Four Business and Technology Drivers that are Giving Wings to the Future of Air Transport
The air transport industry is being buffeted by the winds of unexpected change. It is in the middle of a storm whipped up by new competition, changing business models, rising fuel costs, increasing regulatory oversight, heightened trade protectionism, spiraling customer expectations, catastrophic weather events, and rapid technological development. And yet, there has never been a better time in the history of aviation: the industry posted a record $38 billion in profit in 2017. While the business environment is highly challenging, the rewards are large enough for veterans to seek out the key business and aviation technology solutions that will shape air transport, in the near future.
Several business and technology drivers have been showing up with regularity during our conversations with global aviation clients.
Here are the key drivers that we, as technology consultants, believe air transport leaders will focus on in the near-term:
1. Evolving business models: There is increasing customer expectation for more value thanks to the influence of new business constructs made popular by disruptors Uber and AirBnB. So where does an airline position itself? Should it be low cost or full service or both? Short-haul or long-haul or both? Domestic or international or both? As an example, Lufthansa straddles low cost and full-service models with its Eurowings arm through their BASIC, SMART and BEST fare booking variants.
From a growth markets perspective, the Asia-Pacific region will produce more than half of all new flyers in the next two decades and China is on course to surpass the US as the world’s biggest air travel market by 2022. So, should airlines attempt to offset fuel costs by addressing traffic volumes within Asia? Also consider the changing dynamics in the fastest growing markets such as the recent relaxation of ownership and control (O&C) rules by India to allow 100% foreign ownership of domestic carriers.
What will this shift in focus mean in terms of building extra capacity, putting infrastructure in place and deploying technology that can keep labor costs in check? The answers could lie in integrating businesses or in partnerships and collaborative networks that build highly efficient supply chains that offer a broader range of travel products.
2. Changing customer behavior: Airlines have to now contend with what their customers are exposed to on social media, the free availability of information, payment choices, the sales and service channels they are comfortable with, etc. The fact that an airline like United is adding a range of new food and drink offerings, including organic beef jerky, breakfast sandwiches with cage-free eggs and craft vodka tells us that a serious change in customer lifestyles, demographics and culture is underway. The impact is not limited to just food choices. Cathay Pacific has introduced yoga and meditation sessions, aimed at ensuring a restful and comfortable journey for stressed passengers. Virgin Atlantic is experimenting with aroma therapy. On one recent flight it used London fragrance expert Rachel Vosper’s mix of rose and eucalyptus with a touch of lavender to help counter jet lag.
With the internet now an intrinsic part of society, customers have begun to show interest in accessing all their travel needs online. In other words, a customer’s journey isn’t linear anymore. From inspiration to planning to booking to purchase to actual trip to post trip, customers want to jump from one stage to another without following a linear sequence. New age travel providers must be ready with a seamless experience for any eventuality. Travel marketers can’t rely on a standard approach to customer experience as brand loyalty will depend upon how they are able to craft programs that are on-demand but personalized to a certain degree. Customer loyalty doesn’t hinge on the power of a brand as it once used to; it pivots on powerful one-to-one relationships.
3. Cost dynamics: The industry benefited from the decline in fuel prices over the last 4 years. However, crude prices have already touched the highest level since 2014. Fuel bills will have a major impact on operating costs. What can airlines do to control fuel costs? They certainly can’t rely on strategies such as acquiring a refiner, given that the refining industry itself is in a grim battle for survival. A key strategy will therefore be to rely on real-time data to adjust operations and optimize fuel consumption. High-speed data networks combined with advanced analytics will become the secret weapon of leaders—who will then be able to take dynamic decisions that cut fuel costs.
4. Labor contracts: Airlines have to stay on top of the fight for manpower as labor unions will want to continuously strike better deals for flight attendants and ground staff. Margins will be under constant pressure. This trend will force airlines to build systems that deliver a continuous supply of trained and dependable manpower while reducing the cost of training and managing employees. According to Boeing, the world will need another 637,000 new pilots by 2036; Chinese carriers are already luring aviators with attractive packages and Qantas is setting up its own pilot school.
1. Artificial Intelligence(AI) and Machine Learning(ML): While they have not often been associated with aviation technologies until recently, these two technologies will become the central focus of the industry, creating interventions that are as diverse as roster management for compliance; operations automation and fuel consumption optimization; providing early insights into flight loads based on destination, season, types of travelers; forecasting the best time to offer deals to passengers; predicting passenger no-shows; providing passenger assistance, service and support using natural language interactions; and using facial recognition technology for automated check ins and matching them to their luggage. These capabilities will reduce congestion, improve airport experience, provide passengers with greater value and build bottom lines. You can learn more about how AI is re-imagining the future of this industry in this another blog by our travel expert.
2. Internet of Things (IoT): The aviation business relies on an unimaginably large number of parts that must move in perfect concert. IoT offers an opportunity for aviation technology to connect these parts and make them work with precision to extract previously inaccessible savings e.g. augmented assets (motorized, un-motorized assets, baggage tracking), enhanced operations (catering, turnaround optimization, passenger flow) and smart airports (building management). For example, a bill can be generated in real time as soon as an aircraft has been fueled and sent to the provider, eliminating a manual billing process that has always been fraught with delays and inaccuracies. Another example is of Air Asia which collects data from more than 24,000 sensors on an aircraft, then applies ML and AI to determine if something is wrong – ahead of time – so that it can be fixed, thus reducing downtime. Accurate and real time data from diverse systems and sensors will provide airline administrators the ability to control workflows, address potential bottlenecks and improve asset performance. However, there are some 5 key considerations for developing an IoT solution. You can read about them in this article.
3. VR and AR: We are now witnessing innovations that leverage visualization and simulation techniques for elevating customer experience, enhancing safety and training and improving the turnaround time and cost associated with MRO (Maintenance Repair and Overhaul). As an example, Emirates recently became the first airline to introduce three-dimensional (3D) seat models on its portal. This allows passengers to view the seat they have booked, take a quick look at the interiors of the aircraft and examine its onboard facilities such as the lounge and the showers. Air New Zealand is beta-testing Microsoft’s HoloLens technology to display passenger information to cabin crew in headsets. It is envisaged that the data will include operational metrics such as when a passenger was last served and sophisticated parameters such as the emotional state of the passenger.
4. Data privacy and surveillance: Data has already become fundamental to understanding customers and consumption patterns. However, societies are becoming increasingly cautious about how personal data is collected, stored, shared and used. Systems that secure data will become a prime concern for airlines – as a breach in data could lead to catastrophic business outcomes. The problem gets more acute as the number of touch points between customers and the airline, between airlines and their supply chains, etc., grow phenomenally in the Digital Age. This increases the surface area that data must traverse, making it more vulnerable to attacks and misuse.
Airlines that bring the above business and technology drivers into sharp focus are the ones that will set the pace for change and lead the way with better customer experience, improved market share and lowered operating costs. In 1903 the Wright brothers made flight a reality. Today, airlines are poised to genuinely fly into the future.