Data and automation are the perfect bundle for both passenger and LCC
Oliver Wigdahl, SVP LCC Segment, returns with thoughts on how Low Cost Carriers can build customer loyalty without breaking the bank.
Does loyalty count in short-haul travel? In a market that’s increasingly geared toward low cost and convenience, you could argue that customers are less motivated by the quality of service they’ll receive in the cabin and either side of the flight.
Up to now, LCC bosses have focused – rightly – on driving down base fares to stimulate demand on existing routes and drive success on uncontested new ones. But my experience from a series of recent short-haul flights has underscored my belief that price is not always king. A data-led approach to customer service will generate new and enduring revenue opportunities through repeat business. And, by embracing automation, this can be implemented without upsetting the cherished low-cost operating model.
I want to explain how LCCs can use data and automation to create a win-win opportunity throughout the journey lifecycle. Let’s begin, though, with the case for building loyalty in the first place.
On the face of it, it’s pretty simple. Treat passengers well and they’ll reward you with repeat business. In many cases, particularly among older passengers with more disposable income, they’ll pay a price premium to stick with a brand they trust. It’s not rocket science – this is standard practice in most other industries and there’s a lot of research to support it:
- Acquiring a new customer is 5-25 times more expensive than retaining one.
- A study by Bain & Company found that by increasing customer retention rates by 5%, a business will see profits increase by 25-95%.
- Existing customers are 50% more likely to try new products and spend 31% more compared to new customers.
But does this apply to LCCs? I think it does. After all, they’re operating on a fairly level playing field with FSCs when it comes to short-haul. All airlines need to extend their proposition beyond affordability and the democratization of travel. With several airlines operating to and from your local airport, and little to separate them on base fares, differentiation often comes down to the passenger’s most recent experience.
So how best to build loyalty. Air miles? Giveaways? The answer might be more straightforward. A recent study of the low-cost airline industry in Vietnam showed that service quality had a significant impact on passenger loyalty as well as perceived value, trust, and satisfaction. This is where the opportunity lies. Because ‘service quality’ extends way beyond what happens in the aircraft cabin. And this is where a series of automated processes, underpinned by an effective data strategy, can generate extraordinary value for airline and passenger.
Let’s start with booking. Airlines and passengers want the same thing: a frictionless experience that makes a dull administrative process as fast and rewarding as possible.
From a data point of view, the market’s still in its infancy. A booking engine might recognize my IP address and ask if I want to repeat my last trip. But no one has yet cracked the key question: why am I booking a flight? The answer – whether I’ve actively given it, or it’s been deduced from my online behavior – contains important insights into my state of mind, what I need, and how the airline should respond if something goes wrong.
Retail and ancillaries
When it comes to retail and ancillaries, personalization matters. Research shows that 75% of consumers are more likely to buy something from a company that knows their purchase history and recommends products based on their preferences.
Take me, for example. If you analyzed my bookings, you’d see that I pay for extra legroom for all but the shortest flights. I’ve never told you my height, but the pointer is right there in the data. Imagine a system which interrogates my shopping history and cohort data from thousands of other passengers and creates those kinds of tailored preferences at scale.
Airlines rightly want to target the in-cabin experience as another profit opportunity. They have a captive audience who are most likely bored, hungry, and predisposed to spend.
A good starting point is the data made available to cabin staff. Beyond name and seat number, it should include the passenger’s last flight, preferences, and purchase history. The journey to “Nice to see you again so soon, Mister Wigdahl. I take it you need WiFi and a hot sandwich – let me know if you need help connecting to Netflix” is easier than you think.
Building on this, airlines could allow the passenger to prebook a taxi, hotel or meal at the other end using the in-flight entertainment system or their own device. All this data must then be gathered and aggregated with other system information to inform and enrich the next flight experience.
But it’s not just about enabling the passenger to do their own thing. It’s also about responding proactively with data when events don’t go to plan. When a flight is delayed, this needs to be a trigger for increasingly responsive downstream notifications and changes which anticipate the impact on the customer and their service needs.
For example, why not suggest a taxi with an online booking prompt if the length of the delay takes the passenger past the last scheduled train connection to city centre. Anticipate my needs, understand why I’m travelling and cater to my likely state of mind. I’ll reward you with my credit card details.
Most LCCs impose heavy cost penalties on customers looking to change a booking. This creates moral outrage when the airline then disrupts a passenger’s travel with barely an apology. It doesn’t pass the ‘reasonableness test’ and I think dents profitability in the long run.
So, let’s flip this around. If airlines are reasonable when it comes to passenger changes, they’ll be given more latitude to cope with unforeseen scheduling events. In other words, empathy breeds empathy.
This approach likely builds loyalty. Help someone when they’re vulnerable – for example, by offering credit on a cancelled booking, and they’ll remember you when they make their next booking. And it needn’t impact profitability. If the seat can be resold, there’s no loss to the business. Everyone’s a winner.
When it’s the airline’s turn to make a change, the applied use of data and automation can help. Communication can be pre-programmed, alerting the passenger in good time and offering sympathy, reassurance, and support.
Depending on the circumstances, a refund or credit can be automatically applied, or seat preferences (such as extra legroom in my case) appended to the replacement flight. Onward connections can be considered and enabled.
Most passengers want a touchless experience in the airport – a learned and amplified behavior after Covid. No one wants to hang around in queues to wave a ticket and passport at a desk clerk when they could be speeding through an electronic gate. This saves them time, and the airline money.
However, some passengers will always require assistance. Airline staff will still need to be on hand to support those with children, special needs, or oversized baggage. Here again, data and automation can help by assigning certain customers special treatment, with personalized communications and a dedicated channel at the airport where such characteristics can be derived from the booking data.
The final piece of the puzzle is what happens after the journey. Was the flight delayed? If so, by how long? How seriously did it affect the passenger’s plans? Is this the first time the airline has inconvenienced them?
All these questions inform a sort of ‘sentiment index’ for each passenger and therefore the personalized, automated response that should follow each and every flight. Is some kind of apology needed, perhaps even credit or a refund? Or should we be celebrating a successful, pain-free experience and encouraging them to leave a review?
Throughout the passenger journey, there are countless opportunities to build loyalty through real differentiation in service. The rewards for those airlines with the foresight to embrace it include an uptick in repeat business and the ability to resist a rush to the bottom on base fares.
At the same time, I completely understand why some LCCs are reticent about changing their behaviors. A more empathetic approach mustn’t come at a cost that challenges their finely tuned operating model.
The answer is in the sophisticated use of data to provide critical insights at opportune moments. And in automated systems that drive revenue without incurring incremental costs.