Three global trends are reshaping travel distribution business models and threaten to weaken the connection between airlines and their customers, including the rise of digital technologies / By getting closer to their customers, 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
Airlines should transform their business models and how they sell to customers, according to a recent study by Strategy&, PwC’s strategy consulting business. The study finds three global trends are reshaping the travel sector and threaten to weaken the connection between airlines and their customers.
- Shifting customer behavior on retail and business sides
- Changing dynamics within direct and indirect sales channels
- The rise of digital technologies.
According to the report, if 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 collect data through social media, 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: “To be closer to customers, airlines should increase their understanding of how consumer behavior is changing in retail and corporate sectors and affecting their businesses, and ultimately transform their travel distribution model by developing partnerships with travel intermediaries, technology and content providers, and adopting customer centric strategies.”
Shifting customer behavior on retail and business sides
Retail behavior varies significantly across geographies, but four themes prevail globally.
- Customers are increasingly using online channels for search and booking. In the U.S., the market is mature with high internet penetration and online uptake. Over 70% of consumers research and finalize flight purchases online. The online conversion ratio for shop-to-book is nearly 100%. In Western Europe however online purchasing is varied. Online uptake is strong in the U.K. and France with ratios of shop-to-book near the U.S. level, but only 75% in Germany because of longer and complex itineraries and lower credit card usage.
- 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. Airlines generally lag behind in catering to this customer preference.
- 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 via mobile, with online sharing amongst Brazilians for example well above mature markets. People increasingly view shared content as unbiased travel information they can use to inform their own travel decisions.
- 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.
Changing dynamics within direct and indirect sales channels
Another 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 the fastest. 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. On the contrary, traditional travel agencies will continue to lose market share and become more specialized.
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: “The 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, Stefan Stroh, an advisor in the travel, transport, logistics and high-tech industries for Strategy&, partner with PwC Germany said: “Airlines that master this new environment will be closer to their customers and will sell more in less competitive, direct channels than ever before. Such proximity to the customer will minimize the risk of dropping off the customers’ radar.”
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