If 2019 was about “digital transformation,” then 2020 is all about “digital transition.”
That’s the thinking of Pablo Pavón, head of Revenue Management & Network Planning at Santiago, Chile-based SKY Airline. The pandemic has caused airlines to reorder the decisions they make regarding tech and platform strategies as they contend with the most volatile demand shocks and government travel restrictions in history. SKY had been ramping up its digital transformation over the past two years, but the past few months have forced it to find a new balance between reducing expenses and providing solutions to the latest consumer demands. These new priorities include enhanced health measures and ramped up communications informing consumers about flight cancellations and passenger vouchers.
To find the right balance for its revenue operations, SKY has officially signed on with Kambr Inc. for its revenue management platform and advisory services. [Full Disclosure: Kambr Media and Kambr Advisory Group and Kambr Software Solutions are independent units operating under Kambr Inc.].
In addition to operating out of its home city, SKY, which was founded in Dec. 2001, has a second hub in Lima, Peru. SKY currently serves 17 domestic and regional destinations – down from 32 during the pre-Covid era.
The airline has been through transitions before. For example, in September 2015, Sky became one of South America’s first low-cost carriers as it courted budget-conscious travelers in the region who had begun to fly more frequently. We spoke to Pavón about his approach to innovation now and beyond the global health crisis.
Kambr Media: Periods of economic distress tend to cause industries to put innovation efforts on hold, or to at least scale back. How do you view commercial aviation’s stance on innovation since the pandemic?
Pablo Pavón: The industry is going through a re-prioritization when it comes to innovation. There is scaling back, because innovation, unfortunately, costs money. Since money is a resource that not every airline has in abundance, especially now, there has to be some scaling back to provide the cost efficiency that all airlines need around the world.
While the airlines that get some aid from their governments are in a better position cash-wise, they might be able to scale back less than the other ones.
Everyone is trying to manage social distancing by making more customer experience processes digital. Anything that allows for less contact with other humans including less contact at counters or fewer queues when boarding helps in that way. I’m guessing it’s safe to say that every airline is prioritizing these kinds of initiatives currently.
What is SKY’s approach to innovation right now?
We did scale back many of the initiatives that we had for 2020. The budget that we had for this year is already obsolete because of adjustments related to the Covid-19 crisis.
The approach that we have been taking is basically focused in one track: Customer experience, as in the cases I just mentioned.
Many of the processes that require interaction with our customers need adapting. We’re trying to accelerate initiatives to make everything fully digital. That includes making the check in process easier and faster, motivating our customers to do it also through our app. We’re trying to increase those numbers so passengers can have less interactions when they travel with us. On the other hand, we are improving the Manage My Booking experience, since now passengers are requesting more changes than ever before, so giving them a good online experience might be the key if we want to have that customer flying with us again.
Another thing we’re doing is offering recommendations when flights are canceled. We need to make passenger protection as easy and user friendly as we can. We're working with providers that allow us to do that via the website, so the customer can choose what other flight suits them best, and in case they decide not to fly, how they want to use a voucher for a future travel date.
That's where we're spending the few dollars that we have available for innovation.
Is SKY doing anything different in the area of revenue management and ancillaries?
Revenue management is something we’ll definitely focus on more after demand returns. We’re still looking at the transition from travelers’ willingness to pay to willingness to fly as a driver of their purchase decisions.
As long as the willingness to fly is out there, there are things that a revenue management team can actually do to improve performance for some of flights and routes.
As for the ancillaries track, we’re starting to do some pilots and minimum viable products. We want to better manage booking flows, for example. An improved booking experience will naturally drive higher ancillary sales.
Dynamic pricing is an area we’re also working on for ancillaries. We're dynamically changing the prices of bags, carry on, and seat selection.
With the Covid-19 crisis, certain products might make more sense now, whereas before they didn't. For example, do you want to buy an extra seat and have the seat beside you be empty? That product is not widely spread in our region, but I wouldn’t be surprised if we see a couple of carriers offering that ancillary in the short term, because of the pandemic.
When you’re looking at “willingness to fly” as a demand signal, what’s your sense of demand right now?
I don't think anyone has figured out how demand is going to evolve. It depends so much on how the crisis is evolving in each country, in each region, in each continent.
It is going to depend a lot of how health measures are being conducted in each country. Analytics can kind of give you a sense of direction. We already see bookings and flights in Asia and Europe going up. Little by little, South America, and America in general, are also starting to rise. But no one knows if demand will be doubled in the next month or if it's only going to be 10 percent more. Sadly, we have to manage this crisis day by day due to the volatility of the information coming in daily.
Countries around the world still have many travel restrictions in place. How has that impacted LCCs like SKY versus flag carriers, which tend to receive more government aid?
Yes, flag carriers are getting aid from their home countries, but that's not the case in Chile so far. In South America, I don't see any country giving significant aid to their flag carriers. which many of them are legacy carriers, and it is kind of a disadvantage today due to the higher costs common to those types of carriers, not including the fact that they are way more exposed to impacts in their demand, because a big part of their passengers belong to international long haul flights, which might be the last segment to return when the crisis ends.
SKY currently has 11 aircraft in Chile, and 6 more in Peru. But our cost base is more flexible and smaller than the big carriers. So we’re actually in a better position to get through this crisis.
"After feeling we were heading the right direction, we started talking about Kambr’s ideas for the revenue management system they were building. We discussed how SKY could have access to Kambr’s solution for a very convenient price, and most importantly, participate as co-developers where we could focus in areas that we found most important, being able to “tailormade” the system we would like to have."
How did SKY begin working with Kambr? What’s the focus of the collaboration?
SKY began working with Kambr Advisory in 2019. We asked for consultancy services in Revenue Management just to make sure we were not missing anything in how we were optimizing the flights of our network.
The consulting lasted about 2 months. After feeling we were heading the right direction, we started talking about Kambr’s ideas for the RM system they were building. We discussed how SKY could have access to Kambr’s solution for a very convenient price, and most importantly, participate as co-developers where we could focus in areas that we found most important, being able to “tailormade” the system we would like to have.
After some regular negotiation we struck an agreement. We have been using Eddy, Kambr’s software for revenue management, since May. So far, it's been going well, but we still have a long way to go.
There are a lot of other things that are still in the queue waiting to be completed, but this is expected as it is a new system. We’re very enthusiastic about what we’ve seen materialized in this platform and we’re seeing additional improvements every two weeks.
What measures is Sky taking on calming passenger concerns about Covid-19 and hygiene/cleanliness issues? What’s Sky’s take on blocking the middle seat?
We're doing what other airlines around the world are doing to minimize and contain the possibility of a contagion on the journey. We were the only carrier in Chile to block the middle seat during June and July. It's an expensive decision to fly with two-thirds of your aircraft filled, given the demand that we were having.
But we want to bring confidence to our passengers. Many people outside the industry was saying, "Oh, how are you going to fly? Why would you want to be packed in a crowd of people?" and there were a lot of doubts about how safe it is to fly.
The vacant middle seat was implemented so our passengers could feel a little bit safer while being on an airplane. For people that have worked in the industry, we know that over the course of a passenger’s journey, the plane is probably the safest place to be. So, blocking the middle seat was probably a big measure that differentiated us from other carriers, in Chile, at least.
Have you flown anywhere during the pandemic? If not, do you have plans to fly any time soon?
I haven’t flown during the pandemic, and yes, I do want to make plans as soon as the measures of each country start to be more flexible. For example, this past week, Brazil just opened its borders to foreign travelers, so I guess that might be my next destination, since my in-laws live there.
Today, Peru is closed and so is Argentina. There are currently a few flights going back and forth to the U.S., but it's still going to depend a lot of what the local governments do. If those constraints start to relax, my willingness to fly is going to rise immediately.