By Paula Santos (Lisbon, Portugal)
Unprecedented Opportunity for Collaboration?
So, can it be the case that an unprecedent crisis, that led to unprecedent challenges, can finally “force” airports and airlines to truly collaborate in order to “enlarge the pie” and thus limit the revenues they will likely lose? From one side, all airlines were hit very hard in terms of revenues, and only few can maintain operations without some kind of government support. In the U.S., the Trump administration just reached an agreement in principle with major airlines over the terms of a USD 25 billion bailout[i]. At the same time, as of June 29th, the bailouts for European airlines reached EUR 26,4 million[ii].
On the other side, airports are not only suffering on the aviation revenue side but will suffer even more in non-aviation revenue. As mentioned before, ACI already estimates a decline in total airport revenues of more than USD 97 billion.
There are numerous ways airports and airlines can collaborate in order to mitigate the impact of the C-19 pandemic. However, we will focus on the use of digitalization to “enlarge the pie” for both and, at the same time, to improve passengers’ confidence and overall service quality.
For this collaboration to succeed, 4 pillars need to be agreed upon. One is that the collaboration needs to be Consumer centric. This means that all parties need to know what is relevant to the consumer and put him in control by providing seamless and convenient processes. The other is that it needs to be Data Rich. This seems quite obvious but only recently airlines began to invest heavily in using data science to target customers, develop personalization and build loyalty. Airports are even more behind, since most of them don’t even have an actionable client data base. The third one in Integration. This means to fully integrate systems, connecting different channels (offline & online) and thus minimizing barriers to the passenger by being where he needs (anywhere, anytime, anyplace (channel)). And finally, Cooperation. Seems redundant when we talk about collaboration but it’s probably the most difficult of all, since all parties need to overcome the eternal question of who owns the passenger, and consequentially, who owns the data. Sharing data and customers is mandatory, of course guaranteeing compliance with the applicable legislation on data protection.
Having agreed on these pillars, digitalization can be used in many ways in collaborative models and impact both costs and revenues. Again, lets focus on 3 business models, which were the base for a negotiation between an European Airport and a LCC. The LCC had a total annual traffic of 1 million clients at the airport, and based on existing potential, the additional sales generated would be equivalent to a cut on aviation fees by 10 to 15%.
The first model is based on creating value through a shared marketplace. Why can’t airlines sell airport services or products from airport stores and restaurants directly integrated in the reservation process? Or even later, in their app some hours before the flight? Why can´t airports sell flights and ancillary services? Some airlines already sell fast track, parking, car rental, but normally via OTA like Booking or Holiday Extras. And some airports also promote flights, but again via an OTA, with separate shopping processes.
Airlines are losing revenues since they miss the biggest revenue streams which are duty free, specialty retail and F&B. Airports are losing revenues since some of the partnerships between airlines and OTAs promote off-airport competition in parking and car rental, and when they don’t, they take a cut on the yields. Or, like in the case of Singapore Airlines partnership with DFASS and Ctrip, where the airport is cut from the process[iii].
The main limitation for airports is, undoubtedly, the lack of direct contact with most of their clients. The ones who actually have loyalty programs or are building a client database, have limited information on when and where they are flying. One example of this difficulty is the very limited use of airport apps when compared with airline apps. Thus, it is much more difficult for airports to target passengers pre-flight with relevant offers and deliver a seamless digital experience. Some of the airports which are more advanced in their digital readiness still have separate logins or separate buying processes for different products/services – for example, if you book parking in the airport website and then you want to pre-order a duty-free item, most probably you will need to do 2 separate payment processes, or even 2 separate logins. Another still common experience is the need to introduce again and again our personal information when reserving a parking space at the airport.
The main limitation for airlines is that they “lose” contact with the passenger when he is inside the airport, and in most cases, that’s where he spends more than he did to buy the flight.
So, why not to integrate the airport and airline marketplaces, and the passenger can decide where he wants to check for available flights and then book, manage all services they want to buy and get all the information he needs. Some will prefer to go via the airline site or app, some will want to check several destinations and options and, probably, prefer go via the airport (see recent example of LCY[iv]).
Our case study showed that, if integrated, this model can generate additional sales between 4-6M€ for a base scenario of 2 million pax (one airline client is equal to two airport pax A/D). The airline receives a % of the sales made via their platform and vice-versa for the airport. Of course, this can include some cannibalization from the current airline and airport sales but, our research shows that the client segments who prefer to buy online are mostly different from the ones who prefer to buy at the airport and most of the sales are, in fact, additional, that is, they would not occur if the passenger is not given this possibility. So, by “enlarging the pie” both can actually gain additional revenues. The market studies mentioned above, show clearly that one new behavior expected from the C-19 pandemic is the increased demand for pre-order and contactless options. Passengers are now more likely to shop online and collect at the airport[v]. So now is the time where both players have the bigger incentive to finally collaborate.