November 15, 2016

GCC airlines need to change how they market and sell to customers

GCC airlines should transform their distribution business models and how they sell to customers, according to a recent study by management consultancy Strategy& (formerly Booz & Company), part of the PwC network.

  • Three global trends are reshaping GCC travel distribution business models and threaten to weaken the connection between airlines and customers 
  • Rise of digital technologies risks weakening connection between airlines and customers
  • In the Middle East, there is growing internet penetration, with a rapid rise in the use of mobile - around 15% of internet users use only mobile for access
  • By getting closer to their customers, GCC airlines will be able to extract more value from their products and services, avoiding the commoditization of airline seats that affects so much of the sector

Three trends are reshaping the GCC’s travel sector and threaten to weaken the connection between airlines and their customers: 1) shifting customer behavior on retail and business sides, 2) changing dynamics within direct and indirect sales channels and 3) the rise of digital technologies. If GCC airlines are to take advantage of changes in the travel distribution industry, while preventing digital technologies from turning their airplane seats into commodities, they will need to overhaul their ticket distribution strategy. They need to consider all channels available, strengthen partnerships with travel intermediaries, content and technology providers, and leverage data collected through digital marketing, loyalty programs and booking processes to better understand customer needs and develop tailored offering.

Commenting on these trends, Alessandro Borgogna, a partner at Strategy& in Dubai leading the aviation, travel and aerospace practice, said: “The challenge in the Middle East is the rapid adoption of mobile, with online channels now being the fastest growing source for travel planning.” He added that “fast-growing GCC airlines have an opportunity to adapt to changing consumer behavior if they adopt a distribution strategy that is enabled by technology and partner with travel players and content providers, tailor their travel distribution model by market segment, and build internal digital capabilities to collect, analyze and use customer data.”

Shifting customer behavior on the retail and business sides
Wider retail behavior varies significantly across geographies, but four themes prevail globally. First, customers are increasingly using online channels for search and booking. In the UAE specifically, where the market has high internet penetration and online uptake, 20% used a smartphone to research booking flights last year. However, more than 60% of smartphone internet users encountered issues at least once while accessing websites on their smartphones and 40% of these users went on to find another site that worked better.

Second, customers are using multiple devices during the research and booking process. One online travel website, for example, has a feature that allows passengers to connect across multiple devices, allowing them to hop from tablet, to laptop, to telephone, and so have a seamless digital experience. By contrast, airlines generally lag behind in catering to this customer preference. 

Third, social media is growing in popularity for sharing first-hand experiences in the travel decision-making process. In emerging markets, social networking is especially popular and is mostly accessed via mobile, with online sharing well above mature markets. People increasingly view shared content as unbiased travel information they can use to inform their own travel decisions. 

Fourth, loyalty programs are becoming increasingly relevant. Customers are using these programs as a means to directly engage with airlines and earn rewards beyond just seat redemption, such as upgrades or even cash. This provides an opportunity for airlines to increase engagement with their customers. Some GCC airlines loyalty programs, for example, allow companies to accumulate points to use for travel, upgrades, gifts or even redeem for cash. 

The organizational aspect of an airline is therefore critical. Instead of having marketing, sales, distribution, pricing, data analytics, strategy, IT, and loyalty programs operate as silos, GCC airlines should ensure functional collaboration to better understand the needs of consumers and maintain customer retention.

Changing dynamics within direct and indirect sales channels
Besides consumer behavior, the second major trend affecting airline travel distribution models is the changing dynamics within sales channels. Globally, airlines’ websites (direct channel) and online travel agents (indirect online channel) are forecast to grow most rapidly. Airlines consequently have an opportunity to strengthen relationships with customers by offering solutions that personalize travel research and booking. From a consumer perspective, direct channels ultimately offer the most comprehensive view of everything an airline offers. While on a global level traditional travel agencies will continue to lose market share and become more specialized, in the Middle East they will remain relevant as many first time middle class travelers prefer agent-organized groups and a personal relationship with the agent.

Rise of digital technologies
New digital technologies continue to provide strategic opportunities in the field of airline distribution. Airlines have a powerful array of digital platforms at their disposal that can help enhance direct revenue channels, while reducing reliance on indirect channels. Emerging technologies can now improve airlines’ merchandising capabilities to sell additional travel-related products and services, such as hotel stays, when booking a flight.

Highlighting the importance of using digital technologies to better market to customers, Ivan Jakovljevic, Head of Travel, Finance and Government in the MENA region for Google, said: “Rise of digital technology and changing customer behavior on both retail and business sides opens major opportunities for airlines to customize their pricing, product offering and messaging thus creating a competitive advantage over all other distribution channels”.

Stressing the importance of why airlines should change how they market and sell to their customers, Aditya Agarwalla, an advisor to executives in the aviation and transport and logistics industries with Strategy&, said: “Airlines that master this new environment will be closer to their customers, which means they will be able to keep them and provide these travelers with tailored and better services.”