Low-cost carriers (LCCs) have been adding sophistication and complexity to their businesses while the simplification of operations has been high on the agenda of network carriers as they fight to close the gap. Alessandro Ciancimino, Sabre Airlines Solutions, general manager, Europe, Middle East and Africa, evaluates the battle for the central ground…
From its inception, the budget airline model was a relatively straight-forward stack ‘em high sell ‘em cheap direct-to-customer model. It was very successful, and revolutionized the landscape of air travel. The challenge now, after more than a decade of almost unrelenting success, is how LCCs keep fuelling growth. They have two basic options: increase their geographical footprint, a strategy adopted by Ryanair. Or, look to diversify the core customer segment by targeting high-yield business passengers. The move towards this more hybrid model has seen LCCs redefine their products to appeal to those passengers. An increasing number are flying to primary airports, and many have introduced priority boarding, assigned seating, and ancillary services expected by business travellers. EasyJet, Flybe and Norwegian are all in this category, having increased their customer bases over recent years by becoming more sophisticated businesses.
Network carriers, on the other hand, have struggled to maintain profitable short-haul operations, particularly in Europe where they are up against extremely strong LCC competition. It has been no surprise, therefore, that each of the three major airline groups – Lufthansa, Air France-KLM and IAG – have established low-cost subsidiaries. So for Lufthansa, Germanwings is flying everything that does not touch Frankfurt and Munich; Hop is busy carrying Air France-KLM traffic that does not pass through Charles De Gaulle, and to some extent Vueling and Iberia Express perform a similar function for IAG. This model means the big carriers can lower their cost base on the short-haul market and remain competitive against the LCCs.
The technology and processes behind network carriers’ hub-and-spoke model differ entirely from LCC and hybrid operations. Whether it is inventory management, network planning, pricing structure or operations, the methods and expertise are distinct. So as airlines clamber towards the middle ground, they need technology and systems to support fast-evolving models. The network carriers need the hub-and-spoke, fenced-pricing model for the core long-haul business, but also the capability to run a low-cost operations at the same time. On the other hand, the LCCs shouldn’t be constrained by technology customized around the needs they had a decade ago. As the business becomes increasingly complex the relevant technology will not only be important for growth, it will be necessary for survival. Flexible technology and its ability to support different processes will provide airlines with the freedom they need to market and sell their products, to give their customers the best possible service and to run the most efficient operations.
The second big issue is data. Airlines have always had huge amounts of it at their disposal, but have struggled to do anything meaningful with it. Times are changing. There are a myriad of different sources of information, and a need to consolidate it in a single repository. This allows pre-defined business rules to trigger in action at specific moments. So, for example, an airline may see an opportunity to improve its customer service by monitoring the history of individual passengers. On a previous flight a passenger’s bag failed to turn up at the destination, causing the usual consternation. However, the next time this traveller checks in, the ground staff are alerted and the customer is offered a free upgrade or lounge access. It is this type of customization and personalized service will enable any carrier to stand out in the increasingly competitive marketplace.