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Customer Connections Drive Profitability

The 4 Steps to Becoming a Customer-Centric Airline

Top-tier companies in all industries are finding that technology and pervasive information in the hands of customers is changing the game, making it increasingly difficult to rely on brand image, market presence, or scale. What will distinguish the leaders of the future will be outstanding customer service.

Perhaps more than any industry, airlines operate in an environment of constant change—fluctuating markets, frequent mergers and alliances, and volatile economic drivers. Worse, the target continues to move as customers’ needs and expectations change and evolve.

Keeping pace with these changes means thinking differently. Instead of the traditional operations focus, it’s time for airlines to take a customer-centric approach. Doing so means using service as a key differentiator; interacting with customers based on their needs and their value to the organization; adopting a fact-based approach to decisions using customer data as a primary source of insight; embracing new channels; and building a customer-focused culture.

Building a customer-centric airline means offering passengers memorable and lasting experiences, harnessing customer insight, embracing new channels, and building a customer-focus culture. To do this, you must follow the principles of IDIC:

Identify customers as unique, addressable individuals

Differentiate by value, behavior, and needs

Interact more cost-effectively and efficiently

Customize some aspects of the company’s behavior, offerings, or communication

Step 1: Identify customers as unique, addressable individuals
By looking at the customer experience through the eyes of the customer, airlines can understand the moments of truth that will define a consistent customer experience. The view of the interaction must be from end to end, across every single touchpoint, from a variety of instances, including service failure. With this view, airlines can see how the customer interacts across the various service channels and, as a result, can map the customer journey and identify the sequence of key customer-company interactions that illustrate the path from “need/find,” to “buy/get,” to “use/support,” to “loyalty/profits.”

Integrate customer data
The airline industry is probably more data-rich than just about any other industry. A typical airline has more than 26 disparate databases that contain customer information. For an airline to be truly customer centric, it is essential that information comes together to create a single view of the customer.

A unique opportunity exists for airlines that are now looking to replace or modernize their legacy passenger service systems (PSS). When replacing a system, airlines are finding that they must make the difficult choice of redesigning their processes around the new systems, or building a middleware interface to maintain their existing processes on the new system. Both of these options are expensive; the former requires investment in training and process re-engineering, and the latter requires investment in additional IT infrastructure that had not been planned for. The level of these investments has shocked many airlines into reconsidering their investment in new systems altogether and to retain their existing systems. As a result, many will still find it difficult, time consuming, and costly to implement customer-centric initiatives. For airlines that are contemplating change or are already in the process of migrating, now is the time to develop integrated data and service strategies centered on the needs of the customer. Those that don’t will miss a unique opportunity to build a solid foundation for a customer-centric data platform.

Use analytics to become forward looking
A passenger’s decision to travel with one airline is based on numerous factors beyond price and schedule. These factors are influenced by past experiences and perceptions about what they expect from their next experience. Consequently, airlines must continually meet or exceed customers’ expectations to retain their loyalty over time. To do so airlines must understand the nature of changes in each customer’s transaction history.

Getting to the root cause of changes in activity is key, and it is vital to learn why a customer might stray. The reason may be as simple as competitive pricing, but it may also be something more complex like changes in life events, alterations in a company’s travel policy, or a new job. These changes should be tracked through analytics, because they could help win back customers or maintain the relationship for the future when situations change.

In addition to combating churn, analytics can provide information airlines can use to encourage customers to make purchases. For example, airlines can use customer search data to access rich insight as to where customers are thinking of going next. Initially, metasearch robotics and website searches were viewed as adding transaction volumes to an airline’s system, as well as increasing the cost of its distribution system and reducing look-to-book ratios. Yet, customers’ search data can provide valuable insight into where they are thinking of going next, and where they have looked on a site, but haven’t purchased. For example, how many airlines analyze promotions or shopping events? As travel associates, online travel agencies (OTAs), and metasearch associates hit the computer reservation system (CRS), this data could be translated into market insight. Airlines could also provide customers with a way to store their shopping information, and other aspirational insights like a wish list of future travel.

Step 2: Differentiate by value, behavior, and needs
Customers have different needs and values to the company; those needs and value are fluid. For example, a customer traveling for business has very different needs than a young vacationing family; someone in their 20s has different expectations than a Baby Boomer; a frequent international road warrior’s needs differ from someone who takes frequent domestic trips. While the inexperienced traveler might like some help navigating an unfamiliar experience, the experienced travelers will want processes to be as streamlined as possible with minimum interference.

Additionally, expectations for service can vary dramatically across international and cultural boundaries. Customers in Asia and the Middle East often expect high-touch service with one-on-one human interactions, whereas customers from North America and Europe show a bias for highly automated service that takes humans out of the equation altogether.

By treating customers differently, airlines can not only meet individual customer needs better and increase satisfaction, they can also drive short-term profitability. With targeted offers, it’s possible to create incremental revenue opportunities without diluting current sales. Doing so requires examining past behavior and lifestyle indicators that can point to the triggers necessary to provide the inspiration for the next trip. For example, if an airline knows that certain customers like last-minute weekend getaways based on past experience and shopping behavior, it can send special time-limited, weekend-only offers early in the week. Because these offers are targeted to the unique needs of these customers, they will view them as relevant and therefore give them their attention rather than treat them as spam.

By knowing what is important to customers, it’s possible to maximize investments by focusing on what really drives value and by limiting spending on products or service of little interest. For example, investing in lavish meals and fine wines may not be relevant to road warrior customers who prefer to sleep or work; the investment might be better focused on providing on-board WiFi.

Segment the customer base
Many airlines don’t have a 360-degree view of customers and can’t identify the triggers that drive individual customers’ purchase decision. Fully understanding customers requires a comprehensive segmentation of needs, behavior, and value. Customer needs drive behavior, which in turn creates value to the airline.

Segments that focus on loyalty tiers (e.g., gold, silver, bronze) give a picture of the behavior of the airlines’ already loyal passengers. Many airlines use basic segmentation, such as “road warriors” or “occasional leisure.” These segments are generated by looking at past purchase behaviors (e.g., where tickets were purchased, fare basis, weekend stays). Yet, these segments do little to understand the needs of individual customers as their behavior changes over time.

The result of relying solely on behavior segmentation is that most segments tend to be dropped into one of two extreme scenarios: “I am price insensitive” or “I’m willing to choose any carrier with the lowest price even if there is only a $10 difference.” Without understanding needs, there is no insight into, for example, if a passenger may be a luxury-seeking vacationer and willing to take a customized offer on an upgrade, yet would not be willing to pay three times the price of an economy-class ticket for a business-class seat.

Additionally, customers can fall into multiple segments depending on their needs. Based on his past travel patterns of taking a beach holiday on a particular airline for the past three years, one customer may fall into the leisure bucket of that airline. But that same customer might also be a platinum member on a direct competitor. Instead of being treated as a potential high-value customer, the customer is instead relegated to the airline’s lowest-value segment and little attention is given to him despite the fact that he may be a high potential lifetime value customer. This happens because most of the focus is targeted on past behavior, based on accessible company data, and there is little view into what future behavior may look like.

Behavioral anomalies can also be used for segmentation. A common phenomenon is when a customer may only travel a certain segment on a one-way basis. The question is, “Why did they only fly one way?” It’s possible that the competitor’s schedule on the return leg was more attractive or the train was a better way back. Most likely, however, the customer just topped out on a loyalty tier and wanted to reach a top-tier standing on a competitor. This example leaves money on the table. Not only would an airline lose the revenue on the segments, but its best customers also want to be the best customers on the airline’s closest competitor.

What kind of customer insight could the airline use to turn the tide? It is first necessary to look for changes in behavior as customers reach the tier plateau. This insight could be combined with self-disclosed information such as number of trips per year or membership tier on other programs. It’s also useful to track information from social media applications like Facebook and travel-specific programs such as Tripit.

Look beyond past behavior
The typical approach is to assume that future value is determined by past value. While it is correct to use past behavior as one indicator of future potential, relying exclusively on past behavior ignores that fact that the underlying drivers of loyalty may change over time. It also takes for granted that past behavior will continue without any intervention on the airline’s part. Perhaps even more important, only looking at past behavior may cause an airline to focus on only the customers who are already loyal and ignore those who might be high-value customers in the future.

A good example may be a frequent business traveler who lives in the United States, and has family back home in Ireland, as well as in Canada and Australia. His business travel is primarily on one airline. But his travel to visit his family is usually on a different carrier for each destination, and based on different criteria (e.g., the lowest fare to Ireland, the best flight time to Canada), so his international mileage accruals are low. This travel behavior, and insight into important customer preferences, is lost unless an airline takes the initiative to understand more of the drivers of future value.

In addition, by knowing something about customers’ lifestyle stage, airlines can adjust offers to correspond to their changing needs. Young college graduates would initially be low-value customers from a short-term perspective, but as they move on in their career, they could become high-value customers. For example, if an airline knew that a customer graduated from an elite business school and will be working for a top-tier management consulting firm, would it not treat her differently from the start? Credit card companies have practiced this for years, and the same concept could be applied to the frequent travelers of the future.

Step 3: Interact more cost-effectively and efficiently
An airline is a complex operation, with many variables both within and outside of the airline’s control. Most customers are aware of this and few expect perfection. They do, however, expect to be kept informed and that problems will be resolved promptly and professionally, and with courtesy and compassion. Make it easy for customers to voice a complaint—and, have a complaint management process in place to address the concerns. If handled well, a resolved complaint can actually increase a customer’s loyalty.

Customer service is especially important today because the service interaction is one of the few opportunities companies have to personally interact with their customers. Service experiences allow a company to further understand a customer’s needs. By knowing the “moments of truth” that mean the most to the customer, you can get a better idea of what aspects of service are critical. But the real power is to take advantage of the ability to link these services with specific customer profiles and segments. For example, if a certain segment of business travelers often voices complaints about an overly complex ticket-change process, the airline could streamline the process for fares targeted to this segment by offering, perhaps, a new online service or handheld application, or even just a change to the fare rules.

Use FFPs as a source of customer insight
The importance of frequent flyer programs (FFPs) cannot be overlooked as a mechanism to drive brand loyalty, yet an increasing number of airlines have been treating FFPs as profit centers. As with any profit center, the incentive is to increase revenues and reduce costs. Many of the cost-reduction initiatives have resulted in making it more difficult for customers to redeem miles, devaluing them with higher redemption requirements, and automated cancellation for program inactivity.

Rather than as an obligation, airlines should view their FFP not only as a customer acquisition and retention tool, but also as a medium to gather customer information and increase discovery and customer engagement. Although most FFP memberships only address behaviors associated with flying on a specific airline, airlines can provide incentives for customers to share information from external sources like social media and the airline’s marketing partners to help build up the profile of their individual activity.

Typically, only about 30 to 50 percent of an airline’s customers are members of its FFP. The reasons are varied; for example, the customer does not have plans to fly again in the future or may not fully understand the benefits of membership. In fact, many airlines find that their most valuable customers are not FFP members—perhaps because most are in the highest-paying fare classes, so they expect to enjoy the best service and benefits that the airline has to offer. Using sophisticated name matching techniques against the ticketing database, an airline can create profiles of non-FFP members to either develop programs to get them to join or to develop profiles against which the airline can create custom services and offers.

Other valuable information found in FFP data is when an FFP member is close to reaching the next tier but might not make it. We know that top-tier members tend to spend more on an airline. Why not use FFP insight to ensure that those members make the next level, perhaps by giving a subtle push? For example, if the member is one or two flights away from the next tier and the qualification period is near the end, an airline might make a special one-time offer that is so compelling that the customer would take the offer just to qualify for the tier.

Finally, airlines should be encouraging customers to use their miles. Each time customers visit an airline’s website to investigate where they will use their miles, the airline will learn more about what their aspirations are for their next trip. Also, the mere act of shopping allows customers to learn more about your network and schedule; they may even learn about a place that they might not qualify for with their current mileage balance, which could lead to an eventual purchase.

As miles become more and more like currency, why not allow miles to be redeemed for a competitor’s flights? For years airlines have allowed their reservations systems to sell and display those flights; why should FFP redemptions be any different? The result could actually be increased loyalty to the primary airline, due to the added convenience, expansion of offerings, and recognition of miles as a currency and the customer’s lifetime value.

Train and incent for empathetic customer service
Airlines are traditionally top-down management organizations. For customer centricity to exist, airlines must empower their employees to make decisions that affect the customer. Employees must also be accountable to the clearly established KPIs around customer service standards—and empowered to respond appropriately to meet them.

Just as it is possible to understand customers’ emotional states, it is also possible to do the same for customer-facing employees such as contact center associates. Those who are empathetic could be rewarded, for example, while those who are less so should be identified for training to enhance their level of competency. Developing a system of clear KPIs, and systems and process to monitor them, is critical.

Create a “brand promise”
Cultural momentum programs based around a brand promise help build customer orientation by developing a commitment among employees to high-quality service, professionalism, and treating customers like guests. By providing a brand promise, airlines can communicate their value proposition and, at the same time, help motivate employees to deliver on that promise by offering incentives and measuring their behavior against specific actions. A vague promise of exceptional service, without providing specific and demonstrable actions about how an employee should act to deliver it, creates confusion for both the employee and the customer. An example of a clear and measurable brand promise would be a 15-minute check-in. By advertising this, both the employees and customers fully understand the expectations of service. It has clear value to the customer, and is clearly measurable. With the promise in place, employees will also have it in their mind to anticipate and plan remedial action for situations where it appears that the promise might not be met. This approach not only provides value to the customer, it helps employees to adopt the qualities encouraged in cultural momentum programs.

Exploit online direct channels for interaction
Airlines have traditionally viewed direct (website and contact center) channels as a low-cost form of distribution. However, the main direct channel, the website, also generally produces lower yields, while indirect channels (travel agencies) produce higher yields. As a result, direct channels are seen as sources of cost-savings and not a source of customer interaction and insight, so their most effective uses often do not get the attention they deserve.

Yet, for best passengers who are committed to a brand, the direct channel should be the preferred point of contact. The airline, not the third party, should be in the position to manage the relationship as much as possible. Treating a direct channel as a low-yield or cost-savings channel ignores this opportunity. Providing these services allows a one-to-one relationship, captures interactions, and sets the platform for more direct sales in the future. By having a large base of individual customers to market to on a one-to-one basis, an airline can increase its channel shift without having to upset its relationships with its third-party channels.

Step 4: Customize an aspect of the company’s behavior, offerings, or communication
Customer feedback is especially rich when it is collected immediately after an interaction, when both the memory and the emotion of the incident are fresh. Doing so typically elevates response rates significantly. Two ways to do this are by asking customers to stay on the line for a survey at the end of a call to the contact center or by sending an email containing a survey when a support ticket is closed. Beyond assessing satisfaction, the survey can also solicit information that aids in understanding the customers’ needs and propensity to engage in beneficial behaviors (e.g., referrals).

In addition, airlines can take advantage of the many touchpoints along the journey to give customers opportunities to interact. For example, an airline could install customer service screens in airport lounges to allow customers to input service preferences, like choice of beverages, into their profile. They could also even offer mobile applications that would allow customers to rate certain elements of the airport check-in process from end to end.

Some airlines now have the capability to provide the flight crew with real-time customer information that goes well beyond FFP status to include past flight history, onboard preferences, and proactive service recovery plans. This same technology can be a medium for recording customer interactions and updating customer profiles.

Many social media applications allow for real-time feedback. While much of the feedback is now shared just among users, airlines should track this data as part of their customer feedback processes, and encourage customers to link their online profiles to their FFP customer profiles.

Provide customized services based on distinct customer needs
Once airlines know what the distinct needs of their customer segments are, they can provide customized and relevant services to meet those needs.

Airlines have done well to service their highest-paying passengers with services such as dedicated check-in areas, limousine pickups, and guest lounges. Similarly, airlines could offer a variety of customized services to customers on their website or via a handheld device. The interfaces could be customized based on profiles; for example, they could provide services for business travelers like offers for fast-pass immigration access, links to local transport and business service providers, meet-and-greet services, and baggage delivery. For leisure customers, offerings could include customized tours linked with airport services to provide smooth arrival and transit assistance.

From the operational perspective, a good example of a customized service would be an automated re-accommodation process for best customers. Currently, automated systems exist that can execute this, but it’s done without taking into account the passenger’s specific needs and past history; the next generation system would take into account the customer’s preferences for alternate destinations and preferred routing.

Make pricing easier to understand
Another area where airlines have failed in the past was the notion that an airline could equally be everything to everybody, serving the business-class passenger and the leisure passenger at the same time. This concept is flawed in that, if an airline has 100 seats and 100 different fares, unless customers are clear about why they paid more for the ticket than the person next to them, the linkage between price and value will be lost. This has happened in many markets, to the point where customers see pricing and inventory practices as a scheme to extract the highest price they will pay, with price not necessarily directly related to the service provided.

Airline pricing has evolved into a science, and complicated algorithms have even transferred to other industries such as hospitality. On any given flight, there may be as many unique prices paid as there are customers. “How to buy, when to buy, and when to fly” has become a complex problem for customers. Recently, travel distribution players such as Farecast (which was recently purchased by Microsoft and incorporated into its travel offering) have developed their own sophisticated algorithms to try to predict the best time to travel and purchase.

Additionally, the recent trend of product unbundling has made it even more challenging for customers to shop and compare value. It is interesting to note that ancillary revenue strategies developed by low-cost carriers have become widely adopted by full-service carriers in the United States. Many of these moves have resulted in consumer backlash and confusion about the services one should expect that a full-service carrier delivers versus a low-cost carrier. For example, the addition of a $25 charge for the first check-in bag by several full-service airlines; the response by Southwest was to advertise that it offers checked bags for free. Who is the “full-service” carrier in this case?

Perhaps this is a strategy to introduce pricing opacity in an era when we are suffering from too much price transparency. The result is that the customer is becoming even more confused and is now looking for simplicity. Despite the lengths that legacy carriers go through to increase yield with sophisticated O&D pricing models (pricing a given segment based on hundreds of possible combinations of using that segment as a transit flight), there are many cases where legacy carriers actually have lower average yield than LCCs on point-to-point markets.

Consumers are not adverse to paying extra when clear value is demonstrated; what they object to is blatant price discrimination where the only criterion for a price tier is the ability to wall off the segment, an example being the requirement for weekend stays. Armed with new technologies, customers have the ability to see beyond these shell games and they don’t like what they see. Make pricing clear and understandable for the value that is delivered.

Develop an integrated social media strategy
As the adoption of social media grows, travel is destined to become the industry most transformed by it. Travel is information intensive, emotional, and a topic people love to talk about. Often they are looking for inspiration for their next trip, and will take advice from people in their network. Social media will ultimately drive increasing receptiveness to ideas for new experiences that can be tied to travel.

As a result, a social media strategy is a must-have, but airlines need to move beyond simply tracking comments on travel community sites and other social networks. They should integrate social media data into individual customer profiles. The information that is most powerful—that we don’t currently have—can be tapped through the use of social media. For example, sites like collect information regarding each customer’s itineraries before he flies; Facebook users can link to past and future trips as members talk about their travel experiences; and numerous other social media applications combine users’ travel data.

Finally, social media is the best way to achieve real-time customer feedback; this can be as varied as addressing operational issues or testing consumer response to the introduction of a new product or service. What used to be an expensive and time-consuming process using customer focus groups can be quick, focused, and free using social media.

Conclusion: Looking to the Future
Given the maturity of the airline industry, the drive for continued market deregulation, expanding markets, and the fact that cost cutting brings decreasing marginal returns, the only way left to compete is to provide a superior customer experience; ignore this and you risk competing purely on a commodity basis of price, schedule, and frequent flyer miles.

Becoming a customer-centric airline is not an easy proposition. Yet, with the right plan and full commitment from the top it is possible. It requires a shift in thinking from an internal focus to a focus on the customer. Most important is to target investments in products and services that mean the most to the customer. Some are obvious, but true innovation requires that airlines look beyond the obvious; the only way to do this is to have an in-depth and dynamic view of customer needs. This entails first understanding customers, and then building the operations, processes, information, and technology necessary to deliver on their needs.

The important thing is to get started now. As we begin to see positive indications that the industry is turning the corner, the time for change could not be better. The transition will take time, but the good news is that there are proven methods to drive the change.