In this four-part series, we’ll be examining the what, why, how and outcomes of instilling a growth framework into an airline.
- Part 1: The What & Why of the Airline Growth Framework
- Part 2: How to Implement Growth in Airlines
- Part 3: Accelerating Growth with Personalization, CX & Dynamic Pricing
- Part 4: Growing Airlines with Direct Distribution & Demand Forecasting
This first piece will take a look at what growth is and why airlines should shift towards a growth mindset and strategy.
1. What Do We Mean by Growth?
Let’s quickly define what we mean when we say growth, to eliminate any ambiguity surrounding what’s become an opaque buzzword.
We’ll be looking beyond just the commercial activities of e-commerce and marketing. We’ll also incorporate revenue management and yield maximization, through to some operational measures aimed at increasing long-term revenue and market share increases through efficient practices.
2. How Growth Tactics Can Save Struggling (Low-Cost) Airlines
If you’ve been following the news, chances are you’ve heard about struggling low-cost carriers (LCCs). Recently we’ve said goodbye to Primera Air and Cobalt Air. Then there’s the whole WOW air soap opera, which resulted in an investment by Indigo Partners after it appeared to be acquired by Icelandair. Meanwhile, the future of Norwegian Air hangs in the balance.
The profit margins and the line between success and failure for airlines are razor thin, especially in relation to LCCs. Fluctuating fuel prices and aircraft fulfilment delays are pegged as the catalyst of this bear market. However, there are several growth measures that airlines can take to not only combat these challenges, but flourish in spite of them.
3. Cut Costs Not Resources with Systemic Changes
Growth brings about a systemic long-term change instead of short-term savings. With airlines, it always comes down to money. Specifically, it’s all about the costs and how to cut them. Let’s not ignore the pink elephant in the room. With the current economic landscape, reducing expenses is at the top of the list for every airline.
However, there is a way to look at cost-cutting beyond traditional thinking. Instead of just lopping off resources, costs can better be reduced by implementing systemic changes driven through growth initiatives.
Accenture refers to this as a zero-based approach, which they break down in the table below.
As Accenture puts it, “The zero-based approach to cost reduction opens up new possibilities for airlines. By changing the cost structure, applying digital technologies to maximize efficiency and uncovering savings opportunities across all areas of the business, airlines can achieve savings up to 10-20 percent within three to five years.”
“These savings can then be reinvested to solve business challenges, enable new capabilities and support business initiatives that differentiate the airline and fuel growth.”
So using this premise as a stepping stone, we’ll take a more precise look at how airlines can use a growth strategy to surmount some of their threats and leverage their strengths.
4. The Technological Meteor is Coming
We cannot talk about growth tactics without mentioning technology. Given the airline industry’s plodding approach compared to adjacent counterparts, this is especially interesting.
Changes abound in the travel industry. In the accommodation space, we’ve witnessed the rise of Airbnb. City streets have given way to the likes of Uber and Lyft. Thanks to Elon Musk and co., we’re even launching rockets into the sky with hopes of one day colonizing Mars.
However, our experience in the air has remained relatively unchanged. This is largely due to complicated organizational structures built on legacy, which are handcuffing many of today’s airlines.
Airlines can only endure for so long. They must make changes now to prepare for a fast-approaching future where technology and machine learning will not only be the new norm, but essential for survival.
During a recent interview with Business Insider, Emirates Airline President Sir Tim Clark put it quite directly. "Guys, there's a storm coming, and if you don't get on it and deal with it, you will perish."
The storm he’s referring to is the onslaught of advanced technology. He gives a strong warning to airlines not ready or willing to embrace the changes ahead.
Sir Clark continued, “It's not a question about using advanced technology to increase your business, like ancillary revenue streams, because that's a given. It's not a question of knocking your companies down internally and rebuilding them on digital platforms. That's a given for us. It's not the case for a lot [of other airlines].”
“The airline industry, which has traditionally been fairly Jurassic in its thinking, needs to get its act together pretty damn quickly because we are so process-driven.”
Adam Trisk, Co-Founder and Chief Strategy Officer at Skylabs, echoed similar sentiments in a piece he wrote for Inc.
“Just as the rising cost of hotels gave rise to companies like Airbnb, the declining quality of airline travel is setting the perfect stage for outside disruption,” wrote Trisk. “And when it happens, they'll all be scrambling.”
These same organizational factors have also been alluded to by McKinsey as roadblocks to digital transformation. The consultancy group specifically references departmental silos (especially relating to revenue management), which hinders the ability to collect and activate customer data, and an inability to harness the latest advanced analytics tools as reasons for airlines’ slow-moving approach to technology.
Step one for many airlines – and one that's much easier said than done – is overcoming traditional practices and thinking, and actually shifting to a growth mindset. This change must come from the top, otherwise an extensive uphill battle will ensue. This, quite honestly, might end fruitless.
5. Staving Off Onslaught of Outside Competitors
For those slow-to-move airlines who may be resting on their laurels because they’re finding success against current competition, the wake up call is coming sooner rather than later.
This is because disruption will come to the industry one way or another, which means it’ll likely occur from the outside. Simply put – airlines must be able to compete with competition from the outside. As Samuel Engel, Global Managing Director, ICF Aviation, puts it – the real competitors for airlines are the Googles, Ubers and Amazons of the world.
Uber has demonstrated how personalization, real-time forecasting and dynamic pricing can produce a next generation of demand management. Amazon has proven the benefits of collecting detailed customer records in order to personalize retail in great detail. Google has shown the ability to capture richer data about the demands of customers, based on user behavior and preferences.
As Engel writes, “If airlines had been able to capture and analyze the same data, then they would have been able to tailor their product offerings to each customer’s needs more personally. That would have been a win for the airlines and for their customers — and Google would not have an opening to get between airlines and their customers.”
These agile, high-growth focused tech companies are running circles around airlines. They understand and execute on maintaining close customer relationships and are effectively collecting, analyzing and activating data in order to fully and directly control the distribution of their products.
This is what airlines must aspire to. While the competition is fierce, it does provide a clear blueprint of how airlines should move forward. That’s what we’ll do in the next editions of our growth series as well as look at some airlines who are currently doing some great things.
In Part Two, we’ll take a look at how to implement growth into an airline. Then we’ll conclude the series by looking at specific growth strategies and what they can achieve.