenue with systematic on-going optimization.

However, I see digital optimization having a bigger strategic role when it comes to ancillaries. By doing systematic user research you see where their key pain points are, what friction points they have, and what motivates them do travel. The more airlines do that, the better equipped they will be to innovate and develop new products that their customers really need and want. In my opinion, the best (ancillary) product is not the one you “make" your customers buy; rather, it’s the one that solves a problem for your customer. And digital optimization with experimentation, when done right, will boost your innovation and product development.